Sink or sell? Russia spat leaves France with warships to spare

For sale: two French-built helicopter carriers, tested by Russians. Buy now for only 1.2 billion euros($1.33 billion). Shipping extra.

Tensions between the West and Russia over Ukraine have blocked a deal in which Moscow was to buy the ships, leaving Paris trying to negotiate a face-saving compromise and work out CAwhat to do with two unwanted warships.

"There are three possibilities: deliver the boats to Russia, sell them to someone else or destroy them," said a source close to the matter.

It is an embarrassment that is not of French President Francois Hollande's making. The deal stems from his predecessor Nicolas Sarkozy's decision in 2011 to make the West's first major foreign arms sale to Russia since the fall of the Soviet Union.

But it will be difficult for Hollande politically and underlines the difficulty for France to reconcile its ambitions as a global arms supplier - a sector on which thousands of French jobs depend - with commitments to NATO allies.

It may also be very costly.

At present the delivery of the ships remains indefinitely suspended rather than formally canceled. But even Russian officials say now that they are not interested in taking the Mistral-class carriers.

Moreover France's NATO allies, notably the United States and Poland - with whom Paris is negotiating 6 billion euros of defense deals - would be outraged if France tried to get the deal back on track with the crisis in Ukraine far from resolved.

That leaves the Russians demanding not only a full refund but also the penalties that go for pulling the deal.

"That Russia won’t take them (the ships) - that's a fait accompli," Oleg Bochkaryov, deputy head of Russia's Military Industrial Commission, told daily Kommersant last week. "There is only one discussion going on now: the amount of money that should be returned to Russia."

SINK OR SELL?
The first carrier, the Vladivostok, had been due for delivery in 2014; the second, named Sebastopol after Crimea's crucial seaport, was supposed to be delivered by 2016.

Russia and French sources say Moscow wants 1.163 billion euros ($1.29 billion) which includes what it has already disbursed - about 800 million euros - plus compensation for costs incurred for the purchase of equipment and training of sailors.

France's special envoy Louis Gautier, who has been shuttling between the two capitals since end-March, has offered just 785 million euros, according to Russian media citing officials who also described the offer as "unacceptable."

Gautier has asked Russia to either contribute to the cost of dismantling them or allow France to sell the Mistrals to another country. Canada and Singapore have been mooted, as has Egypt which has just bought French fighter jets and naval frigates.

Yet senior defense ministry official Yury Yakubov, quoted by Interfax news agency, argued they could not be sold on because the carriers were built to specific Russian navy requirements and therefore it was a "matter of state security."

That may turn out to be just a bargaining position. But even if Russia relents, there would be a cost to France.

For one thing, it is already costing 5 million euros a month to maintain them at their current port on the Atlantic.

The Mistral is known as the Swiss army knife of the French navy for its versatility. But DCNS, the 65-percent state-owned manufacturer, nonetheless estimates any adaptation for another country would cost hundreds of millions of euros - and it would seek compensation.

An intriguing outside bet might involve China.

Amid a warming of Paris-Beijing ties under Hollande, the Dixmude - another Mistral-class vessel - attracted speculation when it docked in Shanghai earlier this month for a week.

But for now, analysts suggest the geopolitical context is just too dicey to contemplate a sale to China.

With growing tensions in the South China Sea, France is not seen willing to risk alienating Japan, with which it has just signed a defense cooperation deal, let alone suffer the displeasure that such a move would incur in Washington.

Said General Christian Quesnot, chief military adviser to Hollande's mentor, the late president Francois Mitterrand: "The cheapest thing would be to sink them."

(Additional reporting by Cyril Altmeyer and Gabriela Baczynska in Moscow; editing by Mark John/Jeremy Gaunt)

Missile maker says Russia did not shoot down Malaysian plane over Ukraine

The Russian company that makes the BUK air defense system that was used to shoot down a Malaysian airliner in east Ukraine said on Tuesday the plane was hit by a missile deployed by Ukraine and not widely used by Russia's military.

State-run Almaz-Antey said its own analysis of the wreckage of the Malaysia Airlines plane brought down on July 17 last year, killing 298 people, indicated it was hit by a BUK 9M38M1 surface-to-air missile armed with a 9H314M warhead.

Shrapnel holes in the plane were consistent with that kind of missile and warhead, it said.

Such missiles have not been produced in Russia since 1999 and the last ones were delivered to foreign customers, it said, adding that the Russian armed forces now mainly use a 9M317M warhead with the BUK system.

"Neither the company nor its enterprises could have supplied these rockets in the 21st century," Almaz-Antey's chief executive, Yan Novikov, told a news conference run by the Kremlin press service at which the company used 3D visuals and computer animation.

After a company presentation translated simultaneously into three languages, he said Ukraine's armed forces had still had nearly 1,000 such missiles in its arsenal in 2005, when it held talks with Almaz-Antey on prolonging their lifespan.

Criticizing sanctions imposed on Almaz-Antey by the European Union, he said: "The corporation was not involved in the Malaysian Boeing catastrophe. Correspondingly, the economic sanctions applied to the corporation for that are ... unjust."

When it imposed the sanctions on Almaz-Antey, the EU said the firm produced anti-aircraft weaponry which the Russian authorities have supplied to pro-Russian separatists fighting Kiev's forces in east Ukraine.

Moscow is trying to deflect blame for the shooting down of the airliner and denies sending arms and soldiers to support the rebels, though the West and Kiev say they have overwhelming proof of the latter.

Russian officials initially said flight MH17 was shot down by a Ukrainian fighter jet but that version was widely ridiculed abroad. They now say it was probably hit by a missile fired from the ground by Ukrainian forces.

Ukraine has denied its forces shot the plane down.

Dutch investigators who are leading an international investigation say their "leading scenario" is that it was hit by a Russian-made BUK.

(Editing by Timothy Heritage)

Iran nuclear talks went to the wire and beyond

(GNN) - When Russian Foreign Minister Sergei Lavrov announced on Wednesday that a framework nuclear deal had been reached between Iran and major world powers, the French delegation to the talks thought it was an April Fool's Day joke.

In the end, a deal was reached a day later. But after eight days of talking, with a Tuesday midnight deadline already history, it had gone to the wire and beyond.

Before the delegations paused to rest briefly as the sun came up over Lake Geneva on Thursday, U.S. Secretary of State John Kerry met repeatedly during the night with Iranian Foreign Minister Mohammad Javed Zarif, Laurent Fabius of France and Germany's Frank Walter Steinmeier.

