Putin Agrees to Pause on Ukraine Rescue as Medvedev Warns on Gas

Russia will wait until Ukraine forms a new government before honoring agreements to reduce natural gas prices and channeling the remainder of a $15 billion rescue package to its neighbor, President Vladimir Putin said.

Ukraines request to defer payments for gas its importing at a discount this year seriously changes the situation and should be taken into account as relations are built with a new government, Prime Minister Dmitry Medvedev said at a cabinet meeting attended by Putin outside Moscow today. Even at reduced prices, they tell us that they cant pay.

The stance leaves Ukrainian President Viktor Yanukovych in suspense over Russias assistance as he struggles to contain nationwide street protests that led to yesterdays departure of his loyalist prime minister, Mykola Azarov. Deputy Prime Minister Serhiy Arbuzov is acting as premier, while the cabinet will stay on until Yanukovych names a replacement.

Ukraine sealed $15 billion of Russian financing and a one-third gas-price discount after talks last month between Yanukovych and Putin. Russia, which agreed to cut the price it charges for natural gas to $268.50 per 1,000 cubic meters, hasnt added to the $3 billion it plowed into Ukraines government debt last year from its National Wellbeing Fund, according to Finance Minister Anton Siluanov.

Unrest in Ukraine was ignited by Yanukovychs decision in November to snub an association agreement with the European Union in favor of closer ties with Russia. Anti-protest legislation passed this month also backfired by triggering violence at a Jan. 19 rally, before being repealed yesterday.

Ukraine serves as a key transit route for Russian gas shipments to the EU and also depends its neighbor for the fuel. Deliveries to Europe, which buys a quarter of its gas from Russia, were halted twice in freezing weather in the past decade over disputes with Ukraine about prices and transit terms.

State energy company NAK Naftogaz Ukrainy missed the most recent deadline to repay debt for gas supplies in 2013, OAO Gazprom (GAZP) Deputy Chief Executive Officer Alexander Medvedev said in an interview broadcast on Russian national television.

Ukraine owes state-run Gazprom $2.7 billion for gas shipped in 2013, with the payment due date on Jan. 25, according to the Russian gas exporter. Talks with Ukrainian officials fell through after the governments resignation, Medvedev said.

Naftogazs spokeswoman Olena Yuriyeva declined to comment.

The yield on Ukraines dollar-denominated government debt due 2023 rose 55 basis points to 9.58 percent as of 7:49 p.m. in Kiev, data compiled by Bloomberg show. The hryvnia appreciated 0.1 percent to 8.4750 per dollar.

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Putin Agrees to Pause on Ukraine Rescue as Medvedev Warns on Gas