Ukraine-Russia Oct. 21 gas talks only achieve new talks on Oct. 29

Макроэкономика 22.10.2014 Ukraine and Russia failed to find common ground on their natural gas pricing dispute during their talks in Brussels with EU mediation on Oct. 21, all the participants informed journalists the same day. The core issue that prevented reaching the compromise were disagreements concerning the legal registration of the agreement. Its earlier reached conditions remained unchanged, namely that the “winter price” of Russian gas to Ukraine at USD 385 /tcm will be supplied on prepayment and Ukraine will pay at least USD 3.1 bln by end-2014. The only thing that all the sides agreed upon was scheduling a new trilateral meeting for Oct. 29. At the talks, the Russian side offered to sign a non-binding agreement that stipulated the interim parameters of gas supply, according to Ukraine’s Energy Minister Yuriy Prodan. “And the Russians themselves say that it is not legally binding. Why then should one sign it if it does not establish the responsibility of the parties?,” he said, as reported by the Yevropeyska Pravda news site. The Ukrainian side (as it had agreed with the EU side) insisted that the deal should be formed as part of an interim binding contract between business entities, Naftogaz and Gazprom. The Russian side indicated it won’t allow Gazprom to sign any document, explaining that a new deal between Gazprom and Naftogaz might affect the legal process in the Stockholm Arbitration Court regarding the validity of the 10-year gas contract signed in 2009. Russian Energy Minister Alexander Novak said he believes that no deal is needed to implement the earlier reached agreements and it will be enough for the Russian government to issue a respective decree, or for the Russian and Ukrainian governments to sign a political agreement, as reported by the Interfax-Ukrayina news agency. In turn, the Ukrainian side stated that the reached agreements are impossible to implement based on the existing contract between Gazprom and Naftogaz. Prodan is planning to address the Stockholm Arbitration Court to ask for clarification as to whether an interim contract could affect the court hearings. He said he expects the response will be prepared by the next meeting on Oct. 29. The critical differences in gas talks became all the more evident with the demarche of the Russian side at the day’s press conference, Yevropeyska Pravda reported. Once Prodan took the podium after the Russians offered their view, the entire Russian delegation left the room. Alexander Paraschiy: This latest turn of events is actually what we expected, given the lack of willingness of the Russian and Ukrainian sides for compromise. Ukraine can theoretically live without Russian gas this winter, so for Kyiv the deal is not critical. The indifference of the Russian side is apparent, and it can be also illustrated by the fact that Russia has declined a proposal that some EU-based company buy Russian gas at the Russian-Ukrainian border to secure some reserves for the EU and Ukraine (as reported by Interfax-Ukrayina, referring to Prodan). The only party eager for a deal is the EU, which isn’t ready to start cutting gas consumption this season, unlike Ukraine. Progress in the next scheduled (Oct. 29) talks is important for Gunther Oettinger, whose mandate as EU energy commissioner expires at the end of this month. Afterwards, if the Oct. 29 talks fail, the date of the next round of talks will be unclear. Theoretically, the new EU government might be more effective than the current one, which has failed to help Ukraine and Russia find common ground since April 2014. But thus far, our base-case scenario foresees no deal on gas between Ukraine and Russia this year.