Pressure from outside had been intense. The White House said Washington was prepared to walk away if necessary, while the Iranian delegation had to constantly consult with Tehran.

In an indication of how fraught the discussions had become, Fabius left the talks on Tuesday in the middle of the night, ostensibly to attend a cabinet meeting. But diplomats said the negotiations had become too complicated and it was "not for him to haggle over centrifuges".

The talks were held in Lausanne's lakeside Beau Rivage Palace hotel, where a cocktail can cost more than $70. Coco Chanel's dog is buried in the grounds and at times it looked as if hopes of a nuclear deal might be interred there too.

However fragile it might prove, the framework deal was eventually announced. The process that preceded it was long and hard and it is not over yet, with June 30 set for a final deal and much horsetrading expected before then.

Senior Iranian officials began thinking about the need to reopen negotiations with Washington in late 2012 after they began to see the crippling impact of Western sanctions imposed because of Tehran's nuclear ambitions.

Iranian officials close to the supreme leader, Ayatollah Ali Khamenei, had grown tired of former President Mahmoud Ahmadinejad's confrontational approach to Israel and the West, which had galvanized opposition to Iran.

A few months before Iran's June 2013 presidential election, in a secret meeting between Khamenei and a small group of top officials, the issue of who should succeed Ahmadinejad was discussed. They all agreed on Rouhani.

"Rouhani's mandate was to improve the economy, hit by the sanctions and Ahmadinejad's economic mismanagement," an Iranian official told Reuters.

AMERICAN OFFICIALS

After Rouhani was elected, Foreign Minister Zarif, who knew a number of American officials including Secretary of State John Kerry, approached them seeking to pave the way toward ending the nuclear standoff, the official said.

Khamenei was suspicious of the Americans and not optimistic about talking with them. But in the interests of the economy, he backed negotiations.

"Since the talks started, there have been ups and downs, good moments and bad moments. But generally, despite fiery public speeches, top Iranian officials, particularly the leader, backed the talks and the team," the Iranian official said.

Immediately after winning a vote of confidence in parliament, Rouhani met Kerry in September 2013, followed by the Iranian president's historic phone call with Barack Obama - the first such conversation between Iranian and U.S. presidents since ties were severed three decades ago.

After secret meetings between Iranian and U.S. officials, sometimes involving Omani intermediaries, the two sides agreed in September 2013 to relaunch the talks process that began in 2006 but stalled when it became clear that Ahmadinejad could not deliver a deal that Iran's hard-liners could accept.

Ahmadinejad's diatribes against the West had persuaded the European Union to join Washington in imposing sanctions on Iran, and the leadership in Tehran eventually opted for negotiations.

"It was clear when we began exploring talks with Iran that they were on their knees because of the sanctions," a U.S. official said. "It was time to talk."

In a year and a half of talks in Geneva, Vienna, Lausanne, New York and elsewhere, U.S.-Iranian relations underwent a subtle shift.

Meetings between senior U.S. and Iranian officials use to be big news. But now they meet so regularly that it is barely newsworthy, which diplomats say is proof of how much things have changed since Rouhani took office. U.S. and Iranian officials regularly chat outside the negotiating rooms at hotels.

But despite the increased cordiality between Iranian and U.S. officials, relations between the two countries are still not back to normal.

Zarif was summoned before parliament in January after images of him and Kerry strolling together along Lake Geneva provoked an outcry among hard-liners.

After that, Kerry was wary of allowing photographer snap pictures of him and Zarif during their strolls.

WHEN THE TROUBLES BEGAN

Although Rouhani and Zarif always wanted a deal, it was never clear that the leadership in Tehran, including Khamenei, shared their views.

The first sign that things were going wrong came last July, when Khamenei blindsided Zarif by announcing that Iran needed huge increases in nuclear centrifuge numbers.

There had earlier been indications that the Iranian delegation wanted to compromise to make a deal.

But after the leader publicly set clear red lines for his negotiators the possibility of a compromise vanished and a four-month extension was agreed to carry the negotiations to Nov. 24, which Western officials hoped would be enough time for Rouhani and Zarif to persuade hardliners in Tehran that making an agreement was their ticket to gradually ending sanctions.

But months of meetings between Iranian and American negotiators, including former Deputy Secretary of State Bill Burns, who began secret talks with Iran in 2013 to lay the groundwork for the current negotiations, and Under Secretary of State Wendy Sherman, who has led the U.S. delegations in Geneva and Vienna, failed find a compromise.

They also failed to break the deadlock in November, agreeing another extension until June 30, with the understanding that the parties should reach a political framework agreement by the end of March this year.

Western officials said the Obama administration and the Rouhani government both faced uphill battles to make their case to hardliners.

For Obama, there is perhaps an awareness that the only major "deliverable" he can achieve in his final two years in office is a deal with Iran.

And in Iran, many believe Kerry wants to help Obama secure his legacy. They also point to Kerry's Iranian-American son-in-law as proof that, as one Iranian woman put it, he is "on our side".

(Reuters)(Additional reporting by Stephanie Nebehay; Editing by Giles Elgood)

U.S.-Russian crew reaches space station for year-long stay

(GNN) - A Russian Soyuz rocket blasted off from the Baikonur Cosmodrome in Kazakhstan on Friday, sending a U.S.-Russia crew to the International Space Station for a year-long flight, a NASA Television broadcast showed.

The capsule holding NASA astronaut Scott Kelly, 51, and cosmonauts Mikhail Kornienko, 54, and Gennady Padalka, 56, slipped into a docking port on the station’s Poisk module at 9:33 p.m. EDT/0133 GMT. The trio blasted off about six hours earlier.Kelly and Kornienko are slated to make the first year-long stay on the orbital outpost, double the current mission durations. Padalka, who is making his fifth flight, will return to Earth in September after racking up 878 days in space, setting a new record for the total amount of time anyone has spent in space.

Four Soviet-era cosmonauts lived on the now-defunct Mir space station for a year or longer, but the missions, which concluded in 1999, did not have the sophisticated medical equipment that will be used during International Space Station investigations, NASA said.


Scientists are interested in seeing how the human body fares during longer stays in space, as the United States and other countries begin planning for multi-year missions to Mars.

In addition to more exposure to radiation, astronauts experience bone and muscle loss and changes in their cardiovascular, immune and other systems.

Kelly and Kornienko will participate in a battery of experiments before, during and after their flight to assess psychological and physiological changes from being in microgravity for a year.

A third participant is Kelly’s identical twin brother, Mark Kelly, a former NASA astronaut who will serve as a ground-based subject for genetic and other studies.

