Ukraine energy minister: Russia blocks gas price talks to promote South Stream

Yuriy Prodan. Photo Georgi Gotev

Yuri Prodan [Georgi Gotev]

Following trilateral talks on gas pricing involving Russia and Ukraine and hosted today (11 June) by the European Commission, Yuri Prodan, the Ukrainian energy minister, told EURACTIV that Russia obstructed progress on purpose, as it wanted to convince its EU partners about the advantages of the Gazprom-favoured South Stream pipeline, which is intended to bypass Ukraine.

Prodan made this comment as he walked out of the Commission headquarters, where he had been negotiating for several hours with his Russian counterpart Alexander Novak, and Gazprom CEO Alexei Miller. The talks were hosted by Energy Commissioner Günther Oettinger.

After the talks Novak, Prodan and Oettinger held separate press conferences, which clearly indicated a failure to reach an agreement. Novak said Russia had proposed a “discount” on the gas price under the 2009 contract, negotiated under former Ukrainian Prime Minister Yulia Tymoshenko, which was $485 per thousand of cubic metres (tcm), in contrast to the price since April of this year, at $385/tcm. He said that this was a gesture by Russia, which took into account the difficult economic situation of its neighbour. This price, he said, would dissuade Ukraine from resorting to reverse gas flows from its Western neighbours.

Regarding the accumulated debt, Novak said no progress had been reached. He explained that up to 16 June, Ukraine needed to repay accumulated gas debts for November and December 2013 of $1.451 billion, with $500 million worth of partial payments for April and May.

Speaking after Novak, Prodan said that the price of $385 per tcm was still high, and that the proposed “discount” was based on a “political” decision by the Russian government, which was able to change at any time. Therefore, the Russian proposal was not acceptable, he argued.  Prodan also said that many proposals, including reverse flows, were beyond this figure. The minister also made it clear that his country would take the issue to the Stockholm Court of Arbitration.

Oettinger admitted that both sides had been unable to reach an agreement, but said that they would remain in touch ahead of a new deadline on 16 June, when Gazprom has threatened to cut off Ukraine’s supplies.

The Commissioner also said his services had drawn up a document laying out progress so far, and a framework that could provide price certainty for a full year. He added that over the next 48 hours, the three sides would try to make progress through telephone contacts.

As Ukrainian diplomats told EURACTIV, the Russian proposal was clearly a no-go, and Russia knew it. Earlier today, Ukrainian Prime Minister Arseny Yatseniuk made informed a cabinet meeting that Kyiv rejected this proposal.

Asked by EURACTIV if Moscow’s tactics could be explained by the push to build the South Stream gas pipeline, which will reach EU soil under the Black Sea, bypassing Ukraine, Prodan said that there was no doubt that Russia played the gas disruption card precisely to convince its EU partners over the advantages of South Stream.

The issue of the South Stream pipeline is expected to feature high in the 26-27 June EU summit, which will discuss ways to decrease the Union’s dependence on Russian gas.

Last December, the Commission said that all inter-governmental agreements (IGAs) for the construction of South Stream, signed between Russia and Bulgaria, Serbia, Hungary, Greece, Slovenia, Croatia and Austria, are in breach of EU law and need to be renegotiated from scratch [read more].

The Commission initially said it would help mediate the amendments of the IGAs and make them compliant with EU law. But in the light of the Ukraine crisis, it indicated that mediation on South Stream could only continue if Russia adheres to international law. In the meantime, work on South Stream should be stopped, the Commission said [read more].

South Stream is a Russian project for a natural gas pipeline. As planned, the pipeline would run under the Black Sea to Bulgaria, and continue through Serbia with two branches to Bosnia and Herzegovina and to Croatia. From Serbia the pipelines crosses Hungary and Slovenia before reaching Italy [see map]. Its planned capacity is 63 billion cubic metres per year (bcm/y).

The key partner for Russia's Gazprom in the South Stream project is Italy's largest energy company, ENI.

Russia signed intergovernmental agreements with:

  • Bulgaria – January 18, 2008;
  • Serbia – January 25, 2008;
  • Hungary – February 28, 2008;
  • Greece – April 29, 2008;
  • Slovenia – November 14, 2009;
  • Croatia – March 2, 2010;
  • Austria – April 24, 2010.

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