Ukraine requests