Europe is trying to persuade Russia and Ukraine to sign a gas contract

Photo: Reuters

Last Friday in Moscow Deputy Chair of the European Commission Günther Oettinger held talks with Russian Energy Minister Alexander Novak. On the eve of discussion of gas issues in the Ukraine — EU — Russia format the commissioner tried to find a common ground to resolve the gas conflict between Ukraine and Russia and guarantee steady supplies of fuel to Europe before the winter season.

On the same frontiers

After negotiations with Oettinger, Novak revealed the official position of the Russian side, which since the first round of negotiations has remained unchanged: the gas price for Ukraine is UAH $385 — 386 per 1,000 cu m taking into account the US $100 discount by the Russian government. Novak proposed to fix this price now, before the Stockholm Arbitration Court passes down its ruling, because after the court ruling is issued the price may be different and the parties may have to recalculate who owes whom and how much.

Novak also said that Russia is ready to resume gas supplies to Ukraine, but only after the payment of US $1.45 bn of its debt for 2013, while as to the residual debt for the supply of gas in April — June 2014, Russia is ready to count retroactively, meaning at a specified price agreed to with the Ukrainian side. At the same time, the Russian minister said that Ukraine should have the money as it is soon expecting a tranche of US $1.3 bn from the IMF.

Europeans are satisfied with such an outcome of the gas dispute. Oettinger said that the European Commission will soon offer Ukraine a debt repayment schedule and hopes that this process would be launched in the coming months as the stability of gas supplies to Europe this winter is at stake. «We have to agree on an interim gas price for the next few months as we wait for the Stockholm Arbitration Court to resolve the issue of the final price. Ukraine has to pay the bill for the delivery of gas in the coming months,» said the commissioner announcing the decision as acceptable for Europeans.

Yet, the official Kyiv was not encouraged by such a joint statement and late this Friday it presented its position. «The Ukrainian side is disappointed with Russia’s lack of a constructive approach in negotiations aimed at the settlement of the issue of gas supplies to Ukraine,» reads the statement of Minister of the Energy and Coal Industry Yuriy Prodan. The Ukrainian authorities find the gas price of US $485, to which Russia promises to apply a discount of US $100 and which it considers to be fair based on market prices, to be discriminatory. «Our latest proposal is to calculate the cost based on the price level formed at European gas hubs, reducing it by the cost of transportation of gas from the Russian border to EU member countries. What price can be more market-oriented than the stock exchange price?» the minister asked.

Judicial trap

A partner of the RusEnergy Agency Mikhail Krutikhin confirmed in a conversation with Capital that no progress was achieved in the latest talks. «Russia once again said it is willing to offer a discount. But to accept the offer of Gazprom would mean for Naftogaz that Russia will hold it on a financial hook and will have the prerogative of cancelling the discount at its discretion and whenever it sees fit,» he stressed.

Co-chair of the Energy Strategies Foundation Dmytro Marunych believes that the two sides could act according to the proposed scheme — pay off the debts at the expense of the IMF and agree on the price — still during the first round of talks: «So, in September they reached the same decision that was proposed in May». He believes it is for the benefit of the two parties involved to reach an agreement, but now it will be much more difficult take steps in order to meet halfway. «We should understand the logic of the parties: they have already filed claims to the court of arbitration, so for them to compromise would mean acknowledgement of the weakness of their position in the process of review of the claims,» said the expert.

In addition, the credibility to Russia was undermined by military intervention into Ukraine and, according to Krutikhin, the gas issue no longer has an economic angle — it is purely politics. For this reason, it was difficult for him to predict whether it would be possible to reach a compromise in the next negotiations scheduled to be held this week.

Director of Energy Programs at the Razumkov Center Volodymyr Omelchenko commented on the results of negotiations arguing that both sides — the EU and Russia — would like to resolve all their problems at the expense of Ukraine. In particular, he said that Oettinger’s statement according to which official Kyiv would be offered a plan of repayment of gas debts was unacceptable. «Europe should instead propose a plan for repayment of losses from the occupation of Crimea, as a result of which Russia seized Ukrainian property worth billions of hryvnia. For as long as Crimea remains occupied by Russia, gas debts should remain non-negotiable,» he said.

However, Ukrainian authorities have repeatedly stated that our country cannot afford to stop using Russian gas. To survive the winter season we need to have at least 5 bn cubic m more, which can be bought only by reaching an agreement with Moscow. Perhaps, this may soften Ukraine’s position.