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25 Nov, 2008 19:24

Gazprom and Naftogaz come to terms

Gazprom and Ukraine's national energy company Naftogaz have agreed on terms to repay part of Ukraine’s $2.4 billion debt.

The delegation from Naftogaz – headed by CEO Oleg Dubina – made progress with Gazprom on Tuesday, securing uninterrupted gas supplies from Russia – at least for now.  But according to Gazprom’s representative Sergei Kuprianov, Naftogaz agreed to pay only part of what it owes.

“We have agreed that by December 1 Naftogaz will repay what it owes for September and for part of October. After that, we will continue our discussions.”

Gazprom said it won’t discuss long-term contracts – including how much Ukraine will pay for Russia’s gas in 2009 – until Naftogaz settles its debt in full.

Chris Weafer, Chief Strategist from Uralsib, says Ukraine – virtually on the brink of a default – can barely afford Russian gas if the cost is more than doubles to $400 per 1000 cubic metres.

“There is a lot of politics in this, as well as economics, but the bottom line is that Ukraine is in no position to pay the full European price for gas. It needs a discount, and in order to get that discount, it is going to give up something. That maybe some ownership of energy assets or it may be some political deal but for sure it is going to have to do one or other.”

The energy majors vowed to continue discussions in December.  Whether the two sides come to an agreement on all the issues topping their agendas remains to be seen, but this week’s incident proved it’s in both of their interests to settle their differences in a fast and gracious manner.

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