Gazprom puts Ukraine on gas prepayment plan after ‘chronic’ failure to pay debt

Ukraine says it agrees on interim gas price with Russia Sat, Oct 18 17:17 PM EDT image 1 of 2 KIEV (Reuters) - Ukraine's and Russia's leaders have reached a preliminary agreement on a price for gas supplies this winter but Kiev may need international help to pay, Ukrainian President Petro Poroshenko said on Saturday. Poroshenko met Russian President Vladimir Putin in Milan on Friday to discuss the conflict in Ukraine's eastern regions, where pro-Russian separatists are fighting Kiev government forces. Russia cut off gas supply to Ukraine in mid-June following more than two years of dispute on the price. Russia said Ukraine had to pay off large debts for previously-supplied gas before it would resume supply. "(We) reached an agreement," Poroshenko said in an interview with Ukrainian TV channels. "Until March 31 we will fix the price at $385." An agreement signed in 2009 by former Prime Minister Yulia Tymoshenko called on Ukraine to pay $485 per 1,000 cubic meters for Russian gas. Kiev is contesting the contract in a Stockholm arbitration court. Poroshenko said that state-run energy company Naftogaz was short of funds to pay for Russian gas partly because of debts created by consumers in eastern Donetsk and Luhansk regions, controlled by pro-Russian separatists. "We must solve the question of how we cover the deficit of funds for Naftogaz for gas purchases," Poroshenko said. "We have several different options (including) the International Monetary Fund." He said a mission of the IMF is due to arrive in Kiev in mid-November to discuss amendments to the current loan program for Ukraine. Poroshenko said the next round of gas talks was likely to take place on Oct. 21 in Brussels. (Writing by Pavel Polityuk; editing by Andrew Roche) ============================================== Published time: June 16, 2014 06:10 Edited time: June 16, 2014 09:15 AFP Photo / Alexander Zobin Ukraine turmoil Tags Conflict, Gas, Russia, Ukraine After failing to pay its gas bill, Ukraine now has to pay in advance for any natural gas from Russia, Gazprom said on Monday. Both companies have filed lawsuits against each other at the Stockholm Arbitration Court “This decision was taken due to systematic failure of Naftogaz Ukraine to pay. The debt of the company for Russian gas stands at $4.458 billion, including $1.451 billion for November and December 2013, and $3.007 billion for April-May 2014,” Gazprom said in a statement posted on their website.

“They’ve paid zero. Correspondingly we deliver zero,” Sergey Kupriyanov, a Gazprom spokesperson said in a press conference following the announcement.

