Monday, October 20, 2014

Global Impact: Ukraine Finds Itself with Few Fiscal Resources to Pay for Natural Gas

According to Reuters, a tentative agreement between the Ukrainian and Russian presidents has raised hopes of ending a dispute in which Moscow has halted natural gas supplies to Kiev, but several obstacles remain to be overcome.
Movement on the gas dispute was the only sign of progress at talks between Vladimir Putin and Petro Poroshenko on Friday (October 17) which failed to resolve differences over fighting in eastern Ukraine and a worsening bi-lateral relationship.
The two sides, whose energy ministers will meet in Brussels on Tuesday (October 21), still differ over how to calculate Kiev's huge gas debt and the schedule for payments. Also, there are doubts about the Ukraine's capacity to pay its way. 
"The devil is in the details. I don't think that Russian gas will be delivered soon to Ukraine," a Russian government source close to gas talks told Reuters.
After European Energy Commissioner Guenther Oettinger met Ukrainian officials in Kiev on Monday (October 20), Ukraine's energy firm Naftogaz said they agreed that the forthcoming talks in Brussels should be aimed at an interim agreement for Russian gas supplies and transit to Europe.
"Such an agreement should contain clear-cut guarantees of the supply of agreed gas volumes by Gazprom, on the one hand, and a guarantee of payments for the supplied gas by Naftogaz, on the other," Naftogaz said in a statement without giving details on price, debt and volumes.
Oettinger will chair and mediate Tuesday's meeting between Ukraine's Yuri Prodan and Russia's Alexander Novak.
She said they were discussing the price, the number of payments Kiev should make and how much gas Ukraine will get from Russia over during the course of the winter.
Russia annexed Crimea in March 2014 and pro-Russian separatists rose up in April in east Ukraine in a conflict that has killed over 3,700 people.
COMMENT: All of the rhetoric aside, the Ukraine does not have the funding to pay for previous or future Russian gas and no country has volunteered to help them pay for it.
Moscow cut off gas supplies to Ukraine in June 2014 after failing to secure a deal on the unpaid bills and price, and pressure has been mounting on the former Soviet republic's leaders to reach an agreement as winter approaches. 
European leaders fear there will also be disruptions in supplies of Russian gas to the rest of Europe via Ukraine, but say that ending the gas dispute could help build trust overall.
Poroshenko, who met Putin in Milan on Friday (October 17), said they had reached a preliminary agreement on a price until March 31.
The interim price would be $385 per 1,000 cubic meters--much higher than the average amount of some $350 that the Russian gas exporter Gazprom charges European companies, but $100 less than Russia had demanded.
The EU wants to avoid a repeat of disputes in 2006 and 2009 in which its gas flows were disrupted--it gets a third of its gas supplies from Russia, half of that via Ukraine.
Moscow cut off gas supplies to Ukraine in June after failing to secure a deal on the unpaid bills and price, and pressure has been mounting on the former Soviet republic's leaders to reach an agreement before winter arrives.
Poroshenko, who met Putin in Milan on Friday, said they had reached a preliminary agreement on a price until March 31, which in itself is moot.
The interim price would be $385 per 1,000 cubic meters--much higher than the average amount of some $350 that the Russian gas exporter Gazprom charges European companies, but $100 less than Russia had demanded.
Despite halting Ukraine's supplies, Russia has continued the flow via Ukraine to the rest of Europe, though Putin has said there could be disruptions in winter because Ukraine could siphon off gas from the pipeline system.
Putin said on Friday Ukraine's debt for Russian gas supplies stood at $4.5 billion, considerably less than the $5.3 billion previously demanded by Gazprom. A spokesman for the company said the decrease in debt was due to a recalculation of the second quarter price to $385 per 1,000 cubic meters from $485.
Ukraine has also been unwilling to make any pre-payments for Russian gas.
The Russian energy ministry said on Friday Ukraine had agreed to make a first debt payment of $1.45 billion by the end of this month and another $1.65 billion by the end of the year.
Ukraine is likely to buy up to 5 billion cubic meters of Russian gas this winter, but state coffers have been drained by the conflict in the east, despite a cease-fire which exists in name only.
Kiev faces a $3.5 billion funding shortfall for this year and next, but the  IMF has said the government should be able to cover most of it with planned debt issues and an expected $900 million in further donor support.
"This time all sides appear to be in agreement. But it remains unclear where Ukraine would get the money for either the back payment for the gas delivered or the prepayment for future gas. Ukraine does not have the means to pay, and no nation has offered the Ukraine a loan to finance this gas," analysts at Sberbank CIB said.
Putin said on Friday Ukraine's debt for Russian gas supplies stood at $4.5 billion, considerably less than the $5.3 billion previously demanded by Gazprom. A spokesman for the company said the decrease in debt was due to a recalculation of the second quarter price to $385 per 1,000 cubic meters from $485.
Kiev had balked at the $5.3 billion figure and said the price used to calculate the arrears should be $268.5--the cost of gas in the first quarter. Ukraine has also been unwilling to make any pre-payments for Russian gas.
The Russian energy ministry said on Friday Ukraine had agreed to make a first debt payment of $1.45 billion by the end of this month and another $1.65 billion by the end of the year.
Kiev faces a $3.5 billion funding shortfall for this year and next but the International Monetary Fund has said the government should be able to cover most of it with planned debt issues and an expected $900 million in further donor support.
"This time all sides appear to be in agreement. But it remains unclear where Ukraine would get the money for either the back payment for the gas delivered or the prepayment for future gas. Ukraine does not have the means to pay, and no one has yet offered the country a loan to finance this gas," analysts at Sberbank CIB said.

No comments: