Russia proposes Ukraine prepay for natural gas

Макроэкономика 10.04.2014 Russian Prime Minister Dmitry Medvedev proposed that the Ukrainian government prepay for natural gas supplies to Ukraine during an April 9 meeting with key Russian government members and President Vladimir Putin. He highlighted that the contract between Gazprom and Naftogaz allows Russia to start demanding the monthly prepayment for supplied gas, in case Naftogaz does not pay on time. Currently, Naftogaz is required to pay for all its received gas for a particular month by seventh day of the following month. According to Medvedev, Naftogaz owes USD 2.2 bln to Gazprom for gas supplied in March 2014. Ukraine’s total debt to Russia is estimated by Medvedev at USD 16.6 bln, which includes USD 2.2 bln in payables for gas, USD 11.4 bln that Russia wants Ukraine to pay after Putin declared the 2010 Kharkiv Accords invalid, and USD 3.0 bln in Eurobonds that Russia bought in December. Putin suggested that Medvedev hold “additional consultations” on gas payments “if our Ukrainian partners agree on such consultations.” Otherwise, Russia should act according to the signed contract, he said. Russian Finance Minister Anton Siluanov reported at the same meeting that he has an offer from his Ukrainian counterpart to buy a new Eurobond of USD 3.0 bln. “We will consider this offer as events unfold”, Siluanov added. In his turn, Ukrainian Energy Minister Yuriy Prodan informed journalists that Ukraine is not buying Russian gas in April and is not repaying its debt for gas, as pricing issues need to be clarified. Earlier, Gazprom declared that the price of Russian gas for Ukraine increased to USD 486/tcm in 2Q14 from USD 269/tcm in 1Q14. The Ukrainian side wants the 2Q14 price at USD 386/tcm, which would include a USD 100/tcm discount gained in 2010. Alexander Paraschiy: The Russian government’s position is that Ukraine agree on a new price for gas (USD 486), in exchange for which Russia will not demand prepayment and urgent repayment of debt for earlier-supplied gas. The Ukrainian position is that Naftogaz will not be able to repay the USD 2.2 bln debt until the IMF money arrives or Russia provides a loan, and it will not accept a USD 486/tcm monthly bill for gas, insisting on USD 386/tcm (or even USD 269/tcm). Ukraine’s advantage is that it has no reason to hurry with gas negotiations, as the peak consumption season is nearing its end. Ukraine can live without Russian gas for the next six months, as its average monthly gas consumption during 2Q14-3Q14 will not exceed 2.1 bcm (as we estimate) and can be covered by internal production (about 1.8 bcm per month) and some imports from the West.