Gazprom mulls cancelling Ukraine gas discount over debt

gaspromRussia’s state-run energy giant Gazprom said Saturday that Ukraine is $1.55 billion in arrears on payments for natural gas deliveries, which the company said may force it to cancel a discount on the fuel agreed in December.

Gazprom spokesman Sergei Kupriyanov told RIA Novosti that although relations with Ukraine remained good and that gas for onward delivery was being transited as required, payments still needed to be respected.

“What is owed is huge, not just for last year, but also debts for current deliveries,” he said, noting that Russia has issued a $3 billion line of credit for the express purpose of covering its gas debts.

Kupriyanov said “agreements on discounts mandated full and timely payment for deliveries.”

Ukraine’s national oil and gas company Naftogaz Ukrainy had as of February 14 paid Gazprom $1.28 billion for gas delivered last year and asked to postpone payment of what remained until April 15.

Gazprom said in early February that Ukrainian debt for 2013 deliveries stood at $2.63 billion, meaning that Naftogaz had around $1.35 billion still to pay at the middle of the month.

Naftogaz bought around 13 billion cubic meters of gas from Russia in 2013 at the rate of $400 per thousand cubic meters.

That price was substantially reduced in December to $268.5 per thousand cubic meters.

The discount was part of a raft of support mechanisms devised by Russia for Ukraine following the latter’s decision in late November to back away from signing a deal that would have deepened political and economic relations with the European Union.

Moscow has so far paid $3 billion out of a promised $15 billion loan, which was to be issued as payment for internationally listed Ukrainian bonds.

Critics of the loan and discount package have argued that it was devised as a bribe to induce Ukraine to cement its ties with Russia, spurn the EU and defer much –needed structural economic reforms.

The chances of the remainder of that Russian loan being provided looks slim since last month’s ouster of President Viktor Yanukovych, who was chased out of office at the culmination of three months-long protests initially provoked by his decision on the EU deal.

The gas discount deal looks similarly frail.

Under the arrangement between Naftogaz and Gazprom, the size of the discount was to be determined of the first day of every new quarter and formalized within ten days. Failure to renew the discount deal by April 10 will cause it to cease having effect.

The incoming Ukrainian government confirmed by parliament this past week is viewed with deep suspicion by the Kremlin, which has nonetheless vaguely committed to cooperating with the international community on providing its western neighbor with financial assistance.

Interim Prime Minister Arseny Yatsenyuk has warned of his country’s desperate financial state and that unpopular decisions would urgently need to be taken.

Delegations from the EU and International Monetary Fund are to visit Ukraine next week to assess the country’s needs as it faces a wave of looming financial and security crises.

Source: RIA Novosti

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Foreign Policy News is a self-financed initiative providing a venue and forum for political analysts and experts to disseminate analysis of major political and business-related events in the world, shed light on particulars of U.S. foreign policy from the perspective of foreign media and present alternative overview on current events affecting the international relations.

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