“The classic question is ‘How much of our health and our behavior is determined by our genes, and how much by our environment?’ – the nature versus nurture discussion,” Craig Kundrot, deputy chief scientist of NASA’s Human Research Program, said in a NASA interview.

“In this case, we’ve got two genetically identical individuals and we can monitor what kind of changes occur in Mark in an ordinary lifestyle and compare that to the changes that we see in Scott in flight,” he said.

While no definitive conclusions can be made from a study of a single set of twins, scientists hope the experiments may provide clues for follow-up investigations.

The station, a $100 billion project of 15 nations, is a research laboratory that flies about 260 miles (418 km) above Earth.

(Reuters)(Editing by Ken Wills)

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EU to resume Galileo satellite launch program

(GNN) - The European Union is set to send two navigation satellites into orbit on Friday aboard a Russian rocket, in its first launch since a botched deployment in August that cost several million euros to fix.

The Galileo project to set up an EU alternative to the U.S. Global Positioning System (GPS) is obliged to use the Russian Soyuz system until a development of Arianespace's European Ariane 5 rocket is ready around the end of the year, despite strained relations with Moscow over the conflict in Ukraine.

Fault for the last two satellites being set in the incorrect orbit after their launch from the European space center in French Guyana was placed on a defect in a Russian-built module.

An official at the European Commission, which oversees the program, said the EU executive was tendering for insurance cover for future satellites and had set up an insurance scheme for the launches.

Hitherto, satellites and launches have been uninsured to keep down costs on a project dogged by delays, money problems and questions over the need for a European alternative to GPS. China and Russia are also working on systems.

Friday's launch from Kourou is scheduled for 1746 EDT. If successful, it will bring to eight the number of Galileo satellites deployed out of a planned total of 30. The two launched in August have since been nudged into viable orbits and are fit for use, a spokesman for the European Space Agency said.

That cost several million euros and the Commission is expected to decide next month whether to make use of those two -- a decision that would require further spending to adapt equipment on the ground to cope with their new orbit routes.

Two further two-satellite launches are planned this year, making it possible to put the Galileo system into partial service next year. Full service is planned for 2020.

(Reuters)(Editing by Alastair Macdonald and Mark Potter)

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Russia threatens to aim nuclear missiles at Denmark ships if it joins NATO shield

(GNN) - Russia threatened to aim nuclear missiles at Danish warships if Denmark joins NATO's missile defense system, in comments Copenhagen called unacceptable and NATO said would not contribute to peace.

Denmark said in August it would contribute radar capacity on some of its warships to the missile shield, which the Western alliance says is designed to protect members from missile launches from countries like Iran.

Moscow opposes the system, arguing that it could reduce the effectiveness of its own nuclear arsenal, leading to a new Cold War-style arms race.

In an interview in the newspaper Jyllands-Posten, the Russian ambassador to Denmark, Mikhail Vanin, said he did not think Danes fully understood the consequences of joining the program.

"If that happens, Danish warships will be targets for Russian nuclear missiles," Vanin told the newspaper.

Asked to respond, NATO spokeswoman Oana Lungescu said Denmark was a staunch member of the alliance and NATO would defend all allies against any threat.

"We have made clear that NATO's ballistic missile defense is not directed at Russia or any country, but is meant to defend against missile threats. This decision was taken a long time ago, so we are surprised at the timing, tone and content of the statements made by Russia's ambassador to Denmark," she said.

"Such statements do not inspire confidence or contribute to predictability, peace or stability," she added.

Tensions between Moscow and the West have grown since the imposition of economic sanctions on Russia over a pro-Russian rebellion in eastern Ukraine. NATO has recorded increased activity by the Russian navy and air force in the Nordic region.

No missiles are to be placed on Danish soil under the NATO program, but they could be deployed some day in Greenland, a part of the kingdom, according to Jyllands-Posten.

"Denmark will become a part of the threat against Russia. It will be less peaceful, and relations with Russia will be damaged," Vanin said, adding that Russia has missiles which would be able to penetrate the future missile shield.

Denmark's foreign minister Martin Lidegaard said Vanin's comments were unacceptable.

"Russia knows very well that NATO's missile defense is not aimed at them," Lidegaard told Jyllands-Posten.

NATO's top military commander, U.S. Air Force General Philip Breedlove, told a Brussels conference on Sunday that the comments from the Russian ambassador were the "next step" in a campaign against countries that joined the shield.

"Romania came under great pressure when they became a part of the (missile shield). Poland is coming under great pressure and now anyone else who wants to join in to this defensive capability will come under this diplomatic and political pressure," Breedlove said.

(Reuters)(Reporting by Teis Jensen, additional reporting by Adrian Croft in Brussels; Editing by Peter Graff)

ChemChina set to close deal on Pirelli buyout: sources

(GNN) - China National Chemical Corp (ChemChina) and the shareholders of tire company Pirelli were putting the final touches to a deal that will trigger a 7 billion euro ($7.5 billion) buyout of one of the symbols of Italy's manufacturing industry, four sources close to the matter said on Sunday.

ChemChina and Pirelli's shareholders have been in negotiations to set up a new company to buy a holding called Camfin, which owns 26 percent of Pirelli and is currently 50 percent owned by Russia's Rosneft.

An announcement could come later on Sunday or on Monday, two of the sources said.

Under the deal, ChemChina would hold a majority stake in the new company, and become the biggest single shareholder in Pirelli - the world's fifth-largest tire maker. The Chinese group could have an up to 65 percent stake in the new vehicle, according to two of the sources.

Without identifying the possible buyer, Camfin said on Friday it was in talks with an international industrial group to sell its Pirelli stake at 15 euros per share, valuing the tire group at 7.1 billion euros excluding net debt of almost 1 billion euros at the end of 2014.

It said the stake would be transferred to a vehicle controlled by the new partner, after which a takeover offer for the rest the world's fifth-largest tire maker would ensue.

ChemChina was not immediately available for comment. A spokesman for Pirelli said he had no comment.

As details of the deal were leaked on Friday, shares in Milan-listed Pirelli, which started business 143 years ago producing rubber items, rose to a 25-year high and topped the 15 euro buyout price, prompting analysts to say shareholders may want to think twice before tendering their shares at that level.

Sources close to the matter said on Friday the deal with the Chinese group will mean Rosneft, which is facing international sanctions due to the Ukraine crisis and needs to cut debt, reduces its stake in Pirelli.

The agreement would give ChemChina access to technology used in making lucrative premium tires and could help China, already a global player in sectors such as telecoms and internet, develop its automotive industry.

