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03/12/2016

Russia says it will halt gas deliveries if Ukraine doesn’t pay

Europe's East

Russia says it will halt gas deliveries if Ukraine doesn’t pay

Gazprom CEO Alexei Miller [Gazprom]

Russia reiterated its threat to stop supplying Ukraine with natural gas on Monday (May 12) if Kyiv does not pay in advance for June deliveries, and said further talks on the issue were also contingent on payment.

Gazprom chief executive Alexei Miller said the state-controlled Russian company will present Ukraine’s state energy company Naftogaz with a “preliminary” bill for June on Tuesday, demanding payment by 2 June, Russian news agencies reported.

“If Ukraine does not pay for June supplies, Gazprom will, by 10AM (0600 GMT) on 3 June, inform the Ukrainian side what amount of gas will be supplied in accordance with the pre-payment,” Itar-Tass quoted Miller as saying.

He said the amount of gas to be supplied would be zero if no payment is made, the report said.

Gazprom says Ukraine owes it $3.51 billion (€2.55 billion) and has warned in recent weeks that it would demand pre-payment for gas from next month. The Energy Ministry had previously said the deadline for payment was 31 May.

President Vladimir Putin, locked in a standoff with the West over Ukraine’s future after annexing its Crimea region, warned European gas customers last month that deliveries could be disrupted if Gazprom cut supplies to transit nation Ukraine.

At a meeting with Miller and Energy Minister Alexander Novak, Russian Prime Minister Dmitry Medvedev said Ukraine has money it can use to pay for gas and European nations should press Kyiv to pay, Itar-Tass reported.

“We are within our rights to count on our European partners to send a signal to the Ukrainian leadership that they ought to pay their debts,” Itar-Tass quoted Medvedev say saying.

Twice in the past decade, price disputes between Moscow and Kyiv have led to reduced supplies of Russian gas to European clients via Ukraine, a conduit for about half the gas Europe imports from Russia.

Ukraine wants to change the conditions of a 2009 contract that locked Kyiv into buying a set volume, whether it needs it or not, at $485 per thousand cubic metres (tcm) – the highest price paid by any client in Europe.

Putin gave Ukraine a discount last year after then-President Viktor Yanukovich spurned landmark deals with the EU, but Russia jacked up the price again after Yanukovich’s turn towards Moscow led to his ouster at the hands of pro-Western protesters.

Russia will be ready to hold more talks with Ukraine on its gas supplies only when Kyiv pays off its debt, Russian Deputy Energy Minister Anatoly Yanovsky said earlier on Monday.

“We want contract liabilities to be fulfilled… To continue talks, the debt should be paid,” Yanovsky told reporters.

The preparation of a new trilateral meeting involving the EU, Ukraine and Russia to discuss gas supplies to Ukraine and gas transit through the country to the EU is on the agenda of today’s meeting of Ukrainian Prime Minister Arseny Yatsenyuk, with Commission President José Manuel Barroso in Brussels [read more]. 

Background

Russia’s gas export monopoly Gazprom sells its gas to EU clients under secretive bilateral deals.

An illustration on how Gazprom uses the price of gas as a political weapon was provided in the context of the unfolding Ukraine crisis.

Ukraine was paying Gazprom a price of $400 per thousand cubic metres (tcm) under an agreement signed under former Prime Minister Yulia Tymoshenko, back in 2009.

The EU has agreed for holding trilateral talks with Ukraine and Russia to discuss natural gas supplies to Ukraine and transit of Russian gas across Ukraine to the EU. A first round of such talks was held on 2 May and ended without concrete results [read more].