Ukraine, Russia in stalemate after second round of gas talks

Макроэкономика 27.05.2014 The second meeting of the energy ministers of Ukraine, Russia and the EU, held in Berlin on May 26 to solve the natural gas dispute between Ukraine and Russia, brought no results, according to Naftogaz. In a May 26 press release, Naftogaz blamed “the non-constructive position of the Russian side” for the failure. Naftogaz expects the next trilateral meeting will be held by the end of this week. The first meeting, held on May 2 in Warsaw, was fruitless as well. The position of Ukrainian side remains the same as before, according to the release. Russia and Ukraine should agree simultaneously on both the price of gas that is being imported by Ukraine starting 2Q14, and the schedule of repayment of Ukraine’s debt for Russian gas. The position of the Russian side was modified from the previous talks. Russia will only start to discuss the gas price after Naftogaz agrees to pay USD 2.5 bln to Gazprom, according to Gazprom CEO Alexey Miller. In particular, Naftogaz should pay USD 2.0 bln by the end of this week as part of the repayment of debt for gas supplied by the end of March 2014, and it should pay USD 0.5 bln, as part of the May gas bill, by June 7. The Ukrainian officials at the talks agreed to discuss Russia’s offer with their government leaders, Miller told the Russia-24 television channel. Alexander Paraschiy: The position of Russian side was clear and understandable to us before the May 26 negotiations started. “We want Ukraine to repay that part of the debt that it is not denying,” Russian Energy Minster Aleksandr Novak told the Handelsblatt newspaper before the meeting. That’s USD 2.24 bln debt accumulated by Naftogaz for gas imports till end-1Q14. But now, instead of discussing how Ukraine will settle this USD 2.24 bln debt, the Russian side has decided to amend the subject of negotiations. We consider it a provocation that Russia is demanding Ukraine to pay USD 2.5 bln, including USD 0.5 bln for the May gas, for which the price had not been agreed upon. The Ukrainian side earlier stated that it will not pay for any gas supplied since April as there is no contractual basis to justify these payments. So by accepting Russia’s conditions, it would lose its negotiating power. We see a low chance that the gas dispute between Ukraine and Russia will be resolved by the end of the week, which means there is a high probability that Russia will halt its gas supplies to Ukraine on Monday or Tuesday. But that would be more of a problem for Russia and the EU, who will be restricted in their ability to supply and receive gas that is pumped through Ukraine.