Sources with knowledge of the matter said the deal on Pirelli would involve the company's less profitable truck tire business being spun off and possibly being folded in ChemChina's Aeolus unit.

In turn Pirelli, whose tires equip cars in Formula One motor racing, would have more bandwidth to compete against larger rivals such as Michelin and Continental which are looking for growth in Asia.

Under the new Chinese owners, Pirelli Chairman and CEO Marco Tronchetti Provera, who started working in the tire maker in 1986 after marrying a member of the Italian family that founded the firm, is set to remain in the driving seat for another five years, sources have said.

(Reuters)(Reporting by Paola Arosio, writing by Danilo Masoni and Silvia Aloisi; editing by Susan Thomas)

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Eyeing Russia nervously, Poles enrol in volunteer militias

(GNN) - Spurred by the war in Ukraine, growing numbers of Poles are joining volunteer paramilitary groups to get basic military training and prepare to defend their homeland from what some see as a looming Russian invasion.

The Polish government has kept its distance from the unofficial civilian militias but, with anxieties about Moscow's intentions growing, the professional military is now looking for ways to harness the volunteer groups.

There are an estimated 120 such groups in Poland, with total membership around 10,000. Eight hundred members gathered on Friday in Warsaw at a meeting organized by the Defense Ministry, the first time they have been given official recognition.

Defense Minister Tomasz Siemoniak told them his ministry would pay the wages of 2,500 people who would form the backbone of local volunteer units to be mobilized in the event of a war.

The Polish president's chief security adviser, General Stanislaw Koziej, told Reuters the new approach had been prompted by the conflict in neighboring Ukraine, where Russia is accused of fighting alongside pro-Moscow separatists.

"Until recently, paramilitary organizations treated defense as a pastime," he said. "Today, as we face a war across our border, they realize that this pastime could contribute to the country's security."

SELF-RELIANCE

Poland is a member of NATO, but the defense alliance rejected requests from Warsaw to establish a substantial permanent presence on Polish soil. That has shaken Poles' faith in NATO's resolve, officials in Warsaw say.

Instead, Poland is counting on a bilateral defense partnership with the United States, while building up its own defense capability, both conventional and unconventional.

On a Saturday morning in March, 15 volunteers from the National Defense militia, an informal volunteer group, gathered in the rain and bitter cold in a forest near Minsk Mazowiecki, 40 km (25 miles) from Warsaw, to plan their weekly maneuvers on a map sketched in the sandy soil.

Dressed in full military camouflage with fake rifles in their hands, the volunteers eagerly consulted a dog-eared photocopy of a military handbook before splitting into teams to practise ambushing an enemy.

Bernard Bartnicki, a student who led the drill, said the war in Ukraine boosted the organization's ranks.

"Back in the day we would have two, maybe three people at our recruitment days, now it's 20, sometimes 30" he said.

General Boguslaw Pacek, a defense ministry adviser, has conducted a countrywide survey and estimated total membership at around 10,000.

Some of the 120 or so groups have as few as 30 members, Pacek says, and their skill levels vary. But because they are scattered all over the country, they could form a useful line of local defense in the event of war.

He said the army was looking into compiling training manuals for them and supplying them with surplus equipment.

PARTISAN FORCE

During World War Two, when Poland was occupied by Nazi Germany, the Polish government-in-exile commanded an underground partisan "Home Army" that ambushed German troops, staged acts of sabotage and mounted the ill-fated 1944 Warsaw Uprising.

Many defense analysts say a Russian attack on Poland is highly unlikely. Countries such as Moldova, Latvia or Estonia, with substantial Russian-speaking minorities, are much more likely targets, they say.

But suspicion of Moscow runs deep in Poland, which was ruled by Czarist Russia for over a century and under Soviet domination for over four decades after World War Two. It borders on Russia's Baltic enclave of Kaliningrad.

Moscow denies it has any plans for an offensive and says it has no direct role in the fighting in eastern Ukraine.

Robert Przybyl, a 42-year-old project manager, joined a civilian militia unit after Malaysian Airlines flight MH17 came down over eastern Ukraine in July last year, killing all 298 passengers and crew.

Kiev and its Western allies blamed Russia and the Moscow-backed separatists, who responded that Ukraine's military had shot the plane down.

Przybyl said he was shocked at what happened and started to worry Poland was again coming under attack by a foreign power.

"I want to decide what country my son lives in, and what language he speaks," he said.

His unit, also part of the National Defense militia, was carrying out exercises in a forest near Otwock, near Warsaw. New recruits took 5-km (3-mile) marches to test their stamina.

"Let's be honest, at war we would likely be cannon fodder," Przybyl said in an interview. But he said it was his duty to serve if war does break out.

"I never considered running away," he said.

(Reuters)(Writing by Wiktor Szary; Editing by Tom Heneghan)

Russia, Ukraine and EU to hold further gas talks in April

(GNN) - Russia, Ukraine and the European Commission will hold a new round of gas supply talks next month in pursuit of a deal that could help to defuse wider tensions between Moscow and Kiev.

A preliminary meeting in Brussels on Friday had never been expected to yield major progress, with the two sides still far apart as they jostle for position in the negotiations while European Union officials have set a target date of June for a new accord on how much Ukraine should pay Moscow for its gas.

Speaking after the talks, Russian Energy Minister Alexander Novak said Russia would be willing to consider a discount, but a take-or-pay clause that requires Kiev to buy a certain amount of gas whether it needs it or not would apply from April 1.

EU foreign policy chief Federica Mogherini said she hoped a deal could be reached soon, adding that it "may contribute to reducing the existing tensions in the energy relations between the two countries".

The Commission, the EU executive, brokered an accord in October to keep gas flowing over the peak-demand winter months despite the political arguments between Kiev, Moscow and Brussels over Russia's annexation of Crimea.

Under that deal Ukraine pays $329 per thousand cubic meters for gas in the first quarter and Novak had said the price will rise to $348 after expiry of the "winter package" on March 31.

Ukrainian Energy and Coal Minister Vladimir Demchishin said he expected a price of $250 for the second quarter, according to Interfax news agency.

The Commission said the talks had been constructive and confirmed comment from Ukraine and Russia that further talks are expected in April.

In addition to ensuring supplies for Ukraine, the Commission wants to avoid any impact on European Union gas supplies piped from Russia via Ukraine.

In televised comments, Novak said that Ukraine had promised to guarantee transit and that Russia would consider cutting export duty.

"The discount could be provided by a government decision for the second quarter. We agreed to consider this issue each quarter, taking into consideration volatile prices on the market," Novak said.

