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17 Jan, 2009 19:48

'Letter of credit could be a guarantee' – Medvedev

Russian President says that an irrevocable letter of credit given out to Ukraine by a major European bank could serve as a guarantee for Russia until a final deal in the gas dispute is reached.

It's one of two proposals on how to solve the current crisis, that Medvedev touched upon during a media briefing after a gas conference in Moscow aimed at finding an urgent resolution to the ongoing row between Russia and Ukraine.


“The first proposal is that part of the gas necessary for the full-functioning of the Ukrainian gas system is to be acquired by an international consortium. Then when the international consortium is the owner of this gas, the gas would be directed into the pipeline and the pipeline system could operate in full,” Medvedev said.

“The second proposal,” he added, “certainly worth our attention, is a possibility of a loan for the Ukrainian party to settle its debt. Our Ukrainian partners by the way have just expressed their desire to provide an advance payment for the certain amounts, and we need to agree on specific details.” 

Chronology of Russia-Ukraine gas war

The current gas cuts are the culmination of a long gas war between Russia and Ukraine, RT looks back at its latest chapter, starting back in October 2007 and the ongoing crisis, the effect of which is now being felt all around Europe.

Gas war chronology
Taking sides with pipelines

The Russian President has said he believes the question of participants' shares in the consortium will depend on actual membership and on what they agree on.

“I would assume that shares would be equal; it's a question of commercial agreement. The most important thing is for our Ukrainian partners to agree to a temporary deal where a certain amount of gas needed to solve the legal dispute will belong to the consortium of large companies of the gas sector. If they agree to that, then the companies will be able to negotiate shares among themselves,” Medvedev said.

And if the idea of the consortium does not work, Medvedev said as an alternative it would be possible to use a letter of credit.

“Provided by a first-class bank in a European country, could be a guarantee of Russian gas shipments to Europe. Money could be written off from this letter of credit on a request by the Russian gas supplier, confirmed by a group of international monitors which was formed to deal with the illegal syphoning off,” Medvedev said.

“As our Ukrainian partners have confirmed today they have no intention of stealing gas, we hope that if such a letter of credit is given to Ukraine – Kiev could be exempted from payments. The letter of credit would exist as a guarantee for Russia until a final deal is reached,” Medvedev said.

To watch Medvedev’s media briefing after the summit, please follow the link.

European leaders and delegates from 11 European countries attended the gas conference in Moscow, among those present were Ukrainian Prime Minister Yulia Timoshenko, Ukraine’s Energy Minister Yury Prodan, President Yushchenko’s energy envoy and the head of Ukraine’s Naftogaz Oleg Dubina.

The Putin-Timoshenko talks started before the beginning of Saturday's conference and are continuing after it.

The agreement that will restore Moscow's gas supplies to Europe is close, according to Russia’s Prime Minister Vladimir Putin, who met with German Chancellor Merkel in Berlin.

“I've met in Berlin with representatives of European companies, which are the main buyers of our gas. It seems to me we are reaching interesting agreements that could unblock gas transit,” Putin said at a joint news conference with the German leader.

“We have agreed with madam Chancellor that it would be useful to set up a team of international experts, in accordance with a protocol signed earlier, to check the technical status of Ukraine's gas transportation system to determine the optimal routes to export our gas to Europe. It needs to be done to ensure gas export and guarantee that there will be no gas stolen. I hope this mechanism will be set up as soon as possible,” the Russian premier said.

German Chancellor Angela Merkel has once again stressed that it's essential that Russia can resume gas exports to Europe in full.

“It is important to resume gas deliveries not only to Slovakia or a certain Balkan country. It is vital to resume gas deliveries to Western Europe in full volume”.

Earlier Moscow came up with a proposal that Europe should share the cost of pumping gas through Ukraine. The idea to set up a consortium of European countries won support from a number of major European energy companies. Prime Minister Putin agreed upon principles for a gas consortium with the heads of Italy’s Eni, Gaz de France and German Ruhrgas.

Europe's dependence on Russian gas

Germany is one of the largest consumers of Russian natural gas and has been badly affected by the current crisis.

Ukraine to try and pursue a single line in negotiations

The country's Prime Minister Yulia Timoshenko says the government will bear all the responsibility for trying to resolve the Russia-Ukraine gas row which, according to Timoshenko, was not caused by the government itself.

The statement has come less than a day before her meeting with Putin in Moscow.

Timoshenko said the priority task for Ukraine was to resume gas transit to Europe to avoid further deterioration of the country's image as well possible destruction of the pipeline system.

She also blamed corrupt political forces in Ukraine for disrupting gas negotiations between Kiev and Moscow.

Pipelines of tomorrow

Meanwhile Moscow is also forging ahead with alternative supply routes to bypass Ukraine in the future. Kiev may hold a blocking stake at the moment – but this is merely giving greater impetus to plans for alternatives.

Preparations for the construction of Nord Stream pipeline under the Baltic Sea to Germany are progressing. However, they are opposed by Poland and other by-passed states. Kazmin believes that despite the opposition, Nord Stream will be constructed by 2013.

“The biggest support comes not only from Russia but the largest EU consumers: Germany, Austria. Russia has sufficient production rates to supply the Nord Stream, which will cover for up to 50% of gas currently being transferred through Ukrainian territory,” Kazmin said.

For the rest – there is the South Stream.

Though still at the drawing-board stage, this pipeline will carry gas under the Black Sea and across the Balkans. Gazprom has Bulgaria, Serbia and Italian energy giant Eni supporting the project.

“The Creation of the South Stream pipeline project remains one of the priorities. I think Europe has realised the need for setting up alternative routes to deliver gas from Russia,” ENI CEO Paolo Scaroni stated.

But South Stream competes with Nabucco – a pipeline backed by the U.S. and the EU that is intended to bring Caspian Sea gas to Europe via Turkey, by-pass Russia.

In theory it should carry gas from Turkmenistan – but most of this is already contracted to Russia and China. Another possible source for Nabucco gas – Azerbaijan – is also in talks with Russia.

According to Kazmin, Nabucco – a project to reduce Russian energy influence – now sees the sources for its gas leading back to Russia.

“We are talking about a multi-billion-dollar project that essentially has no gas supplies,” he observed.

No gas since January 7

On January 7 2009, Ukraine shut all four pipelines that send gas to Europe.

A fifth of Europe's gas comes from Russia through Ukraine. Eighteen countries have either run out or are running low on the vital fuel. Households are suffering without heat in severe winter weather, businesses and plants have been forced to shut-down. The millions of citizens affected has made this a political crisis in the European Union.

Before that Ukraine was stealing the Russian gas bound for European consumers, according to Gazprom and the results of an independent monitoring by a national resource analysts’ group from Switzerland. After that Russia made a decision to stop gas supplies via Ukraine to prevent the illegal siphoning.

Ukraine also insists Russia should supply ‘process gas’ (maintenance gas needed to keep the fuel flowing through the pipes) before it can guarantee the uninterrupted transit of supplies to Europe. However, Gazprom dismisses the idea, saying Ukraine has to pay for the gas or buy it elsewhere.

European consumers just want to get the gas flowing again.

“If the gas doesn’t flow again, we will have to look point by point at our relations with Russia and Ukraine and assess whether we can continue to do business as usual in these circumstances,” EU representative Johannes Leitenberger said.