Talks with Ukraine may be resumed if gas debt is fully settled

A working meeting took place today among Dmitry Medvedev, Russian Prime Minister, Alexander Novak, Russian Energy Minister and Alexey Miller, Chairman of the Gazprom Management Committee.

Talks with Ukraine may be resumed if gas debt is fully settled
Talks with Ukraine may be resumed if gas debt is fully settled

Alexey Miller, Dmitry Medvedev, Alexander Novak. Photo from Russian Government website

Alexey Miller informed Dmitry Medvedev that Naftogaz of Ukraine was switched to prepayment for gas supply due to persistent non-payment. Today Ukraine’s debt for Russian natural gas supply totals USD 4.5 billion. Gazprom filed a lawsuit in Stockholm Arbitration seeking to recover this sum from Naftogaz of Ukraine.

Dmitry Medvedev said that the Russian party could resume gas-related talks with Ukrainian colleagues only provided that gas debt was fully settled.

Gazprom website Editorial Board

Verbatim transcript of meeting

Dmitry Medvedev: In the recent days, or I’d even say weeks, the Government, and for the most part the Energy Ministry and joint stock Company Gazprom have been engaged in complicated talks with Ukraine concerning the debt and conditions for future cooperation. Unfortunately, these talks led nowhere. Just last night I talked to Mr. Miller – yesterday you met with Ukrainian authorities. Could you provide some details of what was discussed and why Gazprom had to switch Ukraine to prepayments for natural gas supply.

Alexey Miller: Yesterday the last round of trilateral consultations involving the European Commission took place; in the evening a meeting was held with Ukrainian Prime Minister Mr. Yatsenyuk. And it should be stated that it is due to the non-constructive stand of the Ukrainian Government that the prepayment scheme was introduced. In fact, the Ukrainian party substitutes and has been substituting the subject of our negotiations, because the challenge we currently face in our relations in the gas sector with Naftogaz of Ukraine, our Ukrainian colleagues, is the issue of consistent non-payment for Russian natural gas supply.

At present the debt for gas supply totals USD 4.5 billion and the unpaid gas volume – 11.5 billion cubic meters. Our demand was for the Ukrainian party to settle the debt for November and December (USD 1.451 billion) and demonstrate progress with paying off the April and May debt, which is USD 500 million. Moreover, we made concessions to our Ukrainian colleagues and the amount of debt we asked to settle as the first step (in order not to install the prepayment scheme) was less than the real amount of debt for the said period. That’s the first thing. And secondly, we did not link the April and May debt in the amount of USD 500 million to any price at all and we were stating that no matter what the price was, Ukraine had to pay way more than USD 500 million for April and May supply.

But the Ukrainian party actually took the stand that may be referred to as open blackmail, the substitution of notions and subject of talks. The Ukrainian Government and the Prime Minister stated that Gazprom and Russia had to provide extra-low prices for Ukraine, almost level with those of the Eurasian Economic Union. Otherwise, if Ukraine were not granted such prices, it would not settle the debt for gas supply and would take our gas for free in the amount Ukraine wanted.

Dmitry Medvedev: Mr. Miller, let us just focus our attention on the following: what has been offered to the Ukrainian colleagues recently? Firstly, they were offered to pay off the debt in installments, weren’t they?

Alexey Miller: Yes, they were.

Dmitry Medvedev: Secondly, the issue of price formation was addressed; our party both on the corporate and the Government level proposed that this price be formed with no export duties charged, thus giving our Ukrainian colleagues an opportunity to purchase gas under the same conditions it had been supplied to the former Government – that is, when Yanukovich was the President of Ukraine. That is to say, those were absolutely commensurate conditions – the conditions commensurate with the discount they used to receive as a result of the agreement achieved on the Black Sea Fleet, which was USD 385. That’s the second thing. What other offers were made to the Ukrainian party on the corporate part?

