BRUSSELS - EU-brokered talks to resolve a bitter gas supply dispute between Russia and Ukraine stalled Thursday as Moscow demanded that Brussels and Kiev first agree on how Ukraine will pay its huge bill.
The talks were due to resume later in the day as the international community looked anxiously ahead to elections planned Sunday by pro-Moscow rebels in the parts of eastern Ukraine they control.
The European Union and the UN said Wednesday that the polls, which Russia intends to recognise, will harden divisions on the ground and undermine a peace roadmap backed by Moscow in September.
Highlighting wider tensions, NATO reported an upsurge in Russian military activity over European airspace, prompting a whole series of intercepts in response to help reassure east European allies rattled by Russia's intervention in Ukraine.
In Brussels meanwhile, money and Ukraine's lack of it took centre stage.
"The European Commission must reach an agreement with Ukraine over the question of financing," a spokesman for Russian gas giant Gazprom told AFP in Moscow. "Otherwise, negotiations make no sense."
Ukraine needs help
Earlier this month, EU Energy Commissioner Guenther Oettinger negotiated an outline deal whereby Ukraine would pay $3.1 billion by the end of the year to settle its outstanding bills to Russia.
In return, Russia would cut the price for deliveries through to March 2015 by some 20 per cent to $385 (302 euros) per 1,000 cubic metres.
Oettinger said at the time an agreement was close but instead, it quickly fell apart when it became clear Ukraine could not pay and promptly asked the European Union for a new loan of 2.0 billion euros.
Going into the latest round of talks Wednesday, Oettinger had been cautious, saying there was only a 50 per cent chance of an agreement given Kiev's financial problems.
"Our common ambition is to come to an interim solution, to come to a winter package... to solve our security of supply," Oettinger said.
The EU gets about a third of its gas from Russia, of which about a half transits via Ukraine.
The EU wants to avoid a repeat of 2006 and 2009 when Russia turn off the taps on Ukraine, disrupting deliveries onwards to Europe during two very cold winters.
In June as the Ukraine crisis deepened, Russia cut supplies again, demanding that Kiev settle its outstanding bills and pay up front for any future deliveries.