Interview by Alexey Miller to Russian media companies

Question: Mr. Miller, what is the situation with Ukraine now?

Alexey Miller: You know, presently Ukraine doesn’t have enough funds for resuming gas supplies. We are in direct touch with the management of Naftogaz of Ukraine, the company which is a party to the contract. There are financial issues. That’s why unfortunately we can’t expect Ukraine to resume supplies in the near future.

I suppose that provided an optimistic scenario, Ukraine will resolve its financing issues during September. This poses certain risks though. Why? Because currently gas is being injected into Ukrainian UGS facilities. At present, according to the recent reports, 14.4 billion cubic meters of gas has been injected into the Ukrainian UGS facilities. The daily injection volume maintained by Ukraine owing to the domestic production and some minor reverse supply volumes is insufficient for reaching the level of 19 billion cubic meters of gas by the start of the withdrawal season. It is this volume – 19 billion cubic meters of gas in the Ukrainian UGS facilities – that guarantees uninterrupted and reliable gas supply to consumers in Europe and failsafe passing of the autumn/winter period by Ukrainian consumers.

That is why we state that without additional gas volumes – and these additional gas volumes may be provided only by Russia, by Gazprom – Ukraine won’t be able to inject 19 billion cubic meters of gas into its UGS facilities.

Question: But they said they would buy it through Europe.

Alexey Miller: As for that ‘through Europe’ thing, it should be understood that it is the same Russian gas. Reverse gas is still Russian and it comes to Ukraine once again. But the key issue is that of financing. Speaking of energy security, reliable and uninterrupted gas supply to Europe and Ukraine in the coming winter, certainly, the key to this problem is financial resources.

Question: Will you make any concessions?

Alexey Miller: You see, we work in strict compliance with the contract. The price is calculated on the basis of the formula. The contract provides for the possibility of a discount. It is given through the export duty following the Russian Government Directive. You know, the prices are set quarterly, thus, the discount may also be given quarterly. Moreover, we see how highly volatile the prices are in energy markets today. That is why the Russian Government has made a decision on giving a discount on the third quarter price, but unfortunately Ukraine can’t even enjoy these benefits, because it doesn’t have even this amount of money today.

As for the fourth quarter, we observe a downward trend in gas prices. We forecast that in the fourth quarter the price for Ukraine will total USD 252 according to the formula. Certainly, we’ll also look up to the prices in the neighboring European countries. At present, it is impossible to say what discount may be given, I stress it – subject to the high price volatility. But by the start of supplies in the fourth quarter Russia will make this decision.

Question: What was the volume of export to Europe in August?

Alexey Miller: According to the most recent data, in August the volume of Gazprom Group’s marketable gas exported to countries beyond the CIS reached 13.2 billion cubic meters, which is 23.2 per cent more than in the similar period of 2014. We see that the demand in Russian gas is growing and it is going up at a rapid pace. Of course, this can’t but please us.

Question: Could you give any comments on the trilateral agreement on gas among Ukraine, Russia and the EU?

Alexey Miller: Talking about the concept itself of trilateral agreements, I’d like to stress that this kind of format was endorsed by Russian President Vladimir Putin and was meant to help Ukraine find a money source to buy gas. But nothing has happened since the last year’s initiative by Putin. The problem is still there. Indeed, this is the only problem with gas supplies to Ukraine. So, if we speak about a trilateral agreement, then it makes sense if another party, i.e. the European Commission, undertakes certain obligations to arrange financing for gas purchases by Ukraine.

Question: Does it mean that if there is some money on the table – then you’ll have the agreement?

Alexey Miller: Well, if the obligations are here as well – of course it’s a yes. The trilateral agreement means that all its parties are supposed to be happy.

Question: You said it once that the contract was a more viable option.

Alexey Miller: We didn’t speak about the contract as a more attractive alternative, we meant that commercial terms and conditions for supplies were set forth by the contract. Nowadays, everything – and I’m talking about business, price and technical terms and conditions – is stipulated by the contracts and its addendums. There is no need to sign any other documents with regard to settling the contract.

However, the agreement – and I’d like to focus precisely on that agreement signed last October – was developed to bail out Ukraine and help Naftogaz of Ukraine, which is in a poor financial state now.

That’s why the European Commission is a party to these consultations. The agreement is reasonable only if the European Commission undertakes clear and unambiguous commitments to arrange the financial support to Ukraine for buying natural gas.