EU proposed to repay to Gazprom half of Ukraine’s debt for April-May gas supplies as payment deadline nears

Gas Facility file photo

(Business New Europe – bne.eu – May 29, 2014) Gazprom, which earlier sent a prepayment bill to Ukraine, will limit gas supplies on June 3 if Kiev does not pay the advance bill for June, Gazprom CEO Alexei Miller said Wednesday at a meeting of President Vladimir Putin with the government, Prime reported. According to Miller, Ukraine purchased 3.5 billion cubic mete…

Gazprom, which earlier sent a prepayment bill to Ukraine, will limit gas supplies on June 3 if Kiev does not pay the advance bill for June, Gazprom CEO Alexei Miller said Wednesday at a meeting of President Vladimir Putin with the government, Prime reported. According to Miller, Ukraine purchased 3.5 billion cubic meters of gas from Russia in May, and its debt will amount to U.S. $1.7bn, thus implying that the total debt will increase to $5.2bn by June. This means that Ukraine has purchased maximum daily gas volumes possible under the contract, Miller said.

Ukraine yesterday did not accept a proposal that it repay $2bn to Gazprom for the gas it has consumed. Ukraine’s Energy Minister Yury Prodan said earlier that Kiev will agree to repay its debt only after Gazprom sets the price “close to the market one”. After Gazprom cancelled all discounts for Ukraine, the price for April-May was set at $500.

After a round of the trilateral Russia-Ukraine-E.U. consultations on gas issues on Wednesday, E.U. Commissioner for Energy Gunther Oettinger said that Russia and Ukraine had officially settled all disagreements over the price for gas supplied between November 2013 and March. However, Kiev still insists that the price for April-May is unfair.

E.U. also has proposed Ukraine to repay half of its debt for April-May gas supplies until Moscow and Kiev agree upon a new price, Oettinger said. E.U.’s estimate of the Ukraine’s gas debt stands at about $4bn, Oettinger added. “If Russia stops supplying gas to Ukraine but will go on shipping its gas to the EU through Ukraine, the question becomes whether Russian gas will reach the EU territory”, he said, cited by Interfax-Ukraine.

Despite the money received from IMF in May, Ukraine has neither repaid its debt for gas consumed, nor prepaid for future gas deliveries. Russia’s Energy Minister Alexander Novak said late Monday referring to the debt redemption, “We have received nothing so far, not a single dollar, kopeck or hryvna. We are waiting.”

VTB Capital analysts expect that Gazprom and Naftogaz will eventually reach a compromise on the price at around $350/kcm. However, it is unclear how long the discussions between the parties will continue and what the possible consequences will be, they say.

Alexander Paraschiy of Concorde Capital says: Thus far, Ukraine’s stubborn position is logical. Firstly, Russia is not a trustful partner, so it may change its position about a possible gas discount as soon as it gets some money from Naftogaz. Secondly, Ukraine is ready to wait couple of months until gas dispute is resolved (the country has enough gas stockpiles to survive without imports till end-September, at least), while Russia and the EU need a solution to be found as soon as possible. We expect Russia will provide some noticeable discount on Ukraine’s gas price in the coming days. In the base-case, we see that the EU and Russia will agree on a price for Ukraine at $350-380, as Oettinger suggested several times.

Map of Ukraine, Including Crimea, and Neighbors, Including Russia

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