Russia and Ukraine PMs reach gas deal

Russian Prime Minister Vladimir Putin agreed with his Ukrainian counterpart Yulia Tymoshenko that Ukraine would start paying European prices for its gas, less a 20 percent discount this year, Putin's spokesman Dmitry Peskov said by telephone.

Peskov said that in return for the discount, Ukraine had agreed to keep its transit fee for Russian gas unchanged this year.

He quoted Tymoshenko as saying she and Putin had ordered the Russian and Ukrainian gas companies to formalise their agreement in a contract and as soon as this was signed, supplies to Europe would restart. This should happen "within days."

But it remained unclear whether Ukrainian President Viktor Yushchenko, Tymoshenko's domestic political rival, would respect the deal.

Russian President Dmitry Medvedev said on Saturday that he hoped and expected that Tymoshenko had the authority necessary to strike a deal. But Yushchenko already last year vetoed an outline gas deal reached between Tymoshenko and Putin in Moscow.

Russian switched off gas exports to eastern Europe via Ukraine on January 7 as the dispute with Kiev escalated, forcing factories to close and creating a midwinter energy crisis.

The European Union had called on both Russia and Ukraine to find a solution quickly, saying the row was damaging Russia's reputation as an energy supplier and Ukraine's prospects as a European partner.

(Reporting by Oleg Shchedrov, writing by Michael Stott, editing by Myra MacDonald)