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Ukraine Rejects Gas Price as Putin Waits on Prepayment

By Daria Marchak and Jake Rudnitsky
April 10, 2014 9:13 AM EDT 302 Comments

(Corrects headline, Prodan comments to specify gas for storage in first, second paragraphs of story published April 9.)

Ukraine is reducing gas imports and halting payments for natural gas imports from Russia over price “aggression” before the world’s biggest exporter of the fuel cuts supplies, raising the risk of disrupted flows to Europe.

Ukraine won’t buy gas to pump into underground storage for the heating season or pay for March imports until a price agreement is reached, Energy Minister Yuri Prodan said in Kiev today. Russian President Vladimir Putin told his cabinet today to wait for further talks with Europe and Ukraine before demanding prepayment for supplies to Ukraine, which owes more than $2.2 billion for gas it imported through March.

Full coverage of the Crisis in Ukraine:

About 15 percent of Europe’s supplies flow through Ukraine’s pipelines from Russia, making the country a linchpin in the continent’s energy security. Ukraine, which buys half its gas from Moscow-based OAO Gazprom, is seeking alternative supplies, including imports from Europe. Putin has used gas as a tool to pressure the government in Kiev to abandon attempts to reorient the economy toward the European Union.

“Europe can relax until September,” Alexander Paraschiy, an analyst at Concorde Capital in Kiev, said by phone. “If Poland and Hungary begin gas deliveries to Ukraine soon, like last year, Ukraine can survive without Russian gas, and transit to Europe won’t suffer.”

Additional Talks

Gazprom’s price increase of more than 80 percent in April amounted to “aggression against Ukraine,” Prime Minister Arseniy Yatsenyuk said last week. The move threatens supplies to the country and transit shipments to Europe, Prodan said yesterday, according to Russia’s Interfax news service.

Putin, speaking at his residence near Moscow, told Gazprom and the government to seek additional talks before demanding prepayments from Ukraine. He criticized Europe for failing to provide financial support to Ukraine, even while recognizing the government in Kiev.

Russia “continues to provide economic support and subsidize Ukraine’s economy with hundreds of millions, billions of dollars,” Putin said. “This situation, of course, can’t go on forever.”

Ukraine plans to import fuel via Slovakia, using a pipeline in reverse, Prodan told reporters. While the plan is technically possible, pipeline officials from both countries will hold talks next week to clear remaining legal obstacles, he said.

Discounts Canceled

“We have full backing from the EU,” Prodan said, citing talks with the EU energy commissioner yesterday. “It will help to solve question with reverse gas supplies from Slovakia.”

Russia canceled discounts it had offered to Kiev, raising the price to $485 per 1,000 cubic meters in two steps this month from $268.50 in the first quarter. Gazprom has said Ukraine may be required under its contract terms to make payments in advance because of its debt.

Ukraine, which is seeking financial aid from the International Monetary Fund, hasn’t paid for March deliveries from Gazprom, Prodan said today.

Putin is discussing the “extraordinary” situation with Ukraine economic cooperation and gas during the government meeting, his spokesman said yesterday. Russia exported 549 million cubic meters of gas to Ukraine in the first week of April, according to the Russian Energy Ministry’s CDU-TEK unit.

To contact the reporters on this story: Daria Marchak in Kiev at dmarchak@bloomberg.net; Jake Rudnitsky in Moscow at jrudnitsky@bloomberg.net

To contact the editors responsible for this story: Alaric Nightingale at anightingal1@bloomberg.net Torrey Clark, Bruce Stanley

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