Ukraine - time to pay gas bills

Ukrainian energy company Naftogas has promised to pay off part of its US$ 2.4 billion debt to Russia’s gas giant Gazprom by next Monday. The payments are to cover Ukraine’s gas imports for the months of September and October. However, many doubt that the

With little more than a month left before the New Year, Gazprom has once again said that Ukraine has yet to settle a US$ 2.4 billion gas bill. Russian President Dmitry Medvedev says the issue must be dealt with in any way possible.

“The money needs to be returned to us and then everybody will be in a good mood on New Year’s Eve,” he said.

In 2005 a row over gas prices between Moscow and Kiev led to a temporary halt of Russian gas exports to its neighbour.

A year later, disagreements about new prices proposed by Gazprom also led to tensions in gas relations, which is exactly what has happened again this year. Gazprom has vowed to cut supplies from January 1, 2009, should the debt remain unpaid. It seems, however, that such developments have hardly come as a surprise to either side.

“Before the negotiations with Ukraine start on next year's contract, there is the issue of Ukraine's non-payment for this year and this is where Gazprom is focusing its negotiations right now,” said Armen Badalov director of the Russia and CIS branch of US based consultancy, Pace Global. “Gazprom usually signs contracts with European counterparts on a long-term agreement, say 20 years. In Ukraine’s case Gazprom always signs a contract for one year only.”
 
Naftogas, a Ukrainian company, which is the country's main gas importer, has said that it owes only half as much as Gazprom is demanding – US$1.2 billion. The company dispatched a delegation to Moscow to set the figure straight and to clarify what to do about next year’s contract – something prime-minister Yulia Timoshenko personally insisted on. The iron lady of Ukraine has asked Moscow to allow a small delay in payments.

“The gas Ukraine is currently using has been paid for. Right now we’re trying to agree with Moscow about payments for gas that hasn’t yet been used, but is already being kept in storage in Ukraine. I would like to ask the Russian side to allow us a little delay in paying the debt – just a few months,” she said.

Another issue on the agenda is the future price of Russian gas imported by Ukraine. Right now Kiev pays US$ 180 per 1,000 cubic metres, which is less than Europe pays. However, in the worst case scenario for Kiev, Gazprom could more than double this figure, which is something Ukraine’s economy can hardly afford.

The present negotiations are taking place in times of financial crisis and although in all previous cases Moscow and Kiev have eventually managed to agree new deals, this time it might be different. Experts believe Ukraine could face difficulties in repaying its gas debt.

Meanwhile, the delegation from Ukraine’s Naftogas company has eventually reached an arrangement with Gazprom in Moscow, promising to pay part of the debt before December 1 2008, while the rest will be paid in the coming months.

Related links

No money, no gas – Gazprom may cut supplies to Ukraine 

Medvedev orders Gazprom to collect Ukraine debt  

Putin and Timoshenko step on gas in Moscow