Russia insists that Ukraine has to pay off $3.5 billion of gas debt which is counted on the basis of $485 per thousand cubic meters, said Russian Prime Minister Dmitriy Medvedev in an interview with Bloomberg on May 20. However, Russia agrees to reschedule the payments if Ukraine asks for it.
“We aren’t saying they have to
pay $3.5 billion all at once, but give us a timetable for paying off these
debts, especially since Ukraine has just received a tranche from the IMF, and
both the Americans and Europeans have promised loans,” he said.
Medvedev’s comments echoed
remarks made earlier this month by Russian Energy Minister Alexander Novak, who
stated clearly that Russia expected part of Ukraine’s IMF loans would go toward
paying off its gas debts.
Ukraine’s Ministry of Energy,
however, has indicated it is unwilling to pay after Russia in April raised the
price Ukraine pays for gas by over 80 percent, to $485 per 1,000 cubic meters.
By comparison, the new Ukrainian price is 18 to 25 percent higher than what Germany
and Italy pay Gazprom, according to Interfax newswire.
However, Ukraine suggested it would be willing to pay the bill, but only at a fixed price $285 per thousand cubic meters, which was effective in the first quarter of this year.
Medvedev addressed this
imbalance, indicating that in the long-run, he believes the Ukrainian price
will be “fair and totally comparable to the price of European supplies.”
The reinstatement of gas
discounts for Ukraine will be the subject of three-party talks between Ukraine,
Russian and the European Commission that will reconvene for a second round on
May 26 in Berlin. Russia’s Novak said his country is prepared to discuss discounts
for Ukraine only if the country repays its previous debts.
Ukraine gets most of its gas from Russia. Of the 50 billion
cubic meters consumed in 2013, 28 billion cubic meters came from Russia, 20
billion cubic meters extracted from domestic resources, and the remaining 2
were taken from Europe.
In the meantime, Gazprom
relies on Ukrainian pipelines to continue exporting to Western markets. Medvedev
indicated he is keenly aware of this: “If the Ukrainian market is stable and if
Ukrainians fulfill all of their obligations, Europe will receive what it is
entitled to in full.”
Medvedev spoke out strongly against
the Western sanctions, calling them an “ideologization of the economy” comparable
to Soviet policy under Brezhnev: “It’s exactly what we had during a certain
period of the Soviet Union when it adopted bans on which countries not to trade
with because they didn’t suit our country. That’s exactly what the U.S.
administration is doing now.”
However, Russia may be accused
of the same thing. Energy
dependence is one of the many levers the Kremlin has to influence Ukraine, and
is actively using it, threatening higher gas prices and inflated gas debts.
Without going into specifics,
Medvedev also suggested that Russia has prepared retaliatory measures to
counter the possibility of wider Western sanctions.
Gas deal between
Russia and China
As the European Union threatens Russia with the
reduction of gas purchases, Moscow keeps looking for different major clients
who could substitute EU’s demand. EU purchased 161 billion cubic meters of gas from Russia in
2013, which was approximately 30 percent of its needs. Normally Gazprom’s share
on the European gas market does not exceed 25 percent.
In advance of next week’s meeting
on energy security amid Ukrainian crisis, Russian President Vladimir Putin turned
to China, arriving in Shanghai to discuss the gas supplies. Project of the
agreement implies supplying 38 billion cubic meters of Gazprom’s gas for China
annually for the next 30 years, which makes it a $400 billion deal, according
to Reuters.
As of May 20, negotiators have
been unable to bridge difference in desired price. Negotiations between Russia
and China have been ongoing for nearly a decade, yet have seen increased
interest from Russia following sanctions from the U.S. and the EU tied to
Russia’s annexation of Crimea and tensions in East Ukraine.
If global diversification of
the Kremlin’s gas supply business is designed to mitigate the dependency of
Russian exports on European markets, it is unlikely to have much short-term
impact due to lack of necessary transport infrastructure. If a Sino-Russian
agreement is reached in the near future and construction begins by the end of
the year, project estimates suggest delivery would begin by 2018.
