Ukraine, Russia cut $15B gas deal

Russia threw Ukraine an economic lifeline on Tuesday, agreeing to buy $15 billion of Ukrainian bonds and to reduce the price its cash-strapped neighbor pays for vital Russian gas supplies by about one-third.

The deal, reached at talks in Moscow between the Russian and Ukrainian leaders, is intended to help Ukraine stave off economic crisis. Moscow also hopes the deal will keep Kiev in its political and economic orbit.

The agreement could also fuel protests in Kiev against Ukrainian President Viktor Yanukovich, who faces accusations of "selling" Ukraine to the highest bidder after spurning a trade deal with the European Union and turning to Moscow for help.

Finance Minister Anton Siluanov said Russia would tap a National Welfare Fund — a rainy day fund — and use the $15 billion to buy Ukrainian eurobonds.

Announcing the deal after talks with Yanukovich, President Vladimir Putin said Russia would help Ukraine through its problems as big debt repayments loom but that there had been no discussion of Kiev joining a Russia-led customs union, which already includes Kazakhstan and Belarus.

"The Russian government has made the decision to convert part of its reserves from the National Welfare Fund into Ukrainian securities. The volume is $15 billion," Putin said in the Kremlin, with Yanukovich beside him.

"I want to draw your attention to the fact that this is not tied to any conditions ... I want to calm you down — we have not discussed the issue of Ukraine's accession to the customs union at all today."

Ukraine's Naftogaz energy company will pay Russia's Gazprom $268.5 per 1,000 cubic meters of natural gas, on which it is heavily dependent. The previous price had been about $400 per 1,000 cubic meters.

The new price will take effect at the start of next month, Ukraine's energy minister said.

Yanukovich's visit to Moscow came as thousands of people continued to brave snow and freezing temperatures to call for his removal.

His opponents are demanding greater EU integration and are angry about the country's propinquity to the Kremlin.

They are also unhappy with Yanukovich's decision to keep opposition leader Yulia Tymoshenko in jail — a move also condemned by European leaders.

Yanukovich's move to spurn the EU sparked the fiercest anti-government rallies since the 2004 Orange Revolution that first nudged Ukraine on a westward path.

Mass protests have been met with accusations of police brutality. Seven people were hospitalized and dozens arrested at a protest on Saturday.

One opposition leader, Arseni Yatsenyuk, said the president had "the blood of our children, the blood of students, the blood of youth on his hands."

The unrest has exposed fault lines between the nationalist and Ukrainian-speaking west of the country and the Russian-speaking east which is aligned with Moscow.

The Ukrainian government has attempted to organize counter-rallies in Kiev but the pro-EU protests dwarfed them. 

In a separate development Tuesday, Azerbaijan finalized an investment plan that would see the former Soviet state wean itself off Russian energy supplies and provide up to 20 percent of the European Union’s energy needs in the long term.

Al Jazeera with wire services