Credit squeeze linked to Ukraine gas dispute - FT

13:16, 08 October 2007
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According to one of the companies at the centre of the dispute

The latest stand-off between Gazprom, the Russian state-controlled energy group, and Ukraine over $1.3bn in unpaid natural gas bills is partly a result of the global liquidity crisis, according to one of the companies at the centre of the dispute, according to an article by Roman Olearchuk, Financial Times.

Ukrgaz-energo, a trading company that controls the supply of gas to industry in Ukraine, blamed difficulties in borrowing on shaky world credit markets for its inability to pay for imported supplies.

As a result, debts at the company, a Russian-Ukrainian joint venture, swelled to about $1bn (?706m, £489m), according to spokesman Vitaliy Kisil. Poor payments for gas resold by Naftogaz, Ukraine’s debt-ridden state energy company, had also increased the burden.

Gazprom last week threatened to cut gas supplies to Ukraine if Kiev failed to settle the $1.3bn debt. The move prompted fears of a repeat of a 2006 price dispute between Kiev and Moscow that triggered supply reductions to central and eastern Europe.

The timing of Gazprom’s announcement also sparked suspicions of underlying political motives, as it came just days after snap parliamentary elections in Ukraine that saw pro-western parties gain a narrow majority. Yulia Tymoshenko, leader of the largest pro-western bloc and a leading candidate to be the next prime minister, advocates the removal of intermediaries from the gas trade between Ukraine, Russia and central Asia.

Officials in Kiev have insisted the debt is not owed by the Ukrainian state, as Gazprom originally stated, but by the Russian group’s partners. About $1bn is owed to Gazprom by RosUkrEnergo, the Swiss-registered monopoly supplier of Russian and central Asian gas to Ukraine. RosUkrEnergo is jointly owned by Gazprom and two businessmen, one of them Ukrainian.

RosUkrEnergo’s main debtor is Ukrgaz-energo. This joint venture is jointly owned by RosUkrEnergo and Naftogaz.

Ukrgaz-energo still has hopes of agreeing short-term financing to pay for gas held in underground storage facilities that are key for meeting peak demand in Europe during the winter.

“We are anticipating better conditions on the international debt market in the very near future and hope to raise financing allowing us to pay these debts,” Mr Kisil said.

But sources close to the companies say Gazprom could also accept a swap deal, taking a chunk of these strategic underground gas reserves. Such a move would significantly boost Gazprom’s leverage over Ukraine in any future dispute as the Russian group could reduce shipments to Kiev while maintaining steady supplies to the rest of Europe from the underground storage facilities, observers say.

“Without a doubt such a scenario would not leave Ukraine with a good negotiating position,” said Oleksiy Ivchenko, former head of Naftogaz and a close associate of Viktor Yushchenko, Ukraine’s pro-western president. Sergey Kupriyanov, Gazprom spokesperson, declined to confirm or deny such a possible settlement.

Ukrgaz-energo and RosUkrEnergo hold nearly 20bn cubic metres of the 30bn cu m stored underground in Ukraine. Ukrgaz-energo hopes to agree a short-term financing agreement allowing it to pay RosUkrEnergo, which would, in turn, pay up to $1bn owed to Gazprom.

Speaking on Russian television, Gazprom’s board chairman Dmitri Medvedev said the price Kiev paid next year for gas would be fair.

Yury Boiko, Ukraine’s energy minister, expects a price rise of no more than 10 per cent.

While Ukraine’s economy has grown impressively in recent years, it has struggled to adjust to high inflationary pressures after two stiff price increases in the past two years.

 Gas prices upon import have nearly tripled to a rate of $130 per 1,000 cu m since 2006.

By Roman Olearchyk in Kiev, Financial Times

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