Putin urges Ukraine to pay gas bill, EU ready to negotiate

The Russian Federation will start demanding prepayments for natural gas to be supplied to Ukraine if Naftogaz (NAFTO) “makes no payments during the next month,” President Vladimir Putin told Russian citizens during a televised Q&A on April 17. He added that prepayment is “a tough method of payment, and it can lead to interruptions of gas transit to European consumers.”

The same day, the EU Commission published an open letter by President José Manuel Barroso, who confirmed the EU’s readiness to negotiate with Russia and Ukraine on gas issues. He added that the EU is “deeply concerned by the unilateral decision taken by the Russian Federation not to apply the 2010 Kharkiv Agreement,” which stipulated a USD 100/tcm discount for Russian gas to Ukraine.

Alexander Paraschiy: So far, the Ukrainian government is indifferent to what Gazprom is considering about gas payments and prepayments as it can live without Russian gas over the next six months. Naftogaz has a lot of time to negotiate, so it has formulated the following position: we’ll start paying Gazprom once it gives us some form of discount (USD 217/tcm secured by Dec. 17 2013 deal, or at least USD 100/tcm secured by Kharkiv Accords, compared to the USD 485.5/tcm that Gazprom wants to charge). This isn’t Putin’s first threat on prepayment so we can’t draw the conclusion that he’ll follow through this time (requiring Naftogaz to fully repay its gas debt to avoid prepayments).

Putin’s statement was directed mainly at the EU, whose member-states may experience a gas deficit in case Gazprom is unable to transport gas through Ukraine in the next couple of months. The EU’s position, as we can tell from Barroso’s letter, is that Ukraine and Russia have to negotiate on pricing, including the possibility of applying the USD 100 discount. At the moment, we see no wish from either Gazprom or Naftogaz to negotiate, while there is a chance that some consensus will be reached in case the EU (which looks to be the most interested for a peaceful solution) initiates a dialogue.