Russia Halts Talks With Ukraine Over Gas Debt

Since June 16, Ukraine has received no gas from Russia because it missed a deadline for paying off nearly half its debt of more than $4 billion it owes for previous gas deliveries. Now it won’t even be able to talk to Russia about how to resolve the problem.

“Neither the situation nor the Russian position has changed during these days [since the gas cutoff],” Energy Minister Alexander Novak said June 19 in Moscow. “We are waiting for the payment for Russian gas.” Russia’s deliveries of gas to Europe through Ukraine have so far not been affected. Once that debt is paid, Novak said, Russia would be ready to resume negotiations. Still, Novak says he personally has seen no guarantee that Ukraine is ready to pay the arrears.

Ukraine’s gas company, Naftogaz, owes its Russian-owned counterpart, Gazprom, an estimated $4.46 billion for previous deliveries of gas. On June 16, Naftogaz missed a deadline to pay nearly $2 billion of that debt, prompting the cutoff.

In an effort to ensure the flow of gas to the West, Ukraine’s parliament is considering legislation that would allow the country’s gas transit and storage facilities to be leased as joint ventures with the United States or EU member countries. Under the proposal, Ukraine would have a 51 percent share and foreign investors would be offered 49 percent.

Ukraine is now enduring its third Gazprom cutoff since 2006, and is looking for ways to reduce its reliance on Russia for energy. Still, Kiev needs the income from delivering Russian gas to Europe and wants to make its transit system more reliable.

As a result, acting Ukrainian Prime Minister Arseny Yatseniuk told parliament on June 19 that the joint venture, if approved, would mean an unbroken flow of fees from EU gas customers as well as investment income. He added, “If Europeans join this company, Russia will not build Southstream.”

Southstream is a pipeline that Gazprom is building to ship gas through southeastern Europe, across the Black Sea and on to Western Europe, bypassing Ukraine altogether. That would deny Ukraine of any transit payments it’s been receiving from the West.

This piece is cross-posted from OilPrice.com with permission.