Tuesday

25th Feb 2020

Still no Russia gas deal as Europe heads into winter

  • Sofia - one of dozens of cities in eastern Europe which depend on the Russia-Ukraine deal (Photo: Klearchos Kapoutsis)

With temperatures already near freezing in eastern Europe, Ukraine will hold elections on Sunday (26 October) amid uncertainty on Russian gas supplies.

The situation arises after EU, Russian, and Ukrainian negotiators failed to reach a deal in Brussels on Tuesday.

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They will meet again on 29 October, but big gaps remain between Kiev and Moscow.

Russia's energy minister Alexander Novak told press in the EU capital the main question is how Ukraine will make $1.6 billion of advance payments for November and December supplies.

“The issue of providing liquidity [to Ukraine] needs to be studied”, he said.

“There could be a bridging loan by a first-class bank or by another institution, such as the EBRD [a multilateral European bank], or from the budget of the European Commission”.

But Ukrainian minister Yuriy Prodan said the real problem is trust.

Russia in April, after Ukraine’s pro-Western revolution, changed its gas price from $285 per thousand cubic metres to $485, before halting supplies in June.

Novak says he will accept $385 for the winter months, but he is not willing to enshrine the offer in an interim contract between Russian supplier Gazprom and Ukrainian distributor Naftogaz.

“We don’t need to change the contract … no other papers need to be signed”, he said.

Prodan noted that “the price was in the past changed unilaterally by the Russian government … so now we want a binding document”.

He added that if the old contract, from 2009, remains in force there is nothing to stop Novak from invoking a “take or pay” clause, which would force Kiev to pay extra for gas it never ordered.

The lack of trust comes amid Russia’s non-compliance with a ceasefire pact on the war in east Ukraine.

It also comes after Russia annexed Crimea, and its gas reservoirs, in March in violation of a laundry list of international treaties.

For his part, EU energy commissioner Gunther Oettinger is trying to keep gas out of Russia’s broader attack on Ukraine's new leadership.

Referring to unpaid gas bills from last year, he said it is Kiev which must honour its obligations.

“If you go [for instance] to the butcher and you don’t pay your bill for seven months then, obviously, it’s a big problem”, he said.

Weather forecasts say the temperature will fall to 4 degrees Centigrade in Kiev during the parliamentary elections this weekend.

It will drop to 7 degrees in Sofia, one of dozens of cities in south-eastern EU states which depend on Russian gas transit via Ukraine to keep factories working and households warm.

Oettinger noted that his recent “stress test” of Russian gas dependency showed that EU solidarity measures would avert a disaster in the worst case scenario.

But he added that the measures, such as buying more liquid gas on world markets, would come at a financially “higher price”.

Ukraine has for the past few months stopped supplying gas to households in its centralised heating system in order to conserve stores for winter.

But Ukrainian president Petro Poroshenko announced in the run-up to Sunday's vote that “by Friday each Ukrainian home must be heated - radiators must be warm”.

Poland and Slovakia are currently selling Russian gas back to Ukraine via “reverse flow” pipelines.

But Russia - which has talked Hungary into dropping out of the scheme and which has cut volumes to Poland and Slovakia in warning shots - says reverse flow is illegal.

“The gas we deliver directly to [EU] consumers must not be reversed in supply because the contracts do not allow for this”, Novak said.

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