You're reading: Russia, Ukraine reach compromise over gas price and debt, Oettinger says (UPDATE)

After a number of unsuccessful negotiations, Ukraine and Russia finally reached compromise at the talks with the European Union in Berlin on Sept.26. 

According to the preliminary agreement, Ukraine will have to repay $2.1 billion to Russian Gazprom in October and another $1.1 billion by the year end while the price for gas will stay at $385 per 1,000 cubic meters, Energy Commissioner of the European Union Gunther Oettinger said at the press-conference after the talks, Interfax-Ukraine new agency reported. Oettinger also expressed high hopes for the agreement to be formalized soon by the governments of Ukraine and Russia. 

“By the end of next week we can have a binding protocol,” Oettinger was quoted as saying.

Meanwhile, Ukraine’s minister of Energy and Coal Industry Yuri Prodan said that Ukraine is not happy with the way the price for Russian gas is formed. “This must be a commercial price, which is not dependent on the decisions of the Russian government,” Prodan said, according to Interfax-Ukraine.    

Timothy Ash, senior analyst of emerging markets for Standard Bank in London is also skeptical about the deal.

“Its kind of interesting to see Oettinger eager to announce a gas deal, before an agreement has actually been signed and sealed – clearly the Europeans are desperate for Ukraine to accept almost anything so that West Europeans don’t freeze this winter,” Ash said in his note on gas talks. 

Earlier today, just ahead of talks Russian energy minister Alexander Novak has warned EU states which reverse gas to Ukraine about cut-offs by saying that the contracts don’t foresee re-export.

The warning came after Hungary halted its reverse gas flows to Ukraine on Sept.25 citing technical difficulties.  Earlier in September Poland also suspended gas imports to Ukraine. Russia cut gas flow to Poland by 45 percent and to Slovakia by 10 percent in September. Slovakia hasn’t stopped reverse supplies to Ukraine, so far.

Import of gas from Poland, Hungary and Slovakia already saved Ukraine $500 million during three months, Prime Minister Arseniy Yatsenyuk announced at the United Nations General Assembly meeting  in New York on Sept 25. To survive during the heating season Ukraine needs around 33 billion cubic meters of gas. The country already has around 17 billion cubic meters of gas in underground storage and hopes to get up to 15 billion cubic meters of gas from the EU out of 25 billion it used to get from Russia. 

If Russia stops gas supplies to EU countries, it can lead to price hikes on EU market and make it unreasonable for Ukraine to reverse gas from Europe, even in comparison with Russian gas, Oleksandr Narbut, president of the Kyiv Institute of Energy Studies told the Kyiv Post.

Russia raised its gas price for Ukraine in April to $485.50 per 1,000 cubic meters from $268.50 and in June suspened its gas flow to Ukraine after Ukraine stopped buying. In response to that Gazprom filed suit to Stokholm arbitration court over Ukraine’s 4.5 billion debt for gas. Ukraine also appealed to the court against Russia for making it overpaying for gas since 2010.

While, it may take up to a yer to get the decision from arbitration court, Oettinger suggested Ukraine repay Gazprom $3.1 billion without waiting for arbitrage decision. Yatsenyuk, however said the arbitrage court decision is important for Ukraine’s gas talks with Russia. 

“I won’t make any comments before the agreement is put on paper. But I want to stress that Ukraine will under no circumstances recall its suit from the Stockholm Arbitration Court,” Yatsenyuk said on Sept.26, according to Interfax-Ukraine. 

Kyiv Post staff writer Anastasia Forina can be reached at [email protected]