You're reading: Russia wants all IMF money that Ukraine will receive

The International Monetary Fund staff approved a $17 billion loan to Ukraine on April 22.

The IMF’s 24-seat board is
slated to consider the loan package on April 30.

The Washington, D.C.-based
lender predicts the economy will shrink by 5 percent this year, while
government forecasts say it will contract by 3 percent. Earlier the IMF refrained
from giving a gross domestic product forecast for 2014 due to the ongoing
political uncertainty.

Back on March 27, the IMF
announced it could possibly provide a $14-18 billion bailout, which would lead
to further loans from international creditors worth a total of $27 billion over
the next two years.

“Quick approval of the IMF
program is necessary in order to unlock the European funds and funds from other
international lenders,” said IMF and World Bank former employee President
Robert Kahn.

For future funding, the IMF
recommends that Ukraine move to a flexible exchange rate, phase out subsidies
for natural gas and reduce budget expenditures. Ukraine’s parliament has
already passed some of these measures to secure the funding and the central
bank has started free-floating the hryvnia, the national currency.

As of March 29, Ukraine’s
massive total debts and debts guaranteed by the state totaled $73.2 billion,
Prime Minister Arseniy Yatsenyuk reported, of which around $10 billion Ukraine
must pay off this year. Since the treasury is almost empty and the sale of
government securities is a non-starter, considering the low sovereign rating of
Ukraine, reliance on international donors is essential for the country to stave
off bankruptcy.

Russia’s claims

The Kremlin has some claims of
its own regarding almost all of the IMF money. According to Russian Prime
Minister Dmitry Medvedev, Ukraine’s total debt to Russia reached $16.6
billion. 

In addition to a $2.2 billion gas
bill, Gazprom on April 24 announced that Ukraine’s state-owned oil and gas
monopoly Naftogaz owed it $11.4 billion because the company was supposed to
take 41.6 billion cubic meters of gas in 2013, but only took 12.9 billion. So,
it must incur a penalty on the grounds that the 2009 contract contains a “take-or-pay”
clause, which obliges Ukraine to buy a specified volume of gas, whether it
needs it or not. 

Ukraine’s many attempts since 2009
to reduce the size of the “take-or-pay” scheme were ignored by Gazprom. 

Debt also includes $3 billion in
bonds that Russia bought as a part of its Dec. 17, 2013 agreement with ex-President
Viktor Yanukovych. 

Ukraine has yet to respond.
However, according to the Ministry of Energy & Coal Industry, in 2013
Ukraine consumed 50.4 billion cubic meters of gas, of which it imported 28.1
billion from Russia for $11 billion, 2 billion from Europe for $1 billion, and
domestically extracted 20 billion cubic meters. 

According to Standard Bank’s
Timothy Ash, Russia has been threatening this for a while. “Generally the
assumption is that the 2009 take or pay deal is now unenforceable anyway (given
other cases challenged in international courts over similar agreements, and
likely subsequent developments in Crimea), so Gazprom’s above claim probably
falls into the ‘just trying to be difficult’ camp,” Ash argues, “and might all
just be related to positioning ahead of the looming three-way talks between
Ukraine, Russia and the EU over energy affairs going forward.”

Analyst Yuriy Korolchuk of the Institute
of Energy Strategies says that while Ukraine might technically be obliged to
pay this new debt, if Naftogaz actually gets a bill, the announcement is more
likely an attempt to gain leverage for the eventual privatization of Naftorgaz.
“The Kremlin wants to show the Europeans that Naftogaz is incapable of paying
its debts. It wants a piece of the Ukrainian company in order to keep its hand
in the Ukrainian economy.” 

Kyiv Post business journalist
Evan Ostryzniuk can be reached at 
[email protected].