Even after the winter deal expires, Ukraine can buy cheaper gas through reverse flows from the European Union, but that would not be enough to fill storage adequately over the summer months.

The Commission has estimated that Ukraine would need 4-6 billion cubic meters of gas from Russia to boost reserves it says need to be built to 19-20 bcm by around October, from about 7.3 bcm now.

(Reuters)(Additional reporting by Clement Rossignol, Herve Verloes and Bell Johnson in Brussels and Katya Golubkova in Moscow; Editing by Dominic Evans and David Goodman)

Russia moots higher gas price for Kiev ahead of three-way talks

(GNN) - Russian Energy Minister Alexander Novak said Ukraine's gas prices could rise to $348 per 1,000 cubic meters (tcm) in the second quarter as he arrived for gas supply talks with Kiev brokered by the European Commission.

Ukraine has been paying $329 per tcm for gas in the first quarter under a deal negotiated by the Commission last year.

A rise would run counter to falling market prices linked to cheaper oil, but Novak told reporters it was "a preliminary figure" and did not rule out a discount.

The Commission, the EU executive, brokered an accord in October to keep gas flowing over the peak demand winter months despite tension between Kiev, Moscow and Brussels over Russia's annexation of Crimea.

Friday's talks are an initial step towards a deal to replace the "winter package" that expires on March 31, EU officials said, adding they had a target date of June to reach a new agreement.

After the winter deal expires, Commission officials said Ukraine could buy cheaper gas through reverse flows from the European Union, but that would not cover all its needs.

They estimated Ukraine would need 4-6 bcm from Russia to fill storage over the summer months.

Friday's talks in Brussels brought together Russia's Novak, Ukrainian Energy and Coal Minister Vladimir Demchishin and Commission Vice President Maros Sefcovic.

The Ukrainian delegation did not speak upon its arrival in Brussels just before 4 p.m. (1500 GMT).

In addition to ensuring supplies for Ukraine, the Commission also wants to avoid any impact on European gas supplies which are piped from Russia via Ukraine.

The Commission said Naftogaz Chief Executive Andriy Kobolev was also taking part in the talks. Gazprom Chief Executive Alexei Miller would not attend, a spokesman said.

One of the aims of Friday's trilateral talks is to agree on figures, including on the volume of gas Ukraine might need as it seeks to fill storage over the lower-demand summer months.

The Commission calculates that Ukraine needs to boost its reserves to 19-20 billion cubic meters (bcm) by around October from about 7.3 bcm now.

Another issue is the duration of any deal, with the Commission keen that it should cover the gap until international arbitrators in Stockholm rule on a dispute between Kiev and Moscow on the size of Ukraine's debt for past gas deliveries.

A court decision on that is not expected until late 2016, the Commission said.

(Reuters)(Additional reporting by Jan Vermeylen and Clement Rossignol in Brussels and Katya Golubkova in Moscow; editing by Jason Neely)

EU gears up for propaganda war with Russia

(GNN) - The European Union is set to launch a first operation in a new propaganda war with Russia within days of EU leaders giving formal approval to the campaign at a summit on Thursday.
Officials told Reuters that a dozen public relations and communications experts would start work by the end of March in Brussels with a brief to counter what the EU says is deliberate misinformation coordinated by the Kremlin over Moscow's role and aims in Ukraine and elsewhere in Europe.

It is the first stage of a plan that leaders want EU foreign policy chief Federica Mogherini to finalize by June, which may include efforts to produce and share Russian-language broadcast programming, notably for ethnic Russians in ex-Soviet states.

Those communities currently tune in heavily to Russian state broadcasters, which have bigger production budgets than local stations for their entertainment output, as well as news.

EU leaders, most especially in the Baltic states, have been alarmed at how Moscow has used its media to gain support for its views and policies - with budgets that are still likely to dwarf the few million euros a year that officials said the EU may provide.

EU leaders agreed on Thursday to extend economic sanctions to push Russia to respect a Ukraine peace deal. And a summit statement also said they "stressed the need to challenge Russia's ongoing disinformation campaigns", tasking Mogherini with delivering a fully fledged plan by June.

The new Brussels unit's immediate task is the "correction and fact-checking of misinformation" and to "develop an EU narrative through key messages, articles, op-eds, factsheets, infographics, including material in Russian language", according to a description circulating among EU officials seen by Reuters.

Staff will be drawn from civil servants already employed by EU institutions or seconded from some of the 28 member states.

RETURN ON INVESTMENT

The EU already provides some support for media within the bloc and beyond, including grants and technical assistance to support diverse cultural programming and coverage of EU affairs. It could now look at linking some of that aid to countering Russian influence. "We may ask for a higher return for our investment," said one official involved in preparing the plan, who declined to be named.

The EU-funded European Endowment for Democracy (EED), which promotes democratic development in neighboring regions, will present proposals on media issues to a summit in Latvia on May 21-22, where EU leaders will meet those from Ukraine and a handful of Russia's other ex-Soviet neighbors.

EED director Jerzy Pomianowski said one option being studied was "greater integration and cooperation" among existing Russian-language media in states bordering Russia, to share content that can compete for audiences with Moscow-funded programming.

The EU official said experts could be brought in to help produce programs to attract Russian-speakers who do not tune in to existing Western-funded Russian-language media such as the BBC, RFI, Deutsche Welle or Radio Free Europe. "We need to spread the word beyond the usual suspects," he said.

Still, EU officials involved in the project said they could not hope to compete head-on with the expensive news and entertainment channels that Russia beams far beyond its borders, or the teams that promote Kremlin ideas on social media.

The bloc is also constrained by a reluctance to be seen to as manipulating news content or to engage in overt "propaganda".

"Countering Russia's hard propaganda with its same weapons would not be effective and is not feasible," a second EU official said.

(Reuters)(Editing by Alastair Macdonald and Kevin Liffey)

Russian suspected of role in Litvinenko murder may give evidence

(GNN) - One of two Russians accused of poisoning former KGB spy Alexander Litvinenko with a radioactive isotope in London in 2006 is willing to give evidence to a public inquiry, a lawyer for the inquiry said on Thursday.

British authorities believe Kremlin critic Litvinenko was poisoned with green tea laced with polonium-210 at the Millennium Hotel in central London on Nov. 1, 2006, during a meeting with the two men, Andrei Lugoyov and Dmitry Kovtun.

The Kremlin has always denied involvement, as have Lugoyov and Kovtun, whom Russia has refused to extradite.

