Naftogaz of Ukraine should pay off its debt to Gazprom


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

Naftogaz of Ukraine should pay off its debt to Gazprom

Dmitry Medvedev

The meeting addressed the relationship of Russia and Ukraine in the gas sector.

Alexey Miller informed Dmitry Medvedev that Naftogaz of Ukraine hadn’t yet settled its debt for the supplied gas. Nowadays it stands at USD 2.196 billion and, considering the late payment penalty, it amounts to USD 2.440 billion. A letter with a proposal to pay was sent to the Ukrainian company today. 

It was highlighted that starting from April 1, 2015 the discount for Russian gas will discontinue for Ukraine, and all supplies will be provided in strict compliance with the existing contract. Dmitry Medvedev authorized Gazprom to have Naftogaz of Ukraine pay off its debt.

Special attention was given to gas supplies to Europe. Alexander Novak stated that the contract for gas transit via Ukraine would expire in 2019. Afterwards, natural gas will be carried to European consumers by a new route across Turkey. A gas hub will be set up on the Turkish-Greek border. The European Commission jointly with gas consuming countries from Southeastern and Central Europe need to promptly make the relevant infrastructure arrangements so that the agreed amounts of gas were delivered to European consumers.

Abstract from verbatim transcript of the meeting opening

Dmitry Medvedev: I have invited you here to discuss the situation regarding gas supplies and some other issues of our cooperation with Ukraine, first of all, in the energy area.

Let’s begin with the gas topic. Mr. Miller, how do the matters stand? What problems exist today? Is the debt repayment process going on? What are we going to do soon?

Alexey Miller: Ukraine made a prepayment for the volume of 1 billion cubic meters of gas to be supplied in January 2015. By now, Ukraine has received a little over 600 million cubic meters of gas being supplied within the so called ‘winter package’. The accord on terms and conditions of the ‘winter package’ was reached in the trilateral format among Ukraine, European Union and Russia on October 30, 2014. Pursuant to this accord, Ukraine is provided with gas on the conditions that this country settles its USD 3.1 billion supply debt which accumulated in November – December 2013, April, May and June 2014. Over this period 11.5 billion cubic meters worth a total of USD 5.296 billion was supplied to the country.

Ukraine fulfilled its obligations and paid off USD 1.450 billion before the start of ‘winter package’ supplies. Late last year it repaid the debt in the amount of USD 1.650 billion. All in all, it makes up USD 3.1 billion. But it’s only a part of the debt and Gazprom sent a letter to Naftogaz of Ukraine today, saying that the USD 2.196 billion debt remained unpaid and interest was accrued on the amount of overdue payments strictly in accordance with the contract signed on January 21, 2009. The ‘winter package’ remains in force till the end of March 2015 and, starting from April 1, the discount granted by the Russian Government will be terminated in line with the Government’s order. Since April 1, natural gas will be delivered to Ukraine strictly according to the contract.

Mr. Medvedev, here is a copy of the letter sent to NAK Naftogaz of Ukraine. It concerns the accrued indebtedness – USD 2.196 billion, and the necessity to pay off the late payment penalty as well.

Dmitry Medvedev: Well, of course, debts have to be paid off. Despite all the accords we’ve managed to achieve with Ukraine over the recent period, our arrangements are effective only if the existing debts are paid off. I think it was absolutely an adequate and right decision to submit the relevant proposal to the Ukrainian party, even if to bear in mind that we’ve made a lot of efforts recently to support the weak Ukrainian economy through its difficult times.

As for the supplies starting on April 1 – we agreed that the discount offered by the Russian Government would be in place for a limited time only. The discount ends on April 1 and later on all terms and conditions of the existing contracts remain valid, so the cornerstone agreements backing up the gas cooperation between Russia and Ukraine should determine the price. Anyway, we’ll see how it goes. It’s needless to say that we are ready to discuss various scenarios for cooperation and such an approach should be used in the future. Please make sure all the debts are paid off. If you need any state assistance, we’ll provide the necessary support.

Alexey Miller: The overall debt, i.e. the principal debt plus late payment penalty, accounts for nearly USD 2.440 billion.

Dmitry Medvedev: I see. However, the situation is not new, it’s just another reminder that it’s time to pay off the existing debts, all the more so the Ukrainian partners are actively seeking the financial support to keep their economy afloat and also to repay the existing debts – without it, it’s impossible to make regular investments in the Ukrainian economy, it’s impossible for the national financial sector to work steadily. I’ll say it again – one good turn deserves another.

In addition to the payment issue, we’ve got a whole range of other ones tied both with Ukraine and the European Union. Vice President of the European Commission visited Russia just a few days ago. As far as I know, he met with both of you, Mr. Miller and Mr. Novak, and you discussed the issue of reliable gas supply and transit. Could you please tell me in brief the details of your talks, what you’ve agreed on and what to expect next. Thank you.

Alexander Novak: Mr. Medvedev, on January 14 Mr. Sefcovic, Vice President of the European Commission (Maros Sefcovic, European Commission Vice President for Energy Union) visited Moscow by mutual agreement to negotiate the energy cooperation issues. Last year the Russia – EU energy dialogue was suspended upon the European Commission initiative. Together with Vice President of the European Commission we looked into the possibility of resuming this energy dialogue and agreed that within a month we would prepare a proposal on the format of such an energy dialogue. It concerns topic groups, advisory panels and resuming the work of the Permanent Partnership Council. We also addressed a whole range of the energy cooperation issues, with a focus on the energy infrastructure needed for reliable energy supplies to European consumers of Russian gas.

As we know, following the last year’s results, the share of Russian natural gas in the European import totaled 62 per cent and, therefore, Russia’s role is very important in this respect, that is why the issue of promoting the infrastructure construction is on the agenda. I informed Vice President of the European Commission that the Russian Federation was forced to make a decision on stopping the South Stream construction. First of all, it was due to the fact that we fulfilled all our obligations under the intergovernmental agreements signed by the Russian Federation and the European countries that South Stream was to cross.

In the meantime, from 2011 to 2014 the European Commission was making every effort to prevent this infrastructure project from coming into life. It may be proven by the mere fact that during 2014 the European Parliament twice passed the resolutions that expressly prohibited the South Stream project in the countries, with whom we had signed intergovernmental agreements. In addition, the necessary permits for laying both the offshore and onshore gas pipeline sections were not issued in due time.

In this context I told Mr. Sefcovic that in December the Russian Federation made a decision on constructing a new gas pipeline route across Turkey with a hub on the border between Turkey and Greece with the annual gas supply to the hub in the amount of 63 billion cubic meters. Gazprom is currently taking steps to deliver this project jointly with its Turkish partners. It fully complies with the European law, and that is what the European Commission has been basically pressing for.

At present, bearing in mind that the transit agreement expires in 2019 and the gas volumes to be supplied to European consumers will be delivered to the border between Turkey and Greece, as I’ve already mentioned, the European Commission jointly with the consuming countries (Southeastern and Central Europe) have to promptly decide on developing their own infrastructure for the required gas volumes to reach European consumers.

We think that this work should be done as soon as possible, because it takes more than just a year to carry out major projects of a kind. In order to receive gas in the mid-term, the work should start today.

Dmitry Medvedev: I see. I’d like to point it out once again that South Stream was a great project. We actually did a lot of job as part of it. The decision made by the Russian Federation is neither political, nor by any means emotional – it is a legal decision based exactly on what you’ve mentioned. That is why all our attempts to get down to work came to nothing in fact. We were forced out of the project. That is the history of the project and the decisions adopted by the Russian Federation and rejected by the European Commission.

It is sad, but life goes on and there is a whole range of other ideas you’ve just dwelled on. We are ready for cooperation but only under the terms we’ll be able to agree on.

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