16 June: Gazprom puts Ukraine on gas prepay plan

There will be no more delays for Ukraine to start paying for gas it gets from Russia, gas giant Gazprom has announced.

After failing for months to cover the gas bill generated by Gazprom, Kiev now must pay for any gas it wants in advance.

“This decision was taken due to systematic failure of Naftogaz Ukraine to pay. The debt of the company for Russian gas stands at US$ 4.458 billion, including US$ 1.451 billion for November and December 2013, and US$ 3.007 billion for April - May 2014,” Gazprom has announced in a statement posted on their website.

“They’ve paid zero. Correspondingly we deliver zero,” Sergey Kupriyanov, a Gazprom spokesperson said in a press conference following the announcement.

Gas wrangling

Last week, Gazprom CEO Alexey Miller confirmed that 16 June was the final deadline for the US$ 1.95 billion gas debt payment by Ukraine for gas consumed in November and December 2013, which also includes a US$ 500 million partial payment for gas consumed in April and May 2014.

Alexey Miller thanked the European Commission, and personally Günther Oettinger, European Commissioner for Energy, for taking a constructive approach to the three-sided negotiations process with Ukraine. However, Mr Miller also confirmed that no further extension of the payment deadline would be granted to Ukraine.

Gazprom warned that, should payment not be received by 16 June, it would switch to a pre-payment system and Ukraine would only receive gas that it has paid for in advance. Gazprom has made a final gas price offer of US$ 385 per 1000 m³, which is consistent with the calculations by the IMF when determining the financial aid package for Ukraine.

Gazprom is ready to increase gas supplies through the Nord Stream and the Yamal-Europe pipelines, as well as to start to increase injections into underground storage in the EU to ensure that Gazprom’s European customers get all the required gas should there be any disruptions to gas transit through Ukraine.

A missed deadline

Gas supplies to Ukraine were restricted today, as soon as the deadline at in Moscow passed.

Gazprom announced that it is filing a lawsuit against Naftogaz with the Stockholm Chamber of Commerce arbritration to seek payment for the US$ 4.5 billion debt as well as Ukraine's failure to import the agreed upon amount of natural gas under their “take or pay” contract with Gazprom over the past two years. The penalty in accordance with the contract could be around US$ 18 billion.

Further actions will be taken after the Gazprom head meets with Russian President Vladimir Putin today, Deputy Prime Minister Arkady Dvorkovich told reporters at the World Petroleum Congress, being held in Moscow 15 – 19 June.

Russia’s Energy Minister Aleksander Novak and Gazprom head Aleksey Miller will hold a press conference later this afternoon.

Ukraine has accumulated a multi-billion dollar debt for natural gas supplied by Russia and is unwilling to pay. It calls the 10 year gas contract that former Prime Minister Yulia Tymoshenko signed with Russia back in 2009 unacceptable and demands that Russia lower the price.

The sudden halt shot up natural gas prices in Europe, a trend many analysts will repeat itself this time around.

Moscow was willing to offer a discount and even recalculate the debt Ukraine has accumulated since April to account for it, but Kiev rejected the offer, saying it was not good enough. Gazprom considers Ukraine’s position a form of blackmail.

Prepayment

The move to prepayment makes a reduction of supplies to Ukraine increasingly likely, heralding the third “gas war” between the two countries in eight years and threatening deliveries to Europe.

Günther Oettinger, European energy commissioner, said that Gazprom had refused to accept a European compromise proposal after a weekend of round-the-clock negotiations in Kiev. Under the proposal, Ukraine would have paid US$ 1 billion of its debts immediately, with the rest to be paid off over the year.

“The Ukrainian side was ready to accept this, but for the moment the Russian partners were not,” Mr Oettinger said.

Edited from various sources by Elizabeth Corner

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