Robin Tam, counsel for the public inquiry into Litvinenko's murder, told the inquiry that a man giving his name as Dmitry Kovtun had been in contact with the inquiry and said he was willing to give evidence by video link.

It was not yet clear on what terms Kovtun wished to give evidence and when it would happen, according to a transcript of Thursday's hearing circulated to media by inquiry staff.

"There are clearly a number of further steps that need to be taken regarding this matter," Tam told the inquiry.

"It is not yet apparent whether Mr Kovtun intends to instruct legal representatives. (A lawyer for the inquiry) has asked him to supply a detailed witness statement but has not yet received such a document," he said.

The fallout from Litvinenko's murder chilled Anglo-Russian relations to a post-Cold War low.

As ties improved, Britain rejected holding an inquiry in 2013. But with relations subsequently soured by the Ukraine crisis, the British government changed its mind last July.

(Reuters)(Reporting by Estelle Shirbon; Editing by Tom Heneghan)

Ukraine stuck on an IMF dripfeed a year after Crimea seizure

(GNN) - In eight International Monetary Fund programs since independence in 1991, Ukraine has completed just one successfully. A year on from Russia's seizure of Crimea, it looks unlikely it will live up to the terms of its latest deal with the IMF also.

Ukraine's finance minister believes the IMF's money is "not forever", but over-optimistic economic assumptions and continued fighting in the east of the country will probably mean Ukraine will end up depending on foreign support given on its geopolitical significance, experts and former IMF officials said.

The IMF, whose shareholding structure is dominated by the United States and Europe, recently approved a $17.5 billion lending program for Ukraine, of which $10 billion will be disbursed this year, an unusually large amount of front-loaded cash.

Ukraine is also set to receive $7.5 billion from other donors over the next 18 months, part of an overall $40 billion package over the next four years.

"I do fear that Ukraine could need extended international support, including from the IMF," said Robert Kahn, a former World Bank and Fund official now at the Council on Foreign Relations.

"I would argue the Fund is being brought into cases where there are political elements," he said, in reference to Ukraine and Greece. "It takes the Fund well outside its remit and its expertise."

In Greece, the IMF admitted it lowered its own standards to bail out the country on fears its crisis could spread to the entire euro zone, raising concerns about the IMF's impartiality.

Another example is Pakistan, a key U.S. ally, which is on its 21st program worth at least $26 billion in total. It has had seven successful exits so far, and only one since 2000.

The IMF's watchdog, the Independent Evaluation Office, found in a 2002 report that middle-income countries like Pakistan were likely to get stuck in long-running programs when the international community put pressure on the IMF to provide a "seal of approval."

The IMF broadly agreed with the findings, and promised to regularly assess so-called "prolonged use" countries, and improve its program design.

But in a follow-up in 2013, the Independent Evaluation Office found some of the same issues persisted.

The IMF did not have an immediate comment on Thursday but it has emphasized Ukraine's new government is much more committed to reforms than Kiev has been in the past.

But even the Fund admits the underlying assumptions in its Ukraine program carry "exceptionally high" risks from further conflict in the east with Russian-backed separatists and disgruntled creditors, as Ukraine seeks to gain about $15 billion in debt relief from bondholders.

Some $3 billion of that debt is owed to Moscow, which has so far replied with an emphatic "niet" as to whether it is willing to renegotiate.

MISSION CREEP

The IMF's founders in 1944 envisaged the institution as a financial firefighter which is called in for emergencies and then departs once a crisis is over.

But over time, the IMF has found itself entangled for much longer, sometimes for decades, with repeated programs that seek to implement so-called "structural reforms" that tackle corruption, inefficient taxes, and bloated public institutions.

In the current crop of 36 countries with programs, all but Cyprus have borrowed from the IMF at least once since 1992. And 53 percent of borrowers have drawn on IMF funds for at least 10 of the last 20 years.

After a year of political upheaval and war, Ukraine's currency has plunged to record lows, interest rates are at 15-year highs and reserves have dwindled.

Ukraine's finance minister, Natalia Yaresko, admits the IMF cash may not be enough to restore the country to economic growth and has asked the United States for more financial support.

But Yarekso insists she will come back to financial markets in a few years, weaning her country off emergency lending.

"The IMF is a very important part of our program, but it's not forever," she told Reuters on a visit to Washington this week.

In order to lend Ukraine so much money, the IMF has to satisfy its own rules that Kiev's debt is sustainable with a "high probability."

That does not look likely, according to outside economists. In last year's program for Ukraine, the IMF thought the economy would grow 1.0 percent in 2014, but has since revised its predictions to a contraction of 6.9 percent last year, and 5.5 percent this year, and even that is seen as optimistic.

"All that's left for Ukraine is the IMF," said Domenico Lombardi, a former IMF board director now with the Canada-based Center for International Governance Innovation. "(But) the odds that the program isn't going to be fully implemented are huge."

(Reuters)(Reporting by Anna Yukhananov, editing by David Chance)

GM to shut Russian plant as sales slide

(GNN) - General Motors Co (GM.N) will shut a Russian factory and wind down its Opel brand in the country, taking a $600 million charge as it restructures to cope with a prolonged slump in the once-promising market, the U.S. carmaker said on Wednesday.

After several years of growth in excess of 10 percent, car sales in Russia shrank in 2014 as the economy weakened, battered by Western sanctions over the Ukraine crisis and sliding oil prices. The tumbling value of the rouble has caused consumers to pull back on large purchases, and raised the cost to GM and other manufacturers of importing parts.

GM’s retrenchment in Russia is the latest in a series of moves by global automakers to scale back money-losing bets on emerging markets that have failed to live up to the bullish expectations industry executives subscribed to earlier in the decade.

Last month, GM said it would close a factory in Indonesia and scale back operations in Thailand. Ford Motor Co (F.N) took an $800 million charge earlier this year to restructure troubled operations in Venezuela.

GM said it would stop production by the middle of 2015 at its St. Petersburg plant which makes the Chevrolet Cruze, Opel Astra and Chevrolet Trailblazer models. The idling of the plant will mean the loss of 1,000 jobs.

GM also will wind down the Opel brand in Russia by December, and stop assembling mass-market Chevrolet cars at GAZ (GAZA.MM), a Russian vehicle factory, to concentrate on premium car sales. GM said it would continue to assemble the current generation of Chevrolet Niva sport utility vehicles at a joint venture with Russian automaker Avtovaz OAO.

"This decision avoids significant investment into a market that has very challenging long-term prospects," GM President Dan Ammann said in a statement.

Just four years ago, GM said its Russian operations were gearing up to expand production capacity to 350,000 vehicles a year, and called Russia “an important strategic market.”

