BNE: Russia is reportedly ready to provide a discount for gas to Ukraine

(Business New Europe – bne.eu – Concorde Capital – May 7, 2014) Russia will be ready to consider a discount for natural gas to Ukraine on the second round of negotiations on the gas issue where EU Commission representatives should also be present, Russian Izvestia reported on May 7 citing its source in the government. The “second round” of negotiations should convene between May 16…

Russia will be ready to consider a discount for natural gas to Ukraine on the second round of negotiations on the gas issue where EU Commission representatives should also be present, Russian Izvestia reported on May 7 citing its source in the government. The “second round” of negotiations should convene between May 16 and May 19. The previous meeting, held on May 2 in Warsaw, brought no visible results.

The core pre-condition for a new discount from Russia is the repayment of debt by the Ukrainian side for the imported gas. Besides that, Russia will insist at the meeting that construction of the South Stream (gas pipeline bypassing Ukraine) should be completed, Izvestia reported. In this way, Russia will exchange the gas discount to Ukraine for assurance that its ambitious pipeline project will not be stopped. Recall that on April 17, the European Parliament adopted a resolution calling for the EU authorities to stop the construction of South Stream.

Alexander Paraschiy: The message on a possible discount, which looks encouraging for the Ukrainian economy, is not a surprise for us. As we highlighted earlier, there is a high chance that Russia will provide a discount to make Ukraine paying for gas imported after 1Q14 and to secure an uninterrupted supply of Russian gas to EU countries. The Ukrainian side will not pay for the gas it has imported after 1Q14, as Russia and Ukraine have not yet agreed on its price. Russia is insistin g that Ukraine should pay USD 486/tcm since April, while Ukraine is willing to pay only USD 269 the price that was agreed for 1Q14. In case the sides do not reach consensus, Ukraine will have an option not to pay, which may force Russia to cut supplies of natural gas to Ukraine, and to the EU through Ukrainian territory. In the short-term, such a move will harm mainly Gazprom and the EU Ukraine can live without Russian gas until October 2014.