Reuters reports that gas supplies to Ukraine were restricted off as soon as the deadline at 10:00am in Moscow passed. Both companies have announced they are opening lawsuits with the Stockholm Chamber of Commerce Arbitration. Naftogaz, Ukraine’s oil and gas utility, is seeking a $6 billion sum for 'unfair' gas prices and asking the court to review prices that were agreed on in 2010 under then Prime Minister Yulia Tymoshenko. Gazprom announced wants to recover the $4.5 billion worth of debt and also seek compensation for Ukraine's failure to import the agreed upon amount of natural gas under their "take or pay" contract with Gazprom over the past two years. The penalty in accordance with the contract could be around $18 billion. Gunther Oettinger, who has been the main broker between the three-way talks between Russia, Ukraine, and the EU, has urged Russia to ‘reconsider’ its decision to place Ukraine on a prepayment gas plan. "Further invitations for trilateral talks in June are foreseen," EU energy minister Gunther Oettinger said at a news conference in Vienna. Oettinger has been the main broker of the three-way talks between Russia, Ukraine, and the EU, all of which have ended in deadlock. Yury Prodan, Ukraine's energy minister, has stressed that taking the case to Stockholm is the only way to settle the matter. Kiev was also late in payments in the winters of 2006 and 2009. Both periods lasted about three weeks, during which Kiev attempted to siphon off supplies for themselves, which left millions of European homes without heat. Further actions will be taken after Gazprom head meets with Russian President Vladimir Putin today, Deputy Prime Minister Arkady Dvorkovich told reporters at the World Petroleum Congress, being held in Moscow June 15-19. Russia’s energy minister Aleksander Novak and Gazprom head Aleksey Miller will hold a press conference later this afternoon. Ukraine has accumulated a multi-billion dollar debt for natural gas supplied by Russia and is unwilling to pay. It calls the 10-year gas contract that former Prime Minister Yulia Tymoshenko signed with Russia back in 2009 unacceptable and demands that Russia lower the price. The sudden halt shot up natural gas prices in Europe, a trend many analysts will repeat itself this time around. Moscow was willing to offer a discount and even recalculate the debt Ukraine has accumulated since April to account for it, but Kiev rejected the offer, saying it was not good enough. Gazprom considers Ukraine’s position a form of blackmail. After negotiations on Sunday, Gazprom announced that their final pricing offer was $385 per 1,000 cubic meters of natural gas, which Ukraine still rejected. Price disputes between the two neighbors intensified after a government coup followed by violence in Ukraine, when the price of gas exports from Moscow to Kiev shot up from $268.50 to $485.00. Europe imports a third of its natural gas from Russia, and nearly half of that is delivered via Ukraine. In 2012, over 84 billion cubic meters of gas traveled from Russia to Europe through Ukraine. Under the current contract, Ukraine is required to import 40 billion cubic meters of gas. Ukraine’s energy minister said on Friday that Ukraine has more than 15 billion cubic meters of Russian gas in storage. ========================== Russia cuts off gas to Ukraine as Kiev orders border secured Mon, Jun 16 15:37 PM EDT image 1 of 4 By Natalia Zinets and Vladimir Soldatkin KIEV/GORKI Russia (Reuters) - Russia cut off gas to Ukraine on Monday in a dispute over unpaid bills that could disrupt supplies to the rest of Europe and set back hopes for peace between the former Soviet neighbours. After the weekend loss of 49 troops when pro-Russian rebels shot down a military transport plane, Ukraine's new president ordered his forces to retake full control of their border with Russia - saying this could then pave the way for negotiations. Calling time on weeks of wrangling in talks over natural gas supplies, Russia said Kiev had missed a Monday morning deadline to repay $1.95 billion owed for previous purchases and announced Ukraine would now only get gas it has paid for in advance. At the same time, Moscow insisted that Ukraine must let Russian gas flow across the country through international pipelines to Russia's clients in the European Union - noting a temptation for Kiev to tap into those supplies in transit. Kiev and Moscow blamed each other for the failure to agree on the price of future gas deliveries and refused to abandon well established positions: Russia offering a discount and Ukraine rejecting that as a tool for political manipulation. The talks are bound up with the worst crisis between Russia and Ukraine since the Soviet Union collapsed - a crisis that has brought Western sanctions on Moscow, the Russian annexation of Crimea and Cold War-style sabre-rattling along the borders. Western-backed Ukrainian President Petro Poroshenko, elected last month to replace the Kremlin-friendly leader ousted in February, said on Monday he wanted troops to regain full control of the border with Russia this week. After that, there could be a ceasefire and efforts to come up with a peace plan. "The ceasefire will be declared as soon as the border is secure," Poroshenko told his security chiefs. "Declaring a ceasefire while the border is open would be irresponsible." His remarks underlined his concern that Russia is supporting the rebels by sending in tanks, guns and men. Hopes of a lowering of tension had already been dented before the gas talks failed by the downing of the plane near the eastern frontier, an attack on Russia's embassy in Kiev and new accusations from NATO that Russia is arming the Ukrainian rebels. All that sent Russian financial markets lower on Monday and helped oil and gas prices climb in Europe that were already firm on fears of supply disruption due to violence in Iraq. "Thanks to the unconstructive position of the Ukrainian government, today a prepayment system was introduced," Alexei Miller, the chief executive of Russian state exporter Gazprom, told Prime Minister Dmitry Medvedev during a meeting at a government residence at Gorki, outside Moscow. He said Ukraine had "adopted a position that can only be called blackmail", adding: "They wanted an ultra-low price." At a news conference, he said it would no longer be enough for Kiev to pay part of its debt for supply to resume. That would now happen only once Ukraine paid off all the almost $4.5 billion and paid up-front for a month's deliveries, he said. "NOT ABOUT GAS" Ukrainian Prime Minister Arseny Yatseniuk accused Russia of deliberately blocking a deal to cause Kiev supply problems next winter, when temperatures plunge and heating needs increase. "But it is not about gas. It is a general Russian plan to destroy Ukraine," Yatseniuk said. "It is yet another step against the Ukrainian state and against Ukrainian independence."