FOCUS ON PREMIUM SEGMENT

Going forward, GM said it will focus on the premium segment in Russia, which has held up better than the mass market, with Cadillac and some U.S.-built Chevrolet cars. Russia accounted for 1.9 percent of GM's global sales in 2014, down from 2.6 percent in 2013. The automaker does not break out financial results for the country, but consolidates Russian operations with its GM Europe unit.

GM Chief Executive Mary Barra has said Opel would regain profitability by 2016, and the company reaffirmed that forecast on Wednesday. The charge will primarily hit results for this year's first quarter, GM said.

Volatility in Russia has hit other automakers. Ford has cut jobs at its joint venture factory in Russia, and Nissan Motor Co Ltd (7201.T) earlier this week said it would halt production at its St. Petersburg plant for 16 days.

Russia's Economy Ministry said late on Wednesday that no other foreign car company that operates an assembly line in Russia has said it would leave the market, according to RIA news agency.

"The Ministry of Economic Development of Russia cannot agree with the assessment of the market by one individual company," RIA cited the ministry's spokeswoman as saying.

Russian industry and trade ministry officials, quoted by RIA, said GM suffered because it imported more than half of the parts for its cars. Renault-Nissan and Volkswagen AG (VOWG_p.DE) source about two-thirds of car parts within Russia for the cars they assemble there.

RUSSIAN MARKET SHRINKS

The Russian car market is forecast to shrink by up to 35 percent in 2015 according to PricewaterhouseCoopers.. The Russian Economy Ministry said it expects the domestic car market to return to growth in 2016.

But analysts say Russia is in for tough times.

"At least 70 percent of cars currently sold in Russia are sold at a loss. Auto groups only stay in this market to protect their share in anticipation of growth," said Oleg Datskiv, general director of online automobile portal Auto-dealer.ru.

Opel sold 912 vehicles in Russia in February, an 86 percent plunge from year-ago levels, said a spokesman at Opel’s base in the German town of Ruesselsheim.

The Opel Astra has a starting price of about 800,000 rubles ($13,000) in Russia.

(Reuters)(Additional reporting by Andreas Cremer in Berlin, Ben Klayman and Joe White in Detroit and Lidia Kelly in Moscow; Editing by Elizabeth Piper Elaine Hardcastle and Matthew Lewis)

GM to shut Russian plant as sales slide

(GNN) - General Motors Co (GM.N) will shut its Russian factory and wind down its Opel brand in the country, taking a $600 million charge as it restructures its business to cope with a deepening downturn, the U.S. carmaker said on Wednesday.

After several years of growth in excess of 10 percent, car sales in Russia shrank in 2014 as the economy weakened because of Western sanctions over the Ukraine crisis and a slide in oil prices.

The rouble also tumbled last year, making consumers think twice about large purchases and manufacturers find ways to cut costs.

The U.S. carmaker said it would stop production at its St. Petersburg plant which makes the Chevrolet Cruze, Opel Astra and Chevrolet Trailblazer models by the middle of 2015. The closure of the plant will mean the loss of 1,000 jobs.

It will wind down the Opel brand by December and stop assembling mass-market Chevrolet cars at GAZ (GAZA.MM), a Russian vehicle factory, to concentrate on premium car sales.

"This decision avoids significant investment into a market that has very challenging long-term prospects," GM President Dan Ammann said in a statement.

Russia's Economy Ministry said late on Wednesday that no other foreign car company having an assembly line in Russia has said it would leave the market, RIA news agency reported.

"The Ministry of Economic Development of Russia cannot agree with the assessment of the market by one individual company," RIA cited the ministry's spokeswoman as saying.

GM said it would take around $600 million in special charges related to the reorganization of the Russian business, primarily in the first quarter of 2015.

Russia accounted for 1.9 percent of GM's global sales in 2014, down from 2.6 percent in 2013.

RUSSIAN MARKET SHRINKS

The Russian car market is forecast to shrink by up to 35 percent in 2015 according to PricewaterhouseCoopers.. The Russian Economy Ministry said it expects the domestic car market to return to growth in 2016.

"The (growth) results can be undoubtedly achieved," the ministry said, adding that the government's so-called anti-crisis program aimed at supporting domestic companies as well as other forms of state support will help.

But analysts say Russia is in for tough times.

"At least 70 percent of cars currently sold in Russia are sold at a loss. Auto groups only stay in this market to protect their share in anticipation of growth," said Oleg Datskiv, general director of online automobile portal Auto-dealer.ru.

GM said it would focus on the premium segment in Russia, which has held up better than the mass market, with Cadillac and some U.S.-built Chevrolet cars.

Opel sold 912 vehicles in Russia in February, an 86 percent plunge on year-ago levels, said a spokesman at Opel’s base in the German town of Ruesselsheim.

Opel has raised prices several times to cope with the weak rouble, which fell more than 40 percent against the dollar in 2014, causing volumes to plunge and losses-per-vehicle to rise, the spokesman said.

Compared to some other foreign brands, Opel is hurt by a low level of integration into the local market. It imports more than half of all parts needed to assemble cars there.

By contrast, around 75 percent of car parts for Renault-Nissan (RENA.PA) (7201.T) vehicles sold in Russia come from local suppliers. This rate stands at about 60 percent for Germany's Volkswagen (VOWG_p.DE).

(Reuters)(Additional reporting by Andreas Cremer in Berlin, Ben Klayman in Detroit and Lidia Kelly in Moscow; Editing by Elizabeth Piper and Elaine Hardcastle)

Ukraine peace plan creaks amid fresh Russian-Ukrainian dispute

(GNN) - A peace plan to end the conflict in eastern Ukraine came under renewed strain on Wednesday, with Ukraine and Russia clashing publicly over the next steps and further Ukrainian military casualties from rebel attacks testing a fragile ceasefire.

Moscow reacted sharply after Ukraine agreed on Tuesday to confer special status on rebel-controlled eastern regions and grant them limited self-rule - but only once local elections had been held under Ukrainian law, something unpalatable for rebel leaders who have proclaimed their own "people's republics".

Russian Foreign Minister Sergei Lavrov said the Ukrainian parliament had sought to "re-write" the agreement reached in Minsk, Belarus, last month. The Kremlin said the Minsk deal was now further away from being realized than it was a few days ago.

In Kiev, Prime Minister Arseny Yatseniuk responded that no one on the Ukrainian side had much optimism that Russia "and the terrorists" would readily fulfill the Minsk plan.