Alexey Miller: The conditions that were offered to the Ukrainian party in the end are even better than the conditions for gas supply granted to the Ukrainian Government back when Yanukovich was the President. Because on our part we, firstly, made a proposal that Russia guaranteed a permanent discount of USD 100 for a thousand cubic meters of gas and in the end we even proposed that the Russian party guaranteed that this discount remained permanent for the duration of the contract, that is, till late 2019. That’s the first thing. And secondly, we actually made an offer to our Ukrainian colleagues to refuse the take-or-pay principle for 2014. The current economic situation in Ukraine is really grave and we understand that it is not easy or even just impossible for Naftogaz of Ukraine to provide for offtaking our gas in the minimal annual contracted volume of 41.6 billion cubic meters. At first we told them it could be 34 billion, then – 27 billion and in the end we suggested that in 2014 the Ukrainian party should withdraw the volume it found comfortable at the price of USD 385 for a thousand cubic meters of gas. Certainly, there were no such conditions for gas supply during Yanukovich’s presidency.

Dmitry Medvedev: So, in other words they were offered extra favorable conditions even compared to the gas cooperation period of the previous presidency; however, they did not accept them and in fact artificially created a gas crisis. This is sad and it really smacks of blackmail you’ve mentioned. But I believe that finally it will recoil on the Ukrainian economy; I’d call such actions absurd and unreasonable. Although, bearing in mind the inadequate behavior of the Ukrainian Minister of Foreign Affairs, I am not surprised by anything. What’s bad is that this will directly influence both the Ukrainian economy and people who live in Ukraine.

Mr. Novak, you also took part in trilateral talks involving the capabilities of the European Commission, the European Commissioner Mr. Oettinger. I’d like to point it out that the European Commission at least tried to help advance these talks, prompting the Ukrainian party to take a constructive stand, but it didn’t happen.

What are your conclusions?

Alexander Novak: Mr. Medvedev! That’s true, there have been seven rounds of the trilateral talks among Russia, the EU and Ukraine, in which, by the way, on our part Deputy Ministers of Finance, Economy and Foreign Affairs took part, as well as Mr. Alexey Miller, Head of Gazprom. I would note that we really saw the interest expressed by the European Commission in settling the situation before the winter heating season. We saw this proactive attitude within the talks. The talks were held even at late hours, actually at any time we agreed on.

I would also say that within such complicated talks, when the Ukrainian party took a destructive stand, the majority of our proposals Mr. Miller has just enumerated were supported by the European Commission. It was said that the undeniable debt for November and December in the amount of USD 1.451 billion had to be settled as soon as possible and that payments for earlier supply – in April and May – at least had to start. We also found understanding in terms of the debt repayment schedule as well as Gazprom’s offers to Naftogaz concerning the price. The mentioned price was found fair to be the subject of the talks and to further facilitate the progress with supply issues in future.

In this context we saw that the European Commission certainly had no leverages over the Ukrainian party for the decision to be made and a compromise to be found. Nevertheless, we found some understanding during our talks.

Dmitry Medvedev: In all appearances, there is a factor here not related to the European Commission activities, which is the factor of other countries that influence the development of this situation. Mr. Miller, when such conflicts occur, it is usual to take such cases to the court. What steps has Gazprom taken in this respect?

Alexey Miller: Today Gazprom filed a lawsuit in Stockholm Arbitration to recover USD 4.5 billion in debt from Naftogaz of Ukraine. Moreover, it is not impossible that in the nearest future we will file new lawsuits.

Dmitry Medvedev: It’s the right thing to do. The matter should be settled in court. If our colleagues do not hear the voice of reason, we’ll have to press the case in the court, the more so all the evidence in the said argument favor Gazprom, which has been for a long time supplying the Ukrainian party with gas for free.

I suppose that we should not reject all the possibilities for the dialogue. If finally our Ukrainian colleagues hear the voice of reason better and go back to the negotiations, I’ll stress it again, of the extra favorable preferential proposals made by the Russian party, then, I suppose, we’ll be ready to renew the talks, but only provided that the debt is fully settled.

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