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02/12/2016

Russian parliament rejects Ukraine gas talks

Europe's East

Russian parliament rejects Ukraine gas talks

Alexei Pushkov

Alexei Pushkov, head of the international department of the lower chamber of the Russian Parliament, the Duma, has said Russia must stop its gas talks with Ukraine and adopt sanctions against its neighbour.

Speaking to TV channel Rossia 24, Pushkov said that “degree of aggression” by the authorities in Ukraine vis-à-vis Russia was increasing and that talks could not continue under such circumstances.

Protests in Kyiv turned violent against the Russian embassy on Saturday, following the downing of a Ukrainian military plane by pro-Russian separatists outside Luhansk, in which 49 Ukrainian servicemen were killed. A video shows Ukrainian foreign minister Andriy Deshchytsia at the protest, calling Putin “a dickhead” [read more].

The developments don’t augur well for talks aimed at preventing a new gas crisis over a payment dispute between Moscow and Kyiv.

Ukraine and Russia made a last-ditch attempt to reach a deal in a gas pricing dispute yesterday (15 June), hours before a deadline for Kyiv to pay a $1.95 billion debt or have its gas supplies cut off.

>> Read: Gazprom threatens to stop gas deliveries to Ukraine

Sources close to the talks in Kyiv said no breakthrough was made in the initial stages of the talks on Sunday evening, but the sides continued talking after a pause.

Russia and Ukraine disagree on how much Kyiv should pay for the natural gas it receives from Russia. Russian state-owned natural gas producer Gazprom plans to switch to an system requiring payment in advance if Kyiv does not start paying its bills.

The deadline is 0600 GMT on Monday, after which Russia has threatened to halt supplies to Ukraine.

This could disrupt the gas flow to the European Union, which gets some of its imports via Ukraine, but prospects of a breakthrough have been hit by political tensions and clashes between government forces and pro-Russian separatists in east Ukraine.

Commission tables compromise

The European Commission has tabled a compromise in the gas talks along the following lines, according to a press release published during the night of 15 to 16 June:

  • Ukraine would pay 1 billion USD immediately on Monday. The remainder of the unpaid bills should be mde in six additional payments, so that all open bills are settled until the end of the year. Bills for future deliveries would be paid on time in line with the contract.
  • A future price would take the form of a spread, consisting of a summer and a winter price. The winter price would be $385 USD per 1000 cubic meters (tcm), and the summer price would be $300 or a few dollars more.

The Ukrainian side was ready to accept this, but for the moment the Russian partners were not, the Commission said, adding that the Russian side insisted on the immediate payment of $1.9 billion, and an overall price of $385.

As the Commission is convinced that a solution is still possible and in the interest of all parties concerned, it will reflect on the next steps, and on when to bring the parties together again.

This weekend’s trilateral consultations in Kyiv were conducted between EU Energy Commissioner Günther Oettinger, Ukrainian Prime Minister Arseniy Yatsenyuk, Ukrainian Energy Minister Yuriy Prodan, Naftogaz CEO Andriy Kobolev and Gazprom CEO Alexey Miller. A bilateral meeting between Oettinger and the Ukrainian President Petro Poroshenko also took place. 

Gazprom stops deliveries

As of 8.00 am today CET, Gazprom has switched “Naftogaz Ukraine” to the prepayment mode for gas supplies, the Russian gas export monopoly announced, adding that the move was “in full compliance” with the existing contract. The statement says:

“The decision was made because of chronic non-payments by “Naftogaz Ukraine”. The company’s outstanding debt for Russian gas deliveries is $4.458bn: $1.451bn for November-December 2013, and $3.007bn for April-May 2014.

“According to the preliminary bill for gas deliveries in June, no payment has been received either. As of today, the Ukrainian company will receive the amount of Russian gas it will have paid for.”

Gazprom also said it was turning to the Arbitration Institute of the Stockholm Chamber of Commerce over the issue.

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.

Moscow dropped the price to $268.50 after then-President Viktor Yanukovich turned his back on a trade and association agreement with the European Union last year, but reinstated the original price after he was ousted in February.

Ukraine insists on a price of $268.50 per 1,000 cubic meters while Russia stands by its demand for $485. The European Commission is trying to get the two sides to agree in the middle.

Further Reading