"First and foremost: to comply with the Minsk agreements, the Russian bandits must clear out of the territory of Ukraine and give the possibility to Ukraine of carrying out honest and transparent elections in line with international standards," he said in televised comments at a government meeting.

The dispute, which could lead the deal into a dead-end, highlighted the different strategies toward the issue of self-rule in the east.

SOLDIER KILLED

Kiev is pushing a decentralization agenda in which it makes concessions aimed at blunting a drive for independence, while Moscow appears to be supporting a push by the rebels for powers that could give them veto over national policy and coming closer to officially recognizing the setting-up of the two "people's republics" in Ukraine's east.

The ceasefire struck at the summit of the leaders of Ukraine, Russia, Germany and France in Minsk came under pressure with the Kiev military saying one Ukrainian soldier had been killed in rebel attacks in the past 24 hours and five wounded.

Fighting in a conflict in which more than 6,000 people have been killed has greatly diminished, although huge areas of Ukraine's industrialized east, including the big cities of Donetsk and Luhansk, are under rebel control.

Heavy military equipment has been withdrawn to put the opposing sides out of range of each other's big guns in line with the agreement.

There is concern in Kiev that Mariupol, a port city of half a million on the Sea of Azov and which is still held by the government, could be a prime target for the Russian-backed rebels should the ceasefire collapse.

Comments by Ukrainian leaders suggest the pro-Western leadership of President Petro Poroshenko steamrollered the law through parliament, not through any real conviction it would be acceptable to the rebels, but to show the West - whose financial and political backing it relies on - it was abiding by the deal.

In Washington, the White House said President Barack Obama and German Chancellor Angela Merkel in a phone call reiterated their agreement that there will be no easing of sanctions on Russia over its support for Ukrainian separatists until it has fulfilled all of its commitments under the Minsk agreement.

The White House said U.S. Vice President Joe Biden, who spoke separately with Poroshenko, welcomed Ukraine's move regarding special status for the rebel-controlled eastern regions, the White House said.

Western governments, who are backing a $40 billion aid package for Ukraine over four years, regard the Minsk agreement as still the best opportunity for a lasting settlement.

Kremlin spokesman Dmitry Peskov said: "Judging by the last decision made by the Rada (Ukrainian parliament), we are today further from realising the Minsk agreements than we were a few days ago."

(Reuters)(Additional reporting by Sandra Maler and Julia Edwards in Wasnhington; Editing by Alison Williams and Cynthia Osterman)

EU's Tusk discussing Russia sanctions idea with Merkel, Hollande

(GNN) - European Council President Donald Tusk is discussing a proposal with Germany and France to link European Union sanctions on Russia to full implementation of a Ukraine ceasefire, a senior EU official said on Wednesday.

Tusk is working with German Chancellor Angela Merkel and French President Francois Hollande on a compromise proposal on the future of EU sanctions that he believes all 28 EU leaders would support at a summit on Thursday.

"The direction of that proposal will go into building very strong links between full implementation of Minsk and sanctions that are already in place being in place until full implementation of Minsk," the official told reporters on condition of anonymity.

An uneasy ceasefire is in place in eastern Ukraine after a new truce agreement was agreed in Minsk last month.

Agreement of all EU governments is needed to renew economic sanctions on Russia expiring in July, but governments are sharply divided.

More hawkish member states wanted an agreement to extend those sanctions now, while other governments wanted to wait until a June summit to give the Minsk accord a chance to work.

Linking sanctions to full implementation of Minsk would effectively mean extending them at least until the end of the year, because the Minsk accord contains a year-end deadline for Ukraine to recover full control over its border.

The EU official said all governments were ready to agree that Merkel and Hollande, having helped negotiate the Minsk agreement, "should have a specific role in the process of defining further steps which should support implementation of Minsk".

"That is why right now Tusk is working together with Merkel and Hollande on that proposal," the official said.

One EU diplomat said leaders would likely agree at the summit to signal now that they would keep sanctions on Russia until the Minsk terms were fully met, while leaving a formal decision on renewing sanctions until June.

"It makes no sense to reduce the pressure on Russia ... if their commitment to the full implementation of Minsk hasn't been tested," he said. "We think there are clear advantages to sending a signal on rollover (of sanctions) early on."

A German government official said that implementation of the Minsk agreement was the benchmark for Berlin.

Merkel made clear when she met Ukrainian President Petro Poroshenko in Berlin on Monday “that the implementation of the Minsk agreement and sanctions are closely bound politically,” the official said, speaking on condition of anonymity.

(Reuters)(Additional reporting by Stephen Brown in Berlin; Editing by Tom Heneghan)

Senator McCain raps Air Force on Russian rocket engines

(GNN) - Senator John McCain on Wednesday criticized the U.S. Air Force's "troubling lack of urgency" in ending dependence on Russian rocket engines for space launches, saying there was still no strategy to replace them a year after Moscow seized the Crimea.

"Continued reliance on Russian rocket engines is unacceptable and it's time the Air Force conduct itself accordingly," McCain, chairman of the Senate Armed Services Committee, told a hearing with senior Air Force officials.

McCain said Congress had given the Air Force $220 million this fiscal year and set a deadline of 2019 for replacing the engine.

Congress is pushing for development of a U.S. engine amid rising tensions between the United States and Russia over Moscow's annexation last year of the Crimea region of Ukraine.

"Instead of giving the effort the level of attention needed, the Air Force has wasted a year doing very little to end our reliance on Russian rocket engines," McCain said.

"If the Air Force is unwilling to do what is necessary to meet the 2019 deadline, they are going to have to figure out how to meet our space launch needs without the RD-180 (Russian engine)," he said.

McCain made his remarks a day after Air Force officials told lawmakers they planned to release a draft request for proposals next month and could award initial study contracts by the end of the 2015 fiscal year on Sept. 30.

The officials said the Air Force planned to focus the competition on launch services rather than development of a new American engine, since any engine must be closely integrated with the rocket it fuels.

McCain told Reuters after the hearing that he favored the Air Force's more commercial approach, which would allow bidders to offer their own designs.

The Russian-built RD-180 engine now powers the Atlas 5, one of two rockets used by United Launch Alliance, a joint venture of Lockheed Martin Corp and Boeing Co, which launches most big U.S. military and intelligence satellites.

Privately held Space Exploration Technologies, or SpaceX, expects to be certified by June to compete for some of those launches, but it may be years before its Falcon Heavy rocket is certified to launch the heaviest intelligence satellites.

(Reuters)(Reporting by David Alexander and Andrea Shalal; Editing by Grant McCool and Andre Grenon)