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12 Apr, 2014 18:34

Ukraine to Gazprom: We won’t accept new gas prices and are suspending payments

The newly-appointed head of Ukraine’s national gas company says the country “sees no reason” to comply with the “political” hike in gas prices imposed by Russia, and will formally stop transferring money to Moscow until the situation is resolved.
Ukraine to Gazprom: We won’t accept new gas prices and are suspending payments

In the aftermath of the toppling of Viktor Yanukovich and the secession of Crimea from Ukraine, Russia has raised from $268 to $485 per 1,000 cubic meters, starting from this month.

35 year-old Andrey Kobolev, who was appointed to head Naftogaz Ukraine, the state importer, by the government in Kiev, told ZN.UA news portal that his company is prepared to pay only the old prices.

“We believe the new price does not reflect market value, is unjustified and unacceptable. We are stopping all transfers for the duration of negotiations. We are hoping that economics will triumph over politics, as even a company of Gazprom’s size would suffer if it were to lose one of the biggest gas markets on the continent,” said Kobolev, who assumed his post a fortnight ago.

Ukraine says that the new price is the highest in Europe for any Gazprom customer country (Gazprom does not reveal its contract prices, but the average around the EU is $370).

Russia’s state-owned gas monopolist says the new rate reflects the cancellation of earlier discounts, and no longer includes payments for hosting Russia’s Black Sea Fleet, since Sevastopol, where it is stationed, is no longer a part of Ukraine.

Ukraine, which receives about half of its gas from Russia, has already accumulated more than $2.2 billion in debt over gas payments, even before the higher price kicked in, but Kobolev said that “any issue of repayment can be resolved only as a package deal with pricing problem”. Ukraine has also threatened to take Gazprom to the international arbitration court in Stockholm over the hike.

Head of the Ukrainian Naftogaz state oil and gas firm Andriy Kobolev (AFP Photo / Yuriy Kirnichny)

Kobolev also stated that there is a “high threat” of disruptions to Gazprom’s energy supply, similar to those that left much of Eastern Europe without heating in January 2008, while Kiev and Moscow thrashed out a deal.

The Russian giant supplies about a third of Europe’s gas needs, and 40 percent of that gas passes through Ukraine.

On, Friday Vladimir Putin warned that Russia does not wish to “unilaterally carry the burden" of supplying Ukraine if it refuses to accept prices, though later reassured worried Europeans that Moscow has no intention of cutting off supplies for the time being.

One idea that has been mooted by Ukraine and its westward allies, is re-pumping of Gazprom’s cheaper gas supplied to other countries back into Ukraine.

This flow reversal could either be done physically – by re-engineering the pipes – or virtually, by Ukraine holding onto some of the other countries’ gas as it passes through theirs. While the first solution presents technical difficulties, both are liable to be treated as a breach of contract by Gazprom, which forbids countries from reselling its supplies under specific circumstances.

So far, Hungary and Poland have said they are ready to channel gas into Ukraine, while Slovakia is awaiting the go-ahead from Moscow.

In any case, further clarification on the issue is unlikely to happen before a mooted four-way meeting between Russia, Ukraine, the EU and the US later this month.