(MENAFN- AFP) 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 percent 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 percent 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.
- More talks due Thursday -
All hopes now lie with the next round due later Thursday.
"Jointly prepared documents laying down a common understanding have been prepared and are now with the respective Governments in Moscow and Kiev for approval," a spokeswoman for Oettinger said.
For his part, European Commission head Jose Manuel Barroso said a deal was "within reach" and called on both sides "to seize the opportunity and conclude the negotiations."
It is far from certain that Brussels is ready to help finance the deal, given previous EU commitments to Ukraine which has also secured large loans from the International Monetary Fund.
The festering dispute has become increasingly difficult to resolve as Kiev has cemented ties with the EU and Russia has shown no sign of returning Crimea, annexed in March, nor of withdrawing its support for the rebels.
The EU has progressively imposed tough economic sanctions on Russia for its role in the Ukraine crisis, sparking retaliation in kind.
Member states agreed earlier this week to leave the sanctions in place after a regular review, and on Wednesday, they condemned Moscow's willingness to recognise the planned rebel polls.
Agreeing EU sanctions was especially painful for many EU member states with close economic ties with Moscow, such as Germany and Italy, along with some of the newer eastern European countries.
For the moment, diplomats say there is little appetite to increase or reduce sanctions but EU leaders have made clear the issue can always be revisited depending on developments.
France made that point again Thursday when it said conditions were not yet right for it to deliver a hugely controversial warship to Russia, ordered long before the Ukraine crisis broke.
There needed to be "a situation in Ukraine that tends towards normality, which allows things to calm down," and with Russia needing to play a "positive role," French Finance Minister Michel Sapin said.
Russian Deputy Prime Minister Dmitry Rogozin had said Wednesday the helicopter carrier, the first of two, would be handed over on November 14, adding: "We think that France has to defend its reputation as a reliable partner."
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