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Ukrainian parliamentary elections to have no effect on Kiev’s gas debt repayment — experts

October 28, 2014, 20:13 UTC+3 MOSCOW
Russian negotiators will hold final consultations on Tuesday evening ahead of the gas talks in Brussels
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Infographics Russia’s and Ukraine’s  stance in gas dispute Russia’s and Ukraine’s stance in gas dispute
Russia and Ukraine strive to agree on gas price, but still without success. Infographics by TASS
MOSCOW, October 28. /TASS/. Regular gas talks will be held between Russia and Ukraine with the EU’s mediation in Brussels on Wednesday to settle the issue of Russian natural gas supplies to Ukraine.

Russia, Ukraine and the EU failed at their previous talks to agree on the sources of financing for Kiev to repay its gas debts.

The answer to this question is crucial for the upcoming three-party gas talks to produce results, experts polled by TASS said on Tuesday.

The political leaders of the participant countries look optimistic ahead of the tri-partite gas talks in Brussels.

Russian President Vladimir Putin and German Chancellor Angela Merkel said during their telephone conversation last week they hoped the upcoming gas talks would yield results, the Kremlin press office reported earlier.

“The sides stressed the importance of reaching accords on the gas issue. The sides expressed the hope that the next round of three-party consultations between representatives of Russia, Ukraine and the European Union in Brussels on October 29 will be productive,” the Kremlin press office said in a statement.

Meanwhile, Ukrainian President Petro Poroshenko said in a live broadcast with National Channel One that “It is quite probable that we’ll find a compromise on gas on Wednesday.”

“Let’s see,” a high-placed source in the Russian delegation at the upcoming gas talks said skeptically.

Another source said Russian negotiators would hold final consultations on Tuesday evening ahead of the gas talks in Brussels.

The chances are 50 to 50 for the upcoming gas talks to be a success, Deputy Director of Russia’s National Energy Security Fund Alexei Grivach said.

“The recent Ukrainian elections recognized by Russia speak in favor of a positive outcome at the gas meeting while the absence of information on the options of financing for Ukraine to repay its gas debts speak against it,” the expert said.

A source familiar with the substance of the previous Russia-Ukraine-EU gas talks said there was no direct dependence between the Ukrainian parliamentary elections and the possible gas accords.

“This is the area of high-level political decisions, which are linked with the line-up of forces not only in Ukraine but also in the European Union,” the source said.

The latest three-party gas meeting in Brussels on October 21 once again ended without the expected result as no sources of financing for the repayment of Kiev’s debt were found.

Ukraine's gas debt

Ukraine’s failure to repay its debt for the supplied gas is the key obstacle to a temporary gas deal with Russia, EU Energy Commissioner Guenther Oettinger said after the three-party talks.

Infographics Ukraine’s debt burden Ukraine’s debt burden
August 29, IMF Board of Directors discusses the second tranche for Ukraine amounting to $1.4 billion, which was postponed due to instability in south-eastern Ukraine. The country received the first tranche in April 2014. Earlier, April 30, the IMF approved a two-year credit totaling $17 billion for the support of the economic program. Infographics by ITAR-TASS
Ukraine has not paid for already seven months for the natural gas supplied by Russia, the EU energy commissioner said.

Kiev has to repay a total of $5.3 billion to Gazprom, including $1.45 billion for the resumption of Russian natural gas supplies to the ex-Soviet republic.

Russia expects the EU to provide funds to Ukraine to repay its gas debt.

“We believe that possible sources include guarantees by top-class European banks, bridge loans and funds from the EBRD or the European Commission,” Russian Energy Minister Alexander Novak said.

Financial aid to Ukraine

The results of the three-party gas talks will primarily depend on the issue of finding financing for Ukraine to pay for Russian natural gas deliveries, Sberbank CIB analyst Valery Nesterov said.

“The EU has failed to state clearly that it will give Ukraine financial guarantees and has not expedited the process of disbursing loans. Ukraine has expressed readiness to make prepayment for new gas deliveries but it lacks funds for debt repayment,” the analyst said.

Ukraine’s Central Bank earlier reported the national energy company Naftogaz had $3 billion left on its accounts.

“The company de-facto has the money to repay a part of its debt and make prepayment,” said Valentin Zemlyansky, Energy Program Director at the Center for World Economy and International Relations of the Ukrainian Academy of Sciences.

“From the legal viewpoint, there are no obstacles for signing a final agreement tomorrow on temporary Russian natural gas supplies to Ukraine,” he said.

At the same time, the political ambitions of EU Energy Commissioner Oettinger whose tenure expires in late October for the role of the “person who has resolved the Ukrainian crisis” can raise chances for the successful completion of the gas talks, Grivach said.

Possible energy crisis

But if the sides fail to settle all disputable issues on October 29 again, then the gas dispute can be expected to be resolved closer to December, Sberbank CIB analyst Nesterov said.

“December, January and February are the months of peak gas consumption. In November, Ukraine will be able to use available gas reserves but will have to come to terms by December. During this period, an issue can be clarified about the possibility for Ukraine to raise European loans and it will become clear who will head the energy bloc in the government,” the analyst said.

Zemlyansky does not rule that a force majeure situation may emerge in winter without Russian natural gas deliveries to Ukraine, posing risks to Europe-bound transit.

“If Ukraine does not receive up to 2 billion cubic meters of gas from Russia monthly, gas in underground storage facilities will be used up by January,” he said.

EU seeks stable natural gas supplies in winter

The EU is seeking guarantees for stable gas supplies in winter. Otherwise, Ukraine may siphon off Russia’s Europe-bound natural gas. Russia also wants to ensure stable gas supplies to European consumers accurately paying their gas bills and recover a $5.3 billion debt from Ukraine, which acknowledges only a debt of $3.1 billion.

Under an interim agreement, Ukraine should repay Gazprom $2 billion no later than October and at least another $1.1 billion by the end of the year. In this case, Gazprom will supply 5 billion cubic meters of natural gas to Ukraine and offer an option for another 5 billion cu m.

The price of natural gas supplies to Ukraine for six months under an interim deal will equal $385 per 1,000 cu m, considering Russia’s $100 discount.

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