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09/12/2016

Putin extends gas discount to Ukraine for three more months

Europe's East

Putin extends gas discount to Ukraine for three more months

Putin and Medvedev on 31 March. [The Kremlin]

Russia will extend gas price discounts for Ukraine into the second quarter, the Kremlin website quoted President Vladimir Putin as saying Tuesday (31 March). But any further decisions would be taken in three months and depend on the price of oil.

Russia’s gas monopoly Gazprom on Monday asked the government to extend a price discount for gas supplies to Ukraine for another three months.

Russia, which has sided with separatist rebels fighting against Kyiv troop in east Ukraine, halted gas flows to Ukraine last June due to a pricing row. The two sides though agreed on a “winter package” of Russian gas supplies until March 31, which included a price discount of $100 per 1,000 cubic metres (see background).

“The end-price for gas for our customers abroad is tied to the oil price anyway and it is very volatile on the global markets,” Putin was quoted as saying at a meeting with Russia’s Prime Minister Dmitry Medvedev.

“We will have to look in three months at what is happening in that regard and take additional decisions,” he said.

The two agreed the decision was conditional on Kyiv paying its outstanding debt to Gazprom.

Russia’s RIA news agency quoted Ukraine’s Energy and Coal Minister Volodymyr Demchyshyn as saying in Kyiv he expected the gas price to be $248 per 1,000 cubic metres in the second quarter.

In what may be a negotiating tactic, Demchyshyn said last week his country planned to stop buying Russian gas from 1 April.

>> Read: Ukraine plans to stop buying Russian gas

A Commission expert however has said that without Russian supplies Ukraine cannot ensure the necessary 18-19 billion cubic meters (bcm) of gas in its underground storages.

The underground gas storage of Ukraine needs to be filled by April, and the filling may go into mid-October, the official explained, adding that the underground gas storage was needed not ony for domestic consumption, but for ensuring the transit.

>> Read: Commission sheds light on trilateral gas talks with Ukraine, Russia

Background

Ukraine, Russia and the European Union signed a deal on 30 October that allowed Moscow resume vital supplies of gas to its ex-Soviet neighbour over the winter in return for payments funded in part by Kyiv's Western creditors.

>> Read: EU unblocks ‘unprecedented levels’ of cash to secure gas for Ukraine

Worth $4.6 billion in total, the package calls for Ukraine to pay $3.1 billion (€2.46 billion) in two tranches by the end of the year to cover debts for previous supplies from Russia's Gazprom, and Kyiv will have $1.5 billion (€1.19 billion), some from existing accords with the EU and IMF, to pay for about 4 billion cubic metres of new gas until March, for which Russia is insisting on cash up front.

As the deal expires on 1 April, the Commission is now assisting in Ukraine in negotiating a an agreement to supply Ukraine with Russian gas until Fall 2016.

>> Read: Commission sheds light on trilateral gas talks with Ukraine, Russia

Further Reading