Report: EU can give Ukraine at most $1 billion to pay bills

MOSCOW, Oct 24 (PRIME) -- European Commission President Jose Manuel Barroso told the bloc’s leaders Thursday that the E.U.’s executive body could give Ukraine a maximum U.S. $1 billion (790 million euros) in the near term out of its budget to help Kiev pay its bills, according to several officials briefed on discussions, the Wall Street Journal reported Friday.

The money could be made available to Ukraine quickly in order to help Kiev settle a gas bill to Russia that would allow Ukraine to start receiving gas from Russian energy company Gazprom again.

However, the Commission money—which is the amount left over from two already-approved balance of payments loans—is unlikely to be nearly enough to help cash-strapped pay the Ukraine bill. That could create pressure on E.U. member states to step in and bridge the gap, the officials said.

In the early hours of Friday, German Chancellor Angela Merkel told reporters that Ukraine would need some kind of bridge loan to pay its gas bill but that the issue was not resolved yet. She did not say how much money was needed.

Russia halted gas supplies to Ukraine earlier this year because of unpaid bills, saying Kiev owes it around $5 billion. Ukraine accuses Russia of setting an unfairly high price to punish its pro-western government.

Talks in Brussels between Ukraine, Russia and the E.U. on Tuesday on the gas standoff failed to break the deadlock and a further meeting is due next week. However Russian President Vladimir Putin has said Europe will have to put its hand in its pocket to help Ukraine pay the bill if it wants gas supplies to Ukraine to resume. Ukrainian President Pyotr Poroshenko has said his country was struggling to find money to pay the bill.

The issue is a key one for Europe. While it is seeking to help Ukraine’s pro-western government deal with diplomatic and military pressure from Russia, the bloc also fears that its member states will face gas shortages this winter if Russia does not restore gas supplies to Ukraine.

The concern is that faced with freezing conditions in coming months, Kiev will decide to siphon off some Russian gas flowing through its territory that is destined for Europe. Russia has said it would not supply extra gas to European customers if Kiev does that.

Ukraine has made an additional request to the European Commission for an extra 2 billion euro loan for the next 12 months. That would likely go mainly to helping the country plug its budget shortfall.

E.U. officials have said Brussels is unlikely to agree a fresh loan of that size and have said that any further loans will remain strictly tied to reforms in Ukraine.

Earlier Thursday, the European Parliament approved a proposal to extend a zero tariff regime for Ukrainian exports until the end of 2015. It was due to expire next month.

E.U. leaders discussed Ukraine briefly at a summit on Thursday which was devoted mainly to new climate change goals and the Ebola crisis.

According to half a dozen people briefed on the discussions, Italian Prime Minister Matteo Renzi pushed to strip out from the draft summit conclusions a reference to “restrictive measures” on sanctions but was quickly blocked by other leaders who did not want to open up a debate on the bloc’s Russian sanctions. Renzi backed off fairly quickly, the official said.

“Renzi had no support and Merkel closed it down,” one of the officials said.

After Thursday’s discussions were over, German Chancellor Angela Merkel said the cease-fire in eastern Ukraine isn't being fully observed and that sanctions should therefore remain in place.

Italy, which currently holds the E.U.’s rotating presidency, was very cautious about broadening out sanctions against Russia earlier this year over the crisis in Ukraine and Italian Foreign Minister Federica Mogherini has questioned how effective the measures have been in changing Putin’s decisions.

The E.U. is due to hold a formal review of the sanctions by October 28 but that is now seen as a formality with senior officials from across the bloc agreeing ahead of the summit that now was neither the time to increase or reduce the sanctions.

Renzi’s intervention could raise concerns about Italy’s backing for the sanctions just days before Mogherini becomes the new E.U. foreign policy chief.

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