Ukraine, Russia clarify their demands on gas deal, far from consensus

Макроэкономика 01.10.2014 Ukraine didn’t receive an acceptable offer from Russia at their Berlin meeting on Sept. 26 to solve their dispute on natural gas pricing, Ukraine’s Energy Ministry said in a Sept. 30 press release, citing its head, Yuriy Prodan. He said the three issues that should be addressed are: 1) a market-based approach to gas pricing (i.e. no discounts should be included when deriving the agreed USD 385/tcm price); 2) scheduling payments for earlier imported gas and gas to be imported in the future; and 3) bringing the contract for the transit of Russian gas through Ukraine in accordance with EU legislation. According to the press-release, which was issued on the evening of Sept. 30, the ministry is working on the Berlin-based proposals received from the EU side, thus hinting that nothing has been yet received from the Russian side. Recall, representatives of Ukraine, Russia and EU met in Berlin on Sept. 26 to reach some preliminary verbal agreement on solving the gas issue, though they have yet to put it on paper. Earlier on Sept. 30, Russian Energy Minister Alexander Novak told Russian journalists that the core precondition for resuming gas supplies to Ukraine is a partial repayment of Naftogaz’s debt for earlier imported gas, according to the Interfax news agency. Novak interprets the USD 3.1 bln payment, which was agreed to at the latest Berlin meeting, as the debt for earlier imported gas that Ukraine recognizes. “The Ukrainian side is ready to repay part of its debt, USD 3.1 bln, which it calculated based on its invented price for gas of USD 268.5/tcm,” Interfax cited Novak. Novak repeated that Russia expects to receive from Ukraine USD 5.3 bln for the same imported gas. At the same time, the Russian side is reportedly ready to receive what Ukraine is ready to pay (USD 3.1 bln) and wait until the decision of the Stockholm court, which may demand Ukraine to pay more. However, Novak also told journalists that Ukraine should make an additional payment of USD 1.9 bln to be eligible to import 5 bcm of natural gas this winter, according to Interfax. Alexander Paraschiy: The closer the end of the week approaches, when a new round of gas talks could be held to sign some deal, the more divergences in the Ukrainian and Russian positions surface. It’s worth recalling what agreements were reached last week: 1) the Ukrainian side will pay USD 3.1 bln to Gazprom by the end of 2014; 2) Ukraine will be eligible to buy about 5 bcm of natural gas directly from Gazprom this winter, for the fixed price of USD 385/tcm. As we wrote yesterday, there are principal differences in interpreting the USD 385/tcm price, which might spoil the future deal. Now it’s clear that there are even more misinterpretations of the Berlin talks, which adds much to our pessimism. In particular, Russia is considering the USD 3.1 bln payment from Ukraine to be just a settlement for old debts (thus assuming Ukraine will also pay additional USD 1.9 bln for to-be-imported gas); instead, Ukraine interprets the USD 3.1 bln as a prepayment for new gas. The public, indirect nature of the dispute between Ukraine and Russia, via press conferences and press releases, is another indicator that both sides are not ready to find common ground.