Ukraine, Russia fail to agree on natural gas purchases, as expected

A trilateral meeting in Brussels involving Ukraine, Russia and the EU as a mediator – aimed at agreeing upon the conditions of natural gas trade between Ukraine and Russia – brought no results, Naftogaz CEO Andriy Kobolev commented afterwards on Dec. 9. Before the meeting, the Ukrainian side demanded that Russia offer a competitive price for its gas, as well as sign a separate agreement to exclude a “take-or-pay” clause from the gas supply contract to enable a direct purchase of Russian gas.

The only tangible result of the meeting was that the Russian side got assurance that Ukraine won’t confiscate Russian gas passing through its territory to Europe in order to enforce the payment of a penalty imposed on Gazprom by Ukraine’s Anti-Monopoly Committee (AMCU). As Russian Energy Minister Alexander Novak told Russian media on Dec. 12, he got such an assurance from EU commissioner Maroš Šefčovič in Brussels. Recall, the Kyiv Economic Court ruled in early December to satisfy AMCU’s demand to charge UAH 172 bln from Gazprom for breaching Ukraine’s legislation. Later on, Gazprom appealed the penalty to the international arbitration court.

Alexander Paraschiy: The no-result is what we were expecting, and Novak’s comments suggest there was no chance for Ukraine and Russia to reach any agreement. The fact that Novak was asking the EU for an assurance that Ukraine won’t enforce its own internal court ruling shows that Russia does not consider the Ukrainian side to be a party it can negotiate with. It’s also not clear what guarantees the EU can provide to Russia.

In any case, Ukraine will not be importing gas from Russia for more than a year and looks ready to avoid buying it further on as well. Most important in the gas issue will be the results of multi-billion international arbitration between the Ukrainian and Russian gas monopolies, which are expected in 1H17. The results may have a significant impact on Ukraine’s balance of payments.