Ukraine's state-run energy firm Naftogaz claimed "economic victory" after securing a deal with Russia's Gazprom to get gas at a cheaper price through the end of June - but analysts have not been so quick to celebrate.
The deal was reached despite the two sides being mired
in an ongoing conflict over gas prices that has ebbed and flowed in parallel
with the war in eastern Ukraine, where Ukrainian forces continue to battle Russian
forces and their proxies.
In announcing the deal on April 1, Energy Minister
Volodymyr Demchyshyn said the agreement reached was the “victory
of an economical approach to relations between Naftogaz and Gazprom over a
political one,” implying that common sense had prevailed despite the ongoing
tensions.
The terms of the new contract will see Naftogaz
continue to buy gas from Gazprom but at a lower price: $247.18 per 1,000 cubic
meters, compared to $329 per 1,000 cubic meters paid in
the first quarter of 2015.
The discount comes after Demchyshyn said Naftogaz
would continue to buy gas only if the price were reduced to about $250 per
1,000 cubic meters, a request apparently heard loud and clear by Russian Prime
Minister Dmitry Medvedev, who signed a decree on April 1 extending an earlier discount of no more than $100 per 1,000 cubic
meters.
“We got an economically-based market price that is
lower than the price from European countries. This temporary deal covers only
the second quarter,” Demchyshyn said in an online statement on April 1. “Yet it
will allow us to not only start to accumulate gas for the autumn-winter period,
but also establish a format for relations in the future.”
He added that negotiations are planned this month in
Berlin for a long-term agreement to cover the period through the end of the
heating season for 2015-2016, “and we plan to come to an agreement based on the
same formula for determining a price.”
Gazprom head Alexei Miller confirmed the new terms on
April 2, saying the price had been set at $247.18 per 1,000 cubic meters in an
official press release.
The price dispute between the two sides hit a fever
pitch in December, when Gazprom prompted alarm throughout Europe after
threatening to shut off gas to Ukraine completely.
Gazprom and Naftogaz are set to go head to head at the Arbitration Institute of the Stockholm Chamber of Commerce in early 2016 to settle the
matter of a $2.4 billion gas debt that Gazprom says Kyiv owes but one that the
Ukrainian government doesn’t acknowledge.
The two sides are bound by a 10-year
gas agreement signed in 2009 when lawmaker Yulia Tymoshenko was prime minister.
She went to jail over the gas deal during Viktor Yanukovych’s truncated
presidency. Kiev says the deal is unrealistic in light of the country’s new
circumstances and falling oil prices.
Analysts told the Kyiv Post after the new deal was
announced that the more lenient terms granted by Moscow would likely not last,
and that they may have more to do with Gazprom wanting to save face ahead of
the arbitration hearings.
The take-or-pay clause of the contract, which forces
Kyiv to agree to a certain volume and pay for it even if it doesn’t use it all,
will be suspended for the second quarter of the year, Miller said. Miller made it very clear
that the new terms for Kyiv “would not have any influence on the legal
positions of both sides in the Stockholm arbitration court.”
Alexander Paraschiy, an analyst at Concorde Capital, told the Kyiv Post the deal could be seen as a victory
for Kyiv – but only a temporary one.
“We still don’t know what sort of
concessions the Russian government might be hoping to get from such a ‘gesture
of goodwill.’ It’s clear that this isn’t the end of the gas conflict. The final
say in that conflict will be given by the International Arbitration Court. But
it is at least encouraging to see that the two sides have learned to come to an
agreement on conditions of cooperation until the court hearings,” Paraschiy
said.
He said it had been in Gazprom’s best
interest to grant Kiev a discount and make a compromise.
“Gazprom suffered major damage to its
reputation and also financial losses from attempting to leave Ukraine without
gas last year. Clearly, it wouldn’t have been wise for the company to continue
to put pressure on Ukraine,” he said.
Dennis Savka, an energy
sector analyst at Kyiv-based investment bank Dragon
Capital, said there was nothing particularly surprising about the new terms.
“With the start of
spring, Ukraine doesn’t really need Russia’s gas (unlike in the winter). So
that’s why the Russian side agreed to this without any extra negotiations,”
Savka said.
A real victory, he said,
would be a long-term contract “that wouldn’t require constant haggling over a
new discount” and would offer a lower base price.
Stanislav Batryn, a partner at Lionsgate Litigate law firm, was equally skeptical of the
deal, saying it was not a victory but “only the very beginning” of a conflict
that will likely continue for years to come.
Batryn’s law firm filed a
lawsuit against the Cabinet of Ministers and the Ministry of Energy and Coal
Industry in 2013 to have the 2009 contract with Gazprom – which he says is
onerous for Ukraine – annulled. Batryn also helped initiate the suit against
Gazprom to be heard at the International Arbitration Court next year.
He said the agreement
reached between the two sides was meaningless because the 10-year contract
doesn’t expire until 2019, leaving the Russian side plenty of time to make
things difficult for Kyiv.
“The new terms will
inevitably just go down in flames in the future,” Batryn said.
Kyiv Post staff writer
Allison Quinn can be reached at [email protected].
