Talks Held Over Ukraine’s Gas Payments to Russia

09:38, 30 June 2009
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Russian and Ukrainian...

Russian and Ukrainian officials met Monday with international lending institutions to seek ways to pay for Russian natural gas and avert a repeat of energy shortages that left some European Union citizens without heat during a cold snap last winter, according to The New York Times.

Ukraine has been hit hard by the global economic crisis, and talks are under way as concerns grow that Ukraine will not be able to pay a bill to the Russian gas monopoly, Gazprom, that falls due on July 7.

Underlining the gravity of the situation, Nobuo Tanaka, the executive director of the International Energy Agency, said Monday that he was “seriously concerned that the flow of Russian gas through Ukraine may be subject to disruption at almost any time.”

Naftogaz, the parent company of the Ukrainian transit company Ukrtransgaz, has said it needs $4.2 billion to fill national gas storage sites to ensure no repetition of the previous crisis, when Russia cut supplies to Ukraine for 10 days. That crisis was caused by a dispute ostensibly over payments and terms of shipping natural gas to the European Union.

On Monday, a European Commission official said that the $4.2 billion cited by Ukraine would probably be revised downward because the discussions Monday had shown that Ukraine would not need as much natural gas as it had claimed to supply Europe this coming winter. The commission official asked not to be identified by name to preserve the confidentiality of the meeting.

The amount of money required by Ukraine was instead about $2 billion, rather than $4.2 billion, according to other people familiar with the discussions who asked not to be identified because of the delicate nature of the negotiations.

The talks Monday included representatives of Gazprom and Naftogaz along with officials from the International Monetary Fund, World Bank, European Investment Bank and European Bank for Reconstruction and Development.

The parties made “good progress” in the talks, according to an official statement from the European Commission and the financial institutions. But they emphasized that any financial support would be “conditional upon continuing reform of the gas sector.”

Additional meetings would be held “in the coming weeks,” they said, in a sign that Ukraine probably would need to reach a solution with Russia, independent of the international financial institutions, to avoid a default on July 7.

On Friday, the chief executive of Gazprom, Aleksei B. Miller, said Ukraine probably would meet a payment for natural gas in June but that the outlook for a timely payment in July was still doubtful.

The European Union is concerned about topping up the storage sites in Ukraine because one quarter of its gas consumption is met with Russian supplies, 80 percent of which cross Ukraine.

The storage sites in western Ukraine must be filled during the summer to operate the pipelines smoothly during peak winter demand. Naftogaz, the Ukrainian natural gas monopoly that owns the critical pipelines, has suggested that international lenders lend the country the funds, or that European companies themselves buy natural gas for storage in Ukrainian gas sites, or some combination of those approaches.

According to Ukrainian analysts, the source of the current problems is the contract Ukrainian Prime Minister Yulia Timoshenko signed with Vladimir V. Putin, her Russian counterpart, ending the earlier natural gas crisis in January. That contract locked Ukraine into buying 40 billion cubic meters of gas from Gazprom — an amount far more than Ukraine needs and that is set to increase next year.

But the European Union is reluctant to bail out the Ukrainians, largely because Europeans fear that the money may never be repaid and that handing over funds could set a precedent.

 

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