Sep 26, 2014 12:34 PM

EU proposes deal to ensure Ukraine gas supplies

The Associated Press

BERLIN (AP) Ukraine would repay $3.1 billion in debts to Russia in exchange for guaranteed gas deliveries through the harsh winter months under a proposal unveiled Friday after talks brokered by the European Union.

The proposed deal, which would expire next spring, is aimed at averting a supply crisis in Ukraine and the EU over the winter but wouldn't resolve a deeper dispute over what price Kiev should pay for past and future deliveries. An arbitration court in Stockholm is expected to rule only next year on that.

"Today, we worked out a sound draft for a winter package, and I am confident that this draft can win the approval of all those involved in Moscow and Kiev," EU Energy Commissioner Guenther Oettinger said.

He said there is a good chance of the deal being signed next week, when he plans to get the two countries' energy ministers and top gas executives back together in Berlin. Those officials will now consult with governments in Kiev and Moscow.

Pressure is mounting to solve the long-running dispute, which is part of a wider conflict over Ukraine's relations with Russia and the West and resulted in Moscow cutting off supplies to Kiev more than three months ago.

Ukraine needs deliveries to resume if it is to keep its industries running through the winter. Meanwhile, much of the Russian gas supplied to EU countries passes through pipelines that cross Ukraine.

Under the proposal, Kiev would pay $2 billion to Moscow by the end of October and another $1.1 billion by the end of December, Oettinger said. He indicated that the EU would guarantee the Ukrainian debt payments.

In exchange, Russian gas company Gazprom would supply at least 5 billion cubic meters of gas to Ukraine over the coming months at $385 per 1,000 cubic meters. Ukraine would have to pay up front for that new gas.

Oettinger said that, for all its efforts to produce its own gas, save energy and get Russian gas from EU countries via so-called "reverse flow" shipments, Ukraine needs to buy between 5 and 12 billion cubic meters of gas to assure supplies at home and on to Europe through the winter.

Ukraine's Energy Minister Yuri Prodan made clear that the proposed price tag for this winter's gas deliveries would be "an interim price," and Kiev is sticking to its stance that it should pay $268 per thousand cubic meters.

That is the price that Moscow offered in former President Viktor Yanukovych's final months in power, but it annulled all discounts after Yanukovych was ousted in February, raising the price to $485. Kiev later rejected a Russian offer of a future price of $385, which is what it was paying until December.

Russian Energy Minister Alexander Novak said the draft of the deal for the winter months was largely "to our satisfaction," though there remain some minor details that need clarification.

Prodan indicated that differences remain over the proposed payment schedule. "We will solve this issue by next Tuesday at the latest," he said.

Russia stopped gas deliveries to Ukraine in June after the two sides failed to agree on a formula for paying what Moscow says are $5.3 billion in gas debts, and demanded upfront payments for future supplies. Based on the price Ukraine claims Russia should charge, the debt is $3.1 billion.

Russia still allows gas to transit through its pipeline network to customers in the rest of Europe. Poland, Hungary and some other European countries have been selling some of their gas to Ukraine via "reverse flow," which Moscow dislikes.

Recently, some of these countries have had trouble supplying Ukraine with gas as they build their own reserves ahead of the winter and amid reports of tighter controls by Russia. Poland this month halted deliveries for a week, citing inadequate supplies from Russia.

On Thursday, Hungarian pipeline operator FGSZ said it suspended deliveries to Ukraine indefinitely, citing the need for technical work to "manage the security supply" in the face of increasing demand.

Oettinger said the issue wasn't discussed at Friday's meeting, but underlined the EU's stance that the practice of sending gas back to Ukraine is legitimate. Russia's Novak reiterated Moscow's position that "those reverse flows are not part of contracts with Gazprom."

EU member states got 24 percent of their gas in 2012 from Russia, according to industry association Eurogas, and about half of that goes through the pipelines across Ukraine. In 2013, Ukraine imported nearly 26 billion cubic meters of gas from Russia, just over half its annual consumption.


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