Medvedev said some of Kiev's ruling elite were not up to the job, echoing outrage over Ukraine's acting foreign minister using a coarse anatomical expression to describe President Vladimir Putin during the weekend embassy protest in Kiev. "You can see this in many situations; from the paranoid behaviour of the acting foreign minister at the Russian embassy in Kiev to the failure of the prime minister of Ukraine to agree on gas on the basis of a discounted price," he said on Facebook.

SUPPLIES IN STORAGE A source at Gazprom said supplies to Ukraine had been reduced as soon as the deadline passed and Ukrainian Energy Minister Yuri Prodan said the country was receiving no gas. Ukraine has at least 12 billion cubic metres of gas in storage, enough to meet its and the EU's needs over the summer. A long-term reduction of supply could hit EU consumers, which get about a third of their gas needs from Russia, around half of it through pipelines that cross Ukraine. Earlier price disputes led to "gas wars" in 2006 and 2009, and Russian accusations Ukraine stole gas destined for the rest of Europe. Gazprom's Miller said Russia would provide Ukraine with the volumes necessary to cover EU demand, but implied that Kiev may take some of those supplies for their own use - a potential shortfall Moscow could not be expected to cover. "Regarding transit risks, they exist and they are not insignificant," Miller said of supplies reaching the EU. The bloc's energy commissioner, Guenther Oettinger, who has been brokering the gas talks, said in Vienna that the EU should top up its storage or could face problems in winter. He urged Russia to reconsider a compromise and held out the prospect of new talks before officials break for summer. But with both sides filing lawsuits at the Stockholm international commercial arbitration court to try to recover billions each says they are owed, any quick agreement seems a way off. SHARES FALL Russian shares fell on the talks' collapse. The dollar-denominated RTS index lost 1.25 percent and the rouble-based MICEX 0.48 percent. Prices for Brent crude were up about 50 cents near $113 a barrel. Western countries saw the talks as a gauge of Putin's willingness to compromise and had been looking for signs that he was trying to avert the threat of the West adding to sanctions on Moscow imposed after Russia seized Crimea three months ago. That move came after Moscow-leaning Ukrainian president Viktor Yanukovich was ousted by street protests in February and pro-Western leaders took over power in Kiev. Russia denounced that as a Western-backed fascist coup. The gas talks broke down with the sides unable to reach agreement on price and on changes to a 2009 contract that had locked Ukraine into paying the highest price in Europe. Kiev wants to pay $268.50 per 1,000 cubic metres of gas - the price it had been offered when Yanukovich was in power. But, in a compromise last week, it said it would agree to pay $326 for an interim period until a lasting deal was reached. Moscow had sought to keep the price at the 2009 contract level of $485 per 1,000 cubic metres, but had offered to waive an export duty, bringing down prices by about a fifth to $385, broadly in line with what Russia charges other European states. Kiev says that waiving the duty rather than agreeing a new contract price means Moscow could use the threat of cancelling the waiver to keep Ukraine under its thumb. Oettinger said Moscow had declined a compromise under which Kiev would pay $1 billion immediately and then make monthly repayments to Gazprom. It would also pay $385 per 1,000 cubic metres in winter and about $300 in the summer. The U.S. State Department said the EU had presented a "fair and reasonable" compromise to resolve the gas dispute, and talks should be resumed. (Additional reporting by Timothy Heritage in Kiev, Alexei Anishchuk, Maria Kiselova and; Denis Pinchuk in Moscow, Michael Shields in Vienna, Jan Lopatka in Bratislava and Henning; Gloystein in London; Writing by Elizabeth Piper; Editing by Alastair Macdonald)