EU, Russia agree on May 26 trilateral meeting with Ukraine on gas issue

Макроэкономика 20.05.2014 The EU Energy Commissioner Günther Oettinger met his Russian counterpart, Energy minister Aleksandr Novak, on May 19, the Commissioner’s press service reported. They discussed the security of gas transit from Russia via Ukraine to the EU. Oettinger called it a “constructive meeting that helped to prepare the ground for the second trilateral meeting between the EU, Russia and Ukraine” (the first meeting, held on May 2, was fruitless). The new meeting may take place on May 26 in Berlin, if the Ukrainian side accepts this arrangement. According to Oettinger, the issue of the outstanding debt of Ukraine for Russian gas and pricing issues “are being discussed… in order to find a solution by the end of May”. The EU Commissioner stressed the need for an agreement on the price of Russian gas supplied to Ukraine in 2Q14. He stated that the bill for Russian gas delivered before 2Q (USD 2.24 bln total) is “undisputed”, but Ukraine still fails to pay it. Oettinger is expecting an agreement on the price of Russian gas “somewhere in the middle” between USD 268.5/tcm (as demanded by Ukraine) and USD 485.5/tcm (as demanded by Russia), as Interfax cited from his May 19 interview to ZDF. Aleksandr Novak told journalists that a provision of financial aid to Ukraine may be discussed at the possible May 26 meeting. Alexander Paraschiy: Statements of the Russia and EU energy ministers may suggest that the three sides are indeed close to solving the issue of pricing Russian gas for Ukraine. The Ukrainian side does not seem to be so optimistic; otherwise it would have paid the “undisputable” part of its gas debt to Russia and would not be increasing the pumping of Russian gas in May, until Russia officially cuts gas supplies to Ukraine. Sooner or later, we believe that Russia will have to agree on some discounted gas price for Ukraine, compared to its demand of USD 485.5/tcm. A possible background for pricing that is close to “Oettinger’s middle” is the so-called Kharkiv Agreement of 2010. Based on that agreement, the gas price would now have been USD 385.5/tcm. Though, at the moment we do not see a legal ground for coming to this price. This price assumed that Russia would provide a USD 100/tcm discount for Ukraine in exchange for Ukraine’s hosting Russia’s Chernomorskiy Fleet in Crimea. Now that such exchange is meaningless for Russia, we expect that the Kremlin will demand some other concessions from Ukraine, or, most likely from the EU.