International

Gazprom to resume gas supply after Ukraine pays $2.2 billion

Gazprom CEO Miller and Naftogaz CEO Kobolev sign an agreement that guarantees gas will continue to flow to Ukraine.

MOSCOW: Russia may restart gas supply to Ukraine as soon as next week if Kiev pays $2.2 billion worth of debt and pre-payments, gas export monopoly Gazprom said Friday, under a deal that is also vital to ensure deliveries to Europe.

Moscow, Kiev and the European Union clinched an agreement Thursday to resume supplies of Russian gas to Ukraine over the winter and secure transit of gas via Ukraine to Europe, despite tensions over a pro-Russian separatist rebellion in east Ukraine.

Gazprom halted supplies to Ukraine in June amid a bitter dispute over debts and pricing between Moscow and the former Soviet republic, which is now seeking to foster closer ties with the West rather than Russia.

Miller said Gazprom would restart the flow of gas within two days after Kiev covers part of its debt for past gas deliveries and provides a pre-payment for gas deliveries in November.

“Everything depends on when Ukraine makes this payment. We understand this can happen by the end of next week,” Miller told state TV broadcaster Rossiya 24, when asked about possible timing for resuming supplies.

The Kremlin Friday welcomed the deal as “an important step in the context of ensuring further uninterrupted gas transit to Europe.”

Russia provides about a third of the European Union’s gas supplies, pumping half of that amount through pipelines that traverse Ukraine.

Speaking in Kiev, Prime Minister Arseny Yatseniuk said he was determined to ensure safe transit to the EU, a crucial partner for Kiev in dealing with Russia over the rebellion in the east and a creditor of Ukraine’s bankrupt economy.

“Ukraine will safeguard the transit and ... won’t give Russia a chance to blackmail Ukraine and Europe,” Yatseniuk said, adding that supplies should start within 36 hours from payments.

Under the gas agreement, which covers November to end-March 2015, Ukraine must pay $1.45 billion toward its gas debt and pay up front for November supplies. Miller put the pre-payment at $760 million.

Kiev must also pay a total of $3.1 billion in debts for past deliveries by the end of the year, or supplies will cease from 2015, according to the protocol from Thursday’s talks in Brussels published by the Ukrainian government Friday.

Gazprom, in turn, will refrain from using a contractual “take-or-pay” clause until end-March. The clause requires Ukraine to pay fines if it takes less gas than specified in the long-term contract.

The deal allows Ukraine to use resources from existing financial aid schemes provided by the European Union and the International Monetary Fund to cover the pre-payment. Kiev says it has resources put aside to cover the past debts to Gazprom.

Miller said Kiev would need to make another advance payment of $760 million to receive gas in December and that maximum daily supplies amounted to 114 million cubic meters under the deal to supply 2 billion cubic meters a month in both November and December.

Ukraine will buy gas for the rest of 2014 at $378 per 1,000 cubic meters and at $365 in the first quarter of next year, which is lower because of a drop in oil prices. Russia says both levels are discounted by $100 from prices under previous agreements with Ukraine. Miller added he expected the Russian government to approve it formally Saturday.

Kiev said documents signed in Brussels included the guarantees by the EU executive arm of financial support to Ukraine should Russia renege on the agreed price as well as a promise of support from Brussels for increasing reverse gas flows to Ukraine from EU member states.

Ties between Kiev and Moscow are now also badly strained over Russia’s annexation of Crimea in March and the pro-Russian separatist rebellion in Ukraine’s eastern regions.

The agreement also leaves up to an arbitration court in Stockholm to rule on whether Ukraine’s total gas debt should be $3.1 billion, an amount Kiev has already put in escrow, or $5.3 billion sought by Gazprom.

 
A version of this article appeared in the print edition of The Daily Star on November 01, 2014, on page 5.

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