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Empty treasury explains why Ukraine refuses to buy Russian gas

July 02, 2015, 17:32 UTC+3 Zamyatina Tamara

MOSCOW, July 2. /TASS/. Kiev has no money to pay for Russian gas, but to save face the Ukrainian authorities have had to put on airs in their price dispute with Gazprom, thereby trying to attain political aims, polled experts have told TASS.

Gazprom terminated gas supplies to Ukraine at 10:00 Moscow time on July 1 because it had received no prepayment, the gas giant’s CEO Aleksei Miller said on Wednesday.

"Gazprom will not supply gas to Ukraine whatever the price as long as there is no prepayment," Miller said. Ukraine’s Naftogaz said that it was terminating gas purchases from Gazprom starting from July 1 until the conditions that failed to be agreed at trilateral negotiations in Vienna on June 30 have been settled.

In the first and second quarters of this year Ukraine was entitled to a $100 discount off the price of gas for 1,000 cubic meters. In fact, Ukraine was importing gas at $247.2 per 1,000 cubic meters. The price of oil in the second half of last year slumped heavily, pulling down the price of gas, too. Russia said that it was unable to prolong the $100 discount for Ukraine, adding that it could afford a $40 cut at the most, while the actual price of gas should stay at the level of the second quarter: $247.12. Ukraine refused to pay. In its opinion the fair price is $200 for 1,000 cubic meters.

The president of the Globalization Problems Institute, Mikhail Delyagin, believes that Kiev’s demand for setting the price at $200 for 1,000 cubic meters is devoid of any sensible reasons but one: the treasury is empty.

"Kiev is bargaining with Gazprom over the price of gas because the demand from Ukraine’s largely eliminated industry is meager, while 40% of the demand in the housing and utilities’ sector can be met with domestically produced low calorie gas, which is no good for industrial use," Delyagin, a member of the discussion club Valdai, told TASS.

He stressed the fact that the $100 discount off the price of one thousand cubic meters had been proposed by Russia to Ukraine’s former president, Viktor Yanukovych, and not the current authorities. "Moscow then proceeded from the understanding that Russia and Ukraine would have a common economy and for that reason it agreed to sell gas to Kiev at prices pretty close to the internal ones. But Ukraine’s current authorities have in fact disrupted economic cooperation with Russia. But then a childish question arises: why should Russia keep intact the integration discount for Ukraine at a time when there is no hope for integration?" Delyagin says.

"Kiev’s mode of behavior has remained unchanged over years: as production has slumped, particularly so in the metal and chemical industries, Ukraine’s demand for gas is moderate. Usually Kiev tends to get more pliable towards wintertime, precisely the way it happened in the previous years," another member of the Valdai club, Vladimir Averchev, has told TASS.

"Gazprom’s price of gas for Ukraine set at 247.2 dollars for 1,000 cubic meters is approximately equivalent to what Ukraine would have to pay for reverse gas supplies from Slovakia, Hungary or Poland," says Averchev, the director of research at BP Russia. "Possibly Kiev finds this pattern preferable, as it does not have to make any prepayments. In the meantime Ukraine has no money even to pay the current interest on debts."

"Guaranteed supplies of Russian gas in wintertime are a real problem for Ukraine and the European Union. Kiev would like the end customer as represented by Brussels to pay for the winter supplies to Europe. But Brussels has no money to spare at the moment, the financial crisis in Greece being its main headache. In case winter consumption peaks Brussels would like to have 15-18 billion cubic meters of gas stored in Ukraine’s gas holders. Russian Energy Minister Aleksandr Novak says 12.5 billion cubic meters of gas is already there, but there is no money to pay for the still missing 6 billion cubic meters," Averchev said.

"Kiev is using its current tug-of-war with Gazprom for purely internal political purposes, just to show the ordinary people President Poroshenko is a vehement crusader for Ukraine’s national interests. This ostensibly irreconcilable stance also pursues the aim of squeezing out of the European bureaucrats the one-billion-dollar loan Kiev needs to make prepayments for Russian gas. Behind this fuss there is nothing but Kiev’s wish to put a good face on a bad game," Averchev said.

And the chief of the World Economy unit at the Skolkovo Centre, Tatyana Mitrova, remarks it is any client’s unalienable right to refuse to buy a commodity at the offered price. Naturally, in this type of situation the seller is unable go ahead with the supplies. "But then it is utterly wrong to reproach Russia for turning off Ukraine’s gas valve. As last year’s experience indicates, Ukraine can do pretty well without Russian supplies during several summer months. But one can be certain that the gas talks will be resumed in the end," Mitrova said.

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