Putin Warns Ukraine against Rejecting Gas Offer as Talks Stumble

Russian President Vladimir Putin warned Ukraine not to reject a reduced gas price offer but Kiev rebuffed the proposal as key EU-mediated talks to resolve the dispute ended in deadlock on Wednesday.

Moscow and Kiev exchanged barbs after nearly five hours of haggling in Brussels failed to yield a deal.

"If our offer is rejected then we will shift to a whole other level," Putin told a government meeting in Moscow.

"That is not our choice and we do not want that."

The Russian strongman said Russia was offering Kiev a $100 "discount" for a final price of $385 per 1,000 cubic meters and accused Kiev of driving the negotiations into a "dead end" by demanding further reductions.

However Ukraine Energy Minister Yuriy Prodan said after meeting with his Russian counterpart Alexander Novak that Kiev could not accept an offer that could easily be withdrawn if Moscow changed its mind.

Ukraine wanted a price set by the market laid down in a commercial contract, Prodan said, but "unfortunately Russia proposed a way of fixing the price which I would call political."

However EU Energy Commissioner Guenther Oettinger, who is brokering the negotiations, said that in his opinion the talks had established some common ground.

"We are still in negotiations," he said. "I can see movement on both sides and both sides will need to continue to move."

The talks are being closely watched to see if both sides really want to bring some sort of closure to an unprecedented stand-off that began with pro-EU protests in Kiev in November.

If successful, they would build on a peace push by Kiev's new President Petro Poroshenko, who on Tuesday ordered the creation of humanitarian corridors in the country's conflict-torn separatist east, meeting a key Russian demand.

The latest round of talks began on a positive note after Russian gas giant Gazprom said early Wednesday that it was delaying by five days a deadline for Ukraine to start paying for gas ahead of time, or risk a cut in its supply.

Hopes were also raised when Putin said in a telephone conversation with German Chancellor Angela Merkel that he had ordered the Russian delegation at the talks to take "a constructive position" in order to reach a "mutually acceptable agreement".

However Oettinger said the talks could take some ten days and the mood appeared to sour before the two sides had even reached the negotiating table when Ukraine Prime Minister Arseniy Yatsenyuk attacked Russia for playing "games" over the latest offer.

Moscow says Kiev owes it $4.5 billion (3.3 billion euros) in outstanding bills but Ukraine has refused to pay in protest at Russia's decision to nearly double the price in the wake of the February ouster of Kremlin-friendly president Viktor Yanukovych.

Analysts have previously said they expect the two sides to agree a price of around $350 (260 euros) per thousand cubic meters of gas, about halfway between the old rate and the one set by Moscow after the ouster of Yanukovych.

About 15 percent of the natural gas that Europe consumes is Russian gas that transits through Ukraine.

Ukraine's newly elected leader Poroshenko on Tuesday ordered the creation of humanitarian corridors in eastern Ukraine to allow civilians to escape after two months of fighting against pro-Russian separatists.

Putin has pushed the idea of such corridors but Poroshenko stopped short of accepting a request to allow Russian aid into the eastern rustbelt, fearing this would only support the rebels.

Russia has welcomed the corridor decision but warned at the same time that Kiev was pressing ahead with military operations and even intensifying them in some areas.

For the first time Moscow on Wednesday explicitly acknowledged links to pro-Russian militants, saying they were helping provide aid to eastern Ukraine.

"We are providing assistance through the existing means with the support from the rebels," Lavrov told OSCE Secretary General Lamberto Zannier in Moscow.

On the ground, Poroshenko's offers have met only with suspicion from pro-Russia rebels.

"We heard about this initiative but doubt it will come into force," said a top leader in the self-proclaimed "Donetsk People's Republic."