Russia’s participation in upgrading the pipeline network in Ukraine was the main issue of the talks.

Last month Ukraine and the EU struck a deal to finance the work – excluding Russia from the project. The deal caused anger in Moscow, who condemned it as a political mistake.

Putin repeatedly insisted that Russia, the EU and Ukraine should set up a consortium to modernize Ukraine's gas pipeline network. And both Timoshenko and Ukraine’s President Viktor Yushchenko have said that the agreement with the EU doesn’t necessarily leave Russia out.

During the meeting Timoshenko once again said that her country “considers Russia and Gazprom as leading partners in the upgrading of the Ukrainian gas transit system”.

The deal with Brussels merely established credit lines with European banks to release $3 billion for the upgrade.

Credit in balance

So far, a lack of clarity over the pipeline upgrade is preventing Moscow from taking a decision over its own $5 billion loan, which Ukraine will use to buy gas for storage. The sides have agreed that the credit may be given to Ukraine in the form of an advance payment for gas transit, but it is obvious that the two problems can be solved only in conjunction.

A final agreement was only reached in one area.

Russia will not seek to hold Ukraine to its gas supply contract – even though Ukraine is liable to buy more gas than it's currently using. Nor will Gazprom impose fines, after Ukraine had cut its gas purchases by two thirds in January and February because of the economic downturn.

"Taking into account the underutilization of gas, the fines for April total $2 billion. These fines will not be applied,” Vladimir Putin told reporters, adding that gas payments “are now coming in regularly and without interruption”. He went on to express hope that “this will continue in future.”

Talking success

Other questions were also discussed by the two prime ministers.

In particular, Timoshenko denied Ukraine’s involvement in supplying arms to Georgia and said her country has no plans to supply weapons in the immediate future.

She also pledged to draw up a long-term contract for the supply of Russian nuclear fuel to Ukrainian nuclear power plants before July 15.

“It is no secret that on the whole Russian-Ukrainian political cooperation is experiencing quite a difficult period. And for this reason it is extremely important that there should be no pauses or disruptions in the dialogue between the governments of our countries,” Putin concluded.

“I believe the talks ended successfully,” Timoshenko echoed.