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Russia ready to resume gas price talks with Ukraine after it pays part of debt

May 14, 2014, 19:52 UTC+3 GORKI
"No one has ever said: give us $4 billion right away. But show us that you are ready to do so," Russia's prime minister says
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Prime Minister Dmitry Medvedev

Prime Minister Dmitry Medvedev

© ITAR-TASS/Dmitry Astakhov

GORKI, May 14. /ITAR-TASS/. Russia is ready to resume the talks with Ukraine on the terms of gas supplies and the price of gas after Kiev has paid a part of its debt for the previous supplies, Prime Minister Dmitry Medvedev said on Wednesday, May 14.

“No one has ever said: give us $4 billion right away. But show us that you are ready to do so. If they pay a part [of the debt], this will at least create the basis for the talks,” he said.

“We are ready to discuss how to deal with this problem and we are ready to discuss how to support the life of people in Ukraine,” Medvedev said.

“In this respect, we are even ready to give up some of our interests when discussing how we should cooperate on gas further,” he said, adding that this would basically mean financial aid to Ukraine.

Medvedev also expressed hope that “our European friends will make [Ukraine] transfer at least a part of the money it has received to Gazprom”.

Natural gas supplies on prepaid mode only

Medvedev instructed Gazprom to start supplying gas to Ukraine on a prepaid basis from May 13.

“Gazprom has a right to do what has been repeatedly discussed, namely to switch over to advance payments for Ukrainian consumers and Ukraine under the contract,” Medvedev said on Monday, May 12. “I think it’s high time we stopped dandling about. Notify them and move on to advance payments starting tomorrow,” he said at a meeting with Gazprom CEO Alexei Miller and Energy Minister Alexander Novak.

“I think Gazprom has taken all possible steps to settle the situation: we talked with them, we consulted several times, you reported to me and to the president, but we were not heard,” the prime minister said. “If this is so, we must start acting because this can’t be tolerated anymore.”

Medvedev said advance payments for Russian gas would not mean an end to supplies. “The transition to advance payments means only one thing: we will supply as much as they pay for. If they pay one euro, we will supply one euro’s worth [of gas]; if they pay a billion, we will supply a billion’s worth [of gas],” he said.

IMF loan for gas debt

“Our Ukrainian partners have money,” Medvedev said, referring to the first portion of a loan from the International Monetary Fund (IMF).

He believes that Europe should send a signal to the Ukrainian leadership that they must pay the gas debts and asked Novak to make this position known to European partners during the next round of consultations and talks with EU officials.

“We have a right to expect our European partners to send a signal to the Ukrainian leadership that they must pay the debts,” he said.

He noted that Ukraine “still has the opportunity to pay everything before the end of May, to pay the whole sum or at least a part of it, thus showing its determination to pay the debt.”

“We have not seen such determination from Ukraine so far, and this is very sad,” the prime minister said.

Miller said Ukraine had to pay for Russian gas supplies before June 2.

“If Ukraine does not pay for the June supplies, Gazprom will notify Ukraine by 10 a.m. June 3 how much gas would be supplied to Ukraine in accordance with the advance payment made,” he said.

If no prepayment is made, no gas will be supplied to Ukraine in June, he added.

Miller said that Ukraine’s current debt for gas had exceeded $3.5 billion, which matches 9.420 billion cubic meters of gas. This would be enough to supply gas to Poland for 12 months.

Ukraine did not make any payments for gas in March and April, he said.

Novak said Russia had not received any proposals from the European Commission or Ukraine regarding current payments for Russian gas.

On April 30, the IMF authorized the disbursement of a more than $17 billion loan to Ukraine over the next two years. The first portion of $3.2 billion has already been transferred to Ukraine.

However, Kiev did not say which part of this money would be used to pay for current and previous Russian gas supplies.

Kiev said it would the first portion of IMF loan for augmenting its gold and currency reserves in order to stabilize the financial situation in the country.

“Over $1 billion from the first portion of the loan will go into the gold and currency reserves of Ukraine, which will strengthen the financial system of the country. The remainder will go to the budget to stabilize the macroeconomic and financial situation in Ukraine,” National Bank Chairman Stepan Kubiv said.

He believes that the IMF loan “will send a positive signal to foreign investors and domestic entrepreneurs, improve the investment climate in the country and stabilize the hryvnia”.

Ukrainian state energy company Naftogaz’s debt to Moscow currently stands at about $3.5 billion with the gas price standing at $485.5 per 1,000 cu m. European consumers have voiced fears that the situation may affect transit gas supplies to Europe.

On April 10, Russian President Vladimir Putin sent a letter on the situation in 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.

Why gas price for Ukraine changed

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 an association agreement with the European Union 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 cu m on Russian gas for Kiev. Now that the accords have been denounced due to Crimea’s accession to the Russian Federation, the discount is no longer applied, raising the gas price by another $100 to $485.5 per 1,000 cu m.

Ukraine saw a coup in February, with new people brought to power amid riots as President Viktor Yanukovych had to leave the country citing security concerns. Crimea refused to recognize the new Kiev authorities and seceded from Ukraine to join Russia after a referendum in March.

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