Brussels, 31/10/2014 (Agence Europe) - During the night of Thursday 30 to Friday 31 October, a deal was clinched in the negotiations on the Russian-Ukrainian gas dispute. “I am delighted that I can announce a major success at the end of my mandate as President of the European Commission. With our strong support, Ukraine and Russia have today found agreement on their outstanding energy debt issues, and on an interim solution that enables supplies to continue this winter”, said José Manuel Barroso, who steered the negotiations. Convinced that this agreement will increase the EU's energy security, Barroso said he was confident that the Juncker Commission would build on this success in setting up an “energy union worthy of this name”. Commission Vice-President for the Energy Union Maros Sefcovic was also present at the signing of the agreement between the two parties. According to outgoing Commissioner for Energy Günther Oettinger, “this breakthrough will not only make sure that Ukraine will have sufficient heating in the dead of the winter. It is also a contribution to the de-escalation between Russia and Ukraine.”
Describing the agreement as a “clear message” on the Ukrainians' obligation to pay their debts, Russian gas giant, Gazprom, underlined the “flexibility” it had shown to make the agreement possible. “Gazprom is and always will be a trustworthy gas supplier for Europe”, said Gazprom's spokesperson, Sergei Kouprianov, in a press release. He also said that “with a bit of luck”, the agreement marks “the beginning of a new more constructive chapter in the gas relations between the EU, Russia and Ukraine”.
Valued at $4.6 billion, the agreement focuses on Ukraine's payment of its debt and on the modes of payment for deliveries until March 2015.
Debts. Ukraine will pay part of its debt to Gazprom in two instalments at a price of $268.5 per 1,000 cubic metres ($1.45 billion immediately and $1.65 billion by the end of 2014 - in other words $3.1 billion as the settlement of Ukraine's debt).
The Russians estimate the total arrears at $5.3 billion, but accept not to appeal to an international arbitration court for the outstanding $2.2 billion. The final price, and thus the final amount of Ukraine's debt, will be determined by the ongoing arbitration at the Arbitration Institute of the Stockholm Chamber of Commerce.
New gas deliveries. The crucial element in the compromise, a price of “less than $385 per 1,000 cubic metres” has been fixed for the whole duration of the interim agreement. The payment will be made in advance every month. The price paid by Ukraine will be calculated according to: - a formula already in the present contract linking the Russian and Ukrainian energy companies (the price of the gas is indexed on the price of oil, a situation which will benefit Ukraine due to the current low price per barrel, according to the Commission); - a price reduction through Russia's decrease in export taxes.
Ukraine is free to order as much gas as needed and is not subject to the take-or-pay obligation provided for in the contract. Ukraine plans to buy 4 billion cubic metres by the end of 2014, for a sum of $1.5 billion.
One of the questions inherent in the negotiations was Ukraine's ability to pay. It benefits from a financial bailout fund from the IMF - to which the EU contributes $1.6 billion - with a view to helping it address the economic crisis which has been accentuated without precedent by the armed conflict in the East of the country.
Part of the EU aid already committed, in other words “€760 million”, will be paid “earlier than planned” and this money can be used to cover Ukraine's payment of its arrears, said Oettinger's spokesperson. Nevertheless, “the EU has provided no guarantee [to Russia] if Ukraine says it cannot pay”, the spokesperson stated. “We have the necessary finance to pay”, said Ukraine's Energy Minister Yuriy Prodan. (MB and LC)