Naftogaz and Gazprom are stuck in negotiations on gas payments

Макроэкономика 05.12.2013 Naftogaz of Ukraine (NAFTO) Chair Yevhen Bakulin stated on December 3 that the Ukrainian and Russian gas monopolies reached some consensus on how Naftogaz will pay for gas imports in 2013. In particular, he claimed that USD 765 mln in arrears for August gas supplies will be repaid by the end of this month, while payments for gas imports in October-December will be “shifted to spring of next year.” The next day, Gazprom CEO Alexey Miller informed journalists that negotiations on settlements for gas are ongoing, according to Interfax. Miller clarified that Naftogaz’s total debt for August-November imports was USD 2.02 bln. On November 28, Naftogaz declared its gas stock decreased 0.4 bcm month-to-date to 17.6 bcm. Alexander Paraschiy: The government’s original plan (the so-called gas balance) for 2013 stipulates that Ukraine should begin the new year with gas stockpiles of 13.5 bcm. To meet its goal, Ukraine will have to import about 2.3 bcm of gas in December (assuming average monthly consumption of gas at 7 bcm in winter, and domestic monthly production of 1.8 bcm), which will cost more than USD 900 mln to Ukraine. Even if Naftogaz will be able to settle its August arrears by the end of 2013, its debt to Gazprom will most likely exceed USD 2 bln as of New Year’s Day. Since the future of the Ukrainian government looks shaky, given the ongoing mass protests on Ukrainian streets, it will be hard for Naftogaz and the Cabinet of Ministers to reach a deal with Russia on the outstanding gas issue in the coming days (as they have nothing to promise to the Russian side). Therefore, any restructuring of gas arrears fully depends on Gazprom’s good will. That said, we see the Russian monopoly may have no choice but to offer some concessions to Naftogaz, otherwise there is a risk for interruptions in supplies of Russian gas to EU countries.