Ukraine resists EU, Russian pressure as gas payment deadline nears

The Ukrainian government resisted on May 28 urgings from the Russian Federation and EU governments to reach a natural gas agreement with a payment deadline approaching, the violation of which would threaten gas supplies to the EU. Recall on May 26, Russian Energy Minister Aleksandr Novak proposed the Ukrainians pay USD 2.0 bln by May 30 to cover part of the debt for gas imported by end-March; as well as USD 0.5 bln by June 7 as a part of a May bill. In return, the Russian government won’t cut gas supplies to Ukraine, as it had repeatedly threatened to do as of June 3 and which would threaten EU supplies. The Russians said they would also consider some discount to their proposed USD 485.5/tcm price.

On May 28, Russian President Vladimir Putin asked PM Dmitry Medvedev to decide on the concessions that Russia may make for Ukraine in case the latter agrees to pay, the RIA Novosti news agency reported. At the same meeting with the president, Gazprom CEO Alexey Miller estimated that Ukraine’s total debt for gas to be supplied until end-May will reach USD 5.2 bln. Out of this number, Ukraine only recognizes the USD 2.24 bln debt for gas purchased until end-1Q14.

From his end, EU Energy Commissioner Günther Oettinger proposed that Ukraine pay USD 2 bln and then continue its talks with Russia on further prices, according to an Interfax-Ukrayina report. “If Russia stops supplying gas to Ukraine but will go on shipping its gas to the EU through Ukraine, the question becomes whether Russian gas will reach the EU territory”, Oettinger said as his concern.

Meanwhile, the Ukrainian position remains the same as before: Ukraine is ready to pay its bills to Gazprom only after the Russian side agrees to set the gas price at USD 268.5/tcm for an interim period until the dispute between two parties is resolved, Energy Minister Yuriy Prodan repeated to Interfax-Ukrayina on May 28.

Alexander Paraschiy: Thus far, Ukraine’s stubborn position is logical. Firstly, Russia is not a trustful partner, so it may change its position about a possible gas discount as soon as it gets some money from Naftogaz. Secondly, Ukraine is ready to wait couple of months until gas dispute is resolved (the country has enough gas stockpiles to survive without imports till end-September, at least), while Russia and the EU need a solution to be found as soon as possible.

We expect Russia will provide some noticeable discount on Ukraine’s gas price in the coming days. In the base-case, we see that the EU and Russia will agree on a price for Ukraine at USD 350-380 per tcm, as Oettinger suggested severaltimes.