Wednesday, October 22, 2014

Russia and Ukraine still need to finalize natural gas deal

After meetings on Friday between Putin and Poroshenko and then between Russian and Ukrainian negotiators and the EU Commission over the weekend, it appeared that an agreement would be finalized today but no accord was reached.



An interim deal was reached over the weekend. Progress was made in September and the interim deal would have provided Ukraine with sufficient natural gas to carry it through the winter unless the weather was quite cold. The meeting today was unable to work out problems having to do with Ukraine's ability to pay for the gas. The European Energy Commission, Ukraine, and Russia did agree on the price that Ukraine would pay for the gas $385 per thousand cubic meters providing the money was paid in advance. While Alexander Novak claimed that Russia needed further assurances that Ukraine could pay for the gas, there was also agreement that the group would meet again in Brussels in a week to try to resolve the issue.
 Ukraine is in desperate need of funds. It had requested another $2.55 billion in credit from the EU earlier in the day before the meeting. Ukraine had already agreed to pay off $3.1 billion it owes Russia for gas in order to ensure that Russia will supply gas this winter, even though Ukraine took the issue to an international court. Many EU countries are anxious to resolve the issue between Ukraine and Russia to ensure that their own supplies of natural gas from Russia are not disrupted. The EU receives about a third of its natural gas from Russia and about half of that comes through Ukraine. Russia too wants a deal since Gazprom which is state-controlled earns about $6 billion every month through its sales of natural gas to the EU.
The EU has brokered talks since last May when Russian president Vladimir Putin asked the EU to intervene. European Energy Commissioner Guenther Oettinger said: "We made another step towards a possible solution and are close to an agreement on important elements. Others still need to be addressed, such as the financial gap. At the next meeting, which we hope will be the final trilateral meeting, next Wednesday here in Brussels, we will be able to reach a decision and we'll have the signature of all the partners." In another move that might help solve the problem President Putin announced that Ukraine's debt for gas supplies was $4.5 billion, whereas Gazprom had previously said it was $5.3 billion.
Before Friday earlier talks were described as not very productive. However, after the meeting with Putin, Poroshenko announced in a TV interview the price agreement of $385 per 1,000 cubic meters of gas that would apply until the end of March next year. Russia cut off gas supplies to Ukraine but not the EU in June of this year, demanding that Ukraine pay off its existing debt. Ukraine and its European allies are anxious to forge an agreement before the cold weather sets in. Poroshenko wants the International Monetary Fund to help Ukraine pay off its debt to Gazprom. IMF officials will visit Ukraine after a new cabinet is formed following elections in mid-November. Ukrainian officials claim that the IMF will need to adjust the existing $17 billion bailout program as economic conditions in Ukraine have deteriorated significantly since April when the agreement was signed.