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Decision on prepayment for Naftogaz to come after EU responds to Putin’s letter

April 17, 2014, 14:03 UTC+3 MOSCOW
Naftogaz failed to pay for the March delivery of Russian natural gas worth over $500 million
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© ITAR-TASS/Vitaly Grabar

MOSCOW, April 17. /ITAR-TASS/. The decision to transfer Naftogaz to prepayment mode will be made when the European Union responds to Russian President Vladimir Putin’s letter sent to 18 European leaders, Russian natural gas giant Gazprom Board Chairman Viktor Zubkov said Thursday.

“Let’s see what reaction and position the EU and other countries where Vladimir Vladimirovich [Putin] sent his letter will have. It’s one of the aspects that we should take into account. So we will see what kind of answer they will give,” Zubkov said.

In line with the contract with Naftogaz, Gazprom is entitled, in case of violations of contractual obligations, to transfer its partner to the prepayment scheme from the 16th day of the month preceding the month of gas delivery.

“If the payment has not been made by the 7th day of the month following the month of delivery, the seller has the right to transfer the deliveries to prepayment. Not later than the 16th day of the month preceding the month of delivery, Gazprom issues a provisional bill that the buyer should pay until the beginning of the month of delivery in full,” the contract between Gazprom and Naftogaz dated January 19, 2009 says.

“If the buyer has not fulfilled or improperly fulfilled its obligations in full, the seller is entitled to stop fulfilling his obligations partially or in full,” the document says.

Naftogaz failed to pay for the March delivery of Russian natural gas worth over $500 million. Ukraine’s overall gas debt grew as of early April to $2.2 billion.

On April 10, Putin sent a letter on the situation around Ukraine to the leaders of 18 European countries who buy Russian natural gas. In the letter, he explained in detail the current critical situation with Ukraine’s debt for Russian gas supplies, which could affect gas transit to European consumers.


Ukraine crisis

Ukraine is in political and economic turmoil following a coup that occurred in the country in February after months of anti-government protests triggered by Kiev’s decision to suspend an association agreement with the European Union in November 2013 in favor of closer ties with Russia.

New people were brought to power in Kiev amid riots that involved radicals after President Viktor Yanukovych had to leave Ukraine citing security concerns in February 2014. Russia does not recognize the new Ukrainian authorities.

Ukraine’s crisis soured further when the Republic of Crimea, where most residents are Russians, refused to recognize the legitimacy of the new self-proclaimed Ukrainian leadership. Crimea held a referendum March 16 in which an overwhelming majority of Crimeans voted to secede from Ukraine and reunify with the Russian Federation. The accession deal with Moscow was signed two days later.

After Crimea’s accession to Russia, protests against the new Ukrainian authorities erupted in Ukraine’s Russian-speaking southeastern territories, with demonstrators demanding referendums on the country’s federalization.


Russian gas price change for Kiev

Moscow recently substantially raised the price for gas supplied to Ukraine from the figure of $268.5 per 1,000 cubic meters agreed last year when the association agreement with the EU was shelved in November 2013.

In the second quarter of 2014, the price for Russian gas for Ukraine was set at $385.5 per 1,000 cu m. Gazprom said earlier that the price rose from $268.5 due to the return to earlier contract agreements, as Ukraine failed to fulfill its commitments under an additional agreement concluded in December 2013, which obliged the country to pay for supplied volumes of Russian gas in time.

On April 2, Putin signed a law on denunciation of the Kharkiv Accords with Ukraine, which were struck in 2010 and stipulated that Russia’s lease of naval facilities in Crimea [then part of Ukraine] would be extended by 25 years beyond 2017 — until 2042.

The Kharkiv deals envisioned a discount of $100 per 1,000 cubic meters on Russian gas for Kiev. Now that the accords have been denounced due to Crimea’s accession to the Russian Federation, the discount will no longer be applied, raising the gas price by another $100 to $485.5 per 1,000 cubic meters, which is expected to make the economic situation in Ukraine even more complicated.

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