The People's Friendship Arch stands in Kiev during a Ukraine winter. The arch symbolizes the union of Russia and Ukraine.

Europe is working overtime to avoid a repeat of last winter’s Russian gas cuts that left millions without heat and electricity. But its challenge is formidable. The Europeans must convince international lenders -- who are in the midst of a credit crisis -- to give billions of dollars to Ukraine’s notoriously unreliable state energy company, Naftogaz Ukrainy. And to make things a bit more complicated, Naftogaz is tangled in an intensifying internal political feud ahead of Ukraine’s presidential elections.

This week, the EU Commission hosted talks in Brussels to secure as much as $5 billion that Naftogaz needs to pay Russia’s Gazprom for its monthly gas bill and to fill up its gas storage ahead of the winter, when demand soars. EU officials claim they have until August to make sure the issue is resolved. The final sum could be much smaller and will depend on how much gas is ultimately required to fill storage tanks ahead of the winter.

The Commission had already ruled out giving public funds to Kiev, but it is trying to broker loans from the International Monetary Fund, World Bank, the European Bank for Reconstruction and Development, and European Investment Bank. European gas companies, along with Naftogaz and Gazprom, were also present in the meeting, according to an EU Commission statement.

An agreement appears imminent, with attendees noting good progress in the talks, if nothing else because Europe’s gas supply is at stake. Gazprom’s chief executive, Alexei Miller, said last week that he is also confident Naftogaz will be able to pay its June bill. But the threat of a repeat of last year’s cuts is such that the International Energy Agency executive director Nobuo Tanaka warned of the looming threat: “The difficult economic situation in Ukraine makes every monthly payment a challenge, and tensions remain high,” he said in a statement this week.

Under current agreements, Naftogaz needs to pay Gazprom in the first seven days of every month for the previous month’s consumption. By July 7, it needs about $300 million, officials have said, out of which it still lacks at least a third, Ukraine’s gas company gas said. Paying the monthly bill has become a recurring drama that is only worsened by tense relations between Moscow and Kiev. But the real issue is the gas required for storage and to fill transit lines that could reach between $2 billion and $4.2 billion, depending on how much gas Ukraine really needs.

The storage gas is necessary to prevent a repeat of last year’s cuts when Gazprom stopped shipping gas to Europe through Ukraine after Naftogaz started siphoning off a share to make up for what Russia was withholding as a result of the years-old standoff. Millions in Eastern Europe were left in the cold, prompting angry accusations from both sides.

The ultimate problem remains unresolved. But Europe appears increasingly convinced the blame lies with Ukraine. “Further support to facilitate gas purchases would be conditional upon continuing reform of the gas sector,” the EC’s statement said. State-owned Gazprom is also suffering dearly amid the crisis as gas prices have plummeted along with demand. This week, Gazprom also threatened Belarus to withhold gas supplies unless it pays a $244 million debt.

This year, Russian gas sales to Europe are expected to fall 10 percent from 2008 to 5 trillion cubic feet. The smaller volumes and lower prices will mean 40 percent less export revenue from Europe, according to Alexander Medvedev, Gazprom’s export chief.

International lenders don’t trust Naftogaz. The IMF has said the company needs serious restructuring before it gets any money. The most favored alternative so far is to lend the money to Ukraine’s government, on top of the $16.4 emergency loan it got from the IMF to avoid defaulting on its debt.

Lenders are also wary of the country’s economic and political turmoil, with the three main factions championing Naftogaz’s future to their advantage. The pro-Western coalition has once again broken apart and the pro-Moscow party is trying to profit from the mess ahead of upcoming presidential elections, making the likelihood of energy reform remains distant. Meanwhile, the country’s economy shrank at least 20 percent in the first quarter.

Last year, Europe got about a quarter of its gas from Russia, 80 percent of which transits through Ukraine, although the block’s dependence has been temporarily scaled back as its energy demand decreases with a worsening recession. Still, 10 European countries depend on Russia for at least 60 percent of their gas.

Russia is planning to build the Nord Stream and South Stream pipelines to diversify away from its main transit country Ukraine, and Europe is strongly supporting Nabucco, as well as several other potential gas suppliers, from Iraq to the Caspian. But all those alternatives are still years away. In the meantime, Ukraine remains the critical gas hub for Europe.