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12th Jul 2020

'No one to stay cold', as Russia and Ukraine clinch winter gas deal

  • The 11th hour deal comes after six months of EU-brokered talks (Photo: ec.europa.eu)

Ukraine and Russia have agreed terms on winter gas supplies in a deal the EU says will contribute to “de-escalation” of the military conflict.

The breakthrough was sealed at a signing ceremony and press conference in Brussels on Thursday (30 October) evening after six months of EU-brokered talks in various locations around Europe.

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The EU’s energy commissioner, Gunther Oettinger, Russian energy minister Alexander Novak, and his Ukrainian counterpart, Yuriy Prodan, signed a “binding protocol” on the broad outlines of the deal.

The CEOs of Russian supplier Gazprom and Ukrainian distributor Naftogaz also signed a technical “addendum” to their 2009 gas contract.

The event was attended by European Commission chief Jose Manuel Barroso, who worked the phone with Ukrainian leader Petro Poroshenko until 2am Brussels time on Thursday morning to midwife the accord.

Slovak diplomat Maros Sefcovic, who takes over Oettinger’s portfolio this weekend, joined the group as well.

Barroso said: “There is now no reason for people in Europe to stay cold this winter”.

In a note of caution, he added: “I expect all parties to fully abide by the rules they have now agreed … It is obvious that no one would stand to gain from a potential disruption”.

He also said that in his past 10 years in the EU post he “spent more time than I care to admit dealing with the different energy issues between Russia and Ukraine”.

He was referring, in part, to the 2009 gas crunch, which led to blackouts in parts of eastern Europe and during which he said Russia was less credible a negotiating partner than some African states.

For his part, Novak promised the Russian government will “in the coming days” adopt a resolution to bring the deal into life.

“Russia has been, is, and will be a reliable supplier”, he said.

Ukraine’s Prodan noted it is “the first time in history” that his country signed a trilateral energy agreement and that the European Commission’s signature on the protocol “will be a guarantee of [its] implementation”.

The accord covers partial payment of Ukraine’s old unpaid bills and terms for pre-payment for new supplies between November and the end of March.

Russia, which stopped supplying gas to Ukraine in June following its pro-Western revolution in February, is to resume supplies when Kiev pays the first tranche of its debt, worth $1.45 billion, this weekend.

It is to pay a second tranche, worth $1.65 billion, by the end of December.

It will buy 4 billion cubic metres of gas - an amount deemed necessary to ensure transit to EU states as well as its internal needs - in November and December at a price of $378 per thousand cubic metres. The price for January to March will dip to $365.

The price is $100 or so less than Russia tried to impose after the February revolution. But it is about $100 more than Ukraine says would be a “market price”.

Russia also agreed to temporarily waive a “take or pay” clause in the 2009 contract, which obliges Ukraine to pay for pre-set gas volumes even if it takes less than the pre-set amount.

But future gas relations between the two sides beyond March are to be settled in a Stockholm arbitration court.

The EU’s Oettinger noted that Ukraine, which is near-bankrupt, will use EU and International Monetary Fund assistance, on top of whatever Naftogaz can chip in, to cover the winter-time fees.

He was short on detail of the financing structure, even though Russia had previously insisted on signing a third document - on EU financing - which never came to be.

With Russia and irregular pro-Russia fighters still waging war on Ukraine despite a 5 September ceasefire accord signed in Minsk, Oettinger added: "This [gas] breakthrough ... is also a contribution to the de-escalation between Russia and Ukraine”.

But the coming weekend is likely to see an increase in tensions despite EU hopes.

Increase in tensions?

Pro-Russia separatists in Donetsk and Luhansk in east Ukraine started early voting on Tuesday and Wednesday for what they call parliamentary elections in their self-proclaimed republics on Sunday.

The initiative is a glaring violation of the Minsk accord, which said Kiev is to organise regional elections in the conflict zones in December.

But Russian foreign minister Sergei Lavrov has promised the Kremlin will recognise Sunday's result, in what German chancellor Angela Merkel called the creation of a new “frozen conflict” in Europe at last week’s EU summit in Brussels.

The EU earlier this week opted to maintain economic sanctions on Russia in view of the situation.

Asked by press earlier on Thursday if Russia’s endorsement of the separatist votes will see the EU impose extra restrictive measures, an EU spokeswoman, Maja Kocijancic, said the sanctions regime is kept “under constant review”.

Russian gas less mighty than it looks, EU says

A Russian gas cut-off would have a “substantial impact”, but even the most vulnerable countries - Bulgaria, Estonia, and Finland - could get through the winter.

EU and UN reject 'farcical' east Ukraine votes

The EU, the UN, and Nato have rejected the outcome of “so-called elections” in east Ukraine, but Russia and a handful of fringe MEPs gave their stamp of approval.

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