You're reading: Slim hope of gas deal as Russia, Ukraine premiers meet

Russian Prime Minister Vladimir Putin and Ukrainian counterpart Mykola Azarov are unlikely to reach agreement when they meet late on Tuesday over a gas price cut to help Ukraine's struggling economy and soothe concerns of supply cuts to Europe.

Both countries have sworn that a failure to reach a deal would not affect flows of Russian gas to Europe, which have twice been cut in the past decade when Moscow and Kiev haggled over the terms of gas deliveries to Ukraine.

Government and industry sources played down the prospects for a deal on Tuesday night, which means Europe’s energy industry, which lost some or all of its Russian supplies in 2006 and 2009, may be on edge until the New Year and beyond.

"They will be hashing it out until the very end," a source close to Russian gas export monopoly Gazprom said before the talks commenced on Tuesday.

There is no clear deadline for a final deal, which is seen as important to securing shipments of gas to Europe by establishing a compromise price and joint control of the transit pipelines that carry more than half of Russian gas deliveries to Europe.

But Gazprom has little incentive to hurry with a deal while it stands to gain leverage in the talks as Ukraine’s fiscal position worsens. It also continues to collect the higher price stipulated in the current contract in the meantime.

Azarov, whose government is struggling with a huge trade deficit and has borrowed money from a Russian gas industry bank to pay its November gas bill, told reporters in Prague on Monday a deal was just days away.

"There was lots of movement a week ago, but now it’s all quiet," a source in Russia’s Energy Ministry said.

Azarov’s government, however, went ahead last week with a 2012 budget that did not include a price cut.

"From pure logic and economics, Ukraine can’t sustain this price any more," said a financial source who does business with both governments.

"So in my opinion some kind of arrangement must be reached, otherwise Ukraine will be in real trouble in 2012."