Russian Energy Minister Alexander Novak shakes hands with Ukraine’s Energy Minister Yuri Prodan (R) after gas talks between the European Union, Russia and Ukraine at the European Commission headquarters in Brussels October 30, 2014.
Credit: Reuters/Francois Lenoir
(Reuters) – Ukraine, Russia and the European Union signed a deal on Thursday on the resumption of Russian natural gas supplies to Ukraine for winter after several months of delay during the conflict in Ukraine.
European Commission President Jose Manuel Barroso, who witnessed the three-way signing ceremony in Brussels as he prepares to leave office on Friday, said: “There is now no reason for people in Europe to stay cold this winter.”
Talks had been broken off in the early hours as Moscow sought more guarantees from the EU that it would help Ukraine pay for its natural gas. They resumed on Thursday evening.
EU officials said both Russia and Ukraine had bargained hard for commitments from the Western bloc, with Moscow looking for EU cash to help Ukraine pay off debts to Gazprom and the Kiev authorities anxious to get a deal that they could present to domestic voters as not overpaying for vital Russian supplies.
Ukrainian Prime Minister Arseny Yatseniuk said in Kiev that the EU had agreed to serve as guarantor for Kiev in holding Russia to an agreement, notably on the price Ukraine would pay.
Yatseniuk, in figures later confirmed by Moscow, said Ukraine would pay $378 per 1,000 cubic meters to the end of 2014 and $365 in the first quarter of 2015. He said Kiev was ready to pay off debts for gas immediately after any deal was signed.
A total of $1.45 billion would be paid immediately and a further $1.65 billion paid by the end of the year, he said.
Russian Energy Minister Alexander Novak insisted that Ukraine would still have to pay up front for new deliveries to see its 45 million people through winter. Moscow expects some $1.6 billion for gas to be supplied.
Some critics of Russia question whether its motivation is financial or whether prolonging the wrangling with ex-Soviet Ukraine and its Western allies suits Moscow’s diplomatic agenda.
Ukraine is in discussions with existing creditors the EU and the IMF.
The gas cut-off has had little impact for months. But pressure is mounting for a deal as temperatures start to drop below freezing.
European Energy Commissioner Guenther Oettinger, who has been mediating, also leaves office on Friday, making way for a new European Commission.
“We can say to the citizens of Europe that we can guarantee security of supply over the winter,” he said of what he called the $4.6-billion deal to supply Russian natural gas to Ukraine.
EU member states west of Ukraine would also, he said, have stable supplies, passing through Ukrainian pipelines, while Russia would gain the benefit of payment for its energy.
The two sides came close to an agreement in September, but last week differences were wide.
Weekend elections returned a pro-Western parliament in Kiev, potentially stoking tensions with Moscow, although Russia’s EU envoy, Vladimir Chizhov, said on Thursday the mood could be more relaxed now the vote had taken place.
Ukraine’s Naftogaz company has set aside $3.1 billion in a special escrow account to pay the debt.
Kiev says it is working to raise more money from all possible sources of financing, including the EU. The Commission is considering Ukraine’s request, made last week, for a further loan of 2 billion euros.
Russia provides around a third of the European Union’s natural gas, roughly half of which is pumped via Ukraine.
Ukraine in turn relies on Russia for around 50 percent of its own natural gas and despite storage has a winter shortfall of around 3 billion to 4 billion cubic meters, depending on the weather.
For Russia, the natural gas sector contributes approximately a fifth of the national budget.
Sanctions on Russia, which EU officials decided to leave unchanged on Tuesday while the conflict in Ukraine continues, are sapping an already weak economy.
(Additional reporting by Katya Golubkova, Lidia Kelly and Vladimir Soldatkin in Moscow and Tom Koerkemeier, Phil Blenkinsop, and Foo Yun Chee in Brussels)
Russia, Ukraine, and the European Commission have signed an agreement on gas supply and transit conditions until March 2015 during talks in Brussels.
The agreement was signed by Russian Energy Minister Aleksandr Novak, Ukrainian Energy Minister Yury Prodan, and vice president of the EC in charge of energy, Guenther Oettinger. The signing was witnessed by European Commission President Jose Manuel Barroso and the EC’s new vice president in charge of energy, Marosh Shefchovich.
Ukraine will be able to receive the needed volumes of Russian gas until the end of March based on a pre-payment plan at a price of $385 per 1,000 cubic meters, Oettinger said during the press conference.
Speaking at a briefing after the signing of the deal, Oettinger assured that Ukraine said it is ready to pay $1.451 billion of its gas debt to Russia “immediately.”
According to Oettinger, Kiev will be able to pay back $3.1 billion of its gas debts before the end of the year. However, he added that the final figure will depend on the decision of the international Stockholm court of arbitration on the gas debt dispute.
Ukraine will get the money it is lacking with the help of the International Monetary Fund (IMF) and the European Union, the EC official announced. Oettinger expects that the promised financial assistance from the IMF and the EU will be used by Kiev to pay for Russian gas.
“The advantage for Ukraine is that it confirms the role of a reliable partner in the center of Europe and IMF and EU’s programs of assistance would be used correctly to pay its gas debts,” Oettinger stressed.
Russian Energy Ministry confirmed the agreement on necessary documents for the winter package of Russian gas supplies to Ukraine.
Ukraine’s Energy Minister Yury Prodan also stated that the gas agreement on supplies of gas to Ukraine between Russia, Ukraine and the European Commission has been reached.
Thursday’s meeting in Brussels was another attempt to settle the gas dispute between Russia and Ukraine. The parties have been struggling to agree on the final gas price and the payment schedule.
While Novak said on Thursday that key parameters of the gas deal, including a $385 price, had been agreed, it remained unclear where Ukraine was going to get money.
On Thursday, Gazprom left Brussels insisting Ukraine and the EU must first agree on the financial points between themselves.
Earlier, Russia rejected all payment schemes proposed by the EU, saying all of them were a hidden form of another gas loan to Ukraine.
Having smooth gas supplies from Russia is crucial for both Ukraine and the EU.
Kiev needs around 4 billion cubic meters of Russian gas to survive the coming winter, and over 15 percent of Russian gas to Europe travels via Ukraine.
Before Ukraine can begin receiving Russian gas again, it must first pay off its $1.45 billion debt in the coming days, and another $1.65 billion in an advance payment by the end of the year, making it a total of $3.1 billion.