EU, Russia, Ukraine Hold Gas Debt Talks As Tensions Escalate

  • Date: 02/05/14
  • Volodymyr Verbyany and Elena Mazneva, Bloomberg

European Union officials are meeting Russian and Ukrainian counterparts for their first three-way meeting to resolve a natural-gas pricing dispute before escalating tensions disrupt EU energy supplies.

Energy officials from the three powers are gathering in Warsaw today as Russian gas exporter OAO Gazprom claims Ukraine owes $14.9 billion and threatens to move its cash-strapped neighbor to prepayments. The talks will focus on settling the gas debt given Ukraine’s financial and economic situation, Russia’s Energy Ministry said in an e-mailed comment.

Europe imports about 30 percent of its gas from Russia, half of which crosses Ukraine in Soviet-era pipelines, making the transit country a linchpin in the EU’s energy security. Ukraine, which won a pledge of $27 billion in international aid, depends on Russia for half of its gas consumption.

“The gas issue between our countries is too politicized,” Andriy Kobolyev, the head of state-run oil and gas company NAK Naftogaz Ukrainy, said in an interview in Kiev before the meeting. “We can expect anything from Russia.”

The former Soviet republics have fought over gas prices for years, and disputes in 2006 and 2009 led to disruptions in Europe-bound flows during freezing temperatures.

Defying Putin

Ukraine defied calls by President Vladimir Putin to withdraw troops from the largely Russian-speaking east, starting a special operation today to dislodge pro-separatist forces in Slovyansk in the Donetsk region. The EU and U.S. have blamed Putin for fomenting unrest and are threatening to expand sanctions against Russia, as the eastern Donetsk and Luhansk regions slip out of the Ukrainian goverment’s control.

The International Monetary Fund, which approved a $17 billion bailout for Ukraine this week, urged the country to reach a gas agreement with Russia by end-September, when it is going to complete the aid program review. The IMF approval makes $3.2 billion available to Ukraine immediately while the rest is a subject to “frequent reviews”, according to IMF website. Part is earmarked to repay previous IMF debt.

“Naftogaz needs to clear its 2013 arrears to Gazprom and remain current on its 2014 bills,” the IMF said in a report.

Russia has provided Ukraine’s economy with $35.4 billion of gas subsidies in the past four years, Putin wrote earlier this month in a letter to the heads of 18 European gas-buying nations. Gazprom sent Ukraine a bill for part of that amount, $11.4 billion, for gas it said Naftogaz was obliged to buy under a take-or-pay contract, an arrangement the Ukrainian government called unjust.

Price Dispute

Russia doesn’t believe that Naftogaz can pay the bill and is using it as a negotiating point, said a Russian government official involved in discussions, asking not to be identified because talks aren’t public. Ukraine must resolve its debt for fuel already supplied by Gazprom and future payments for gas to be pumped into the underground storage facilities before the heating season to ensure transit to Europe, the official said.

Putin warned Ukraine on April 17 that it has one month to start payments to Gazprom or it will have to pay for the fuel in advance, saying that may lead to disruptions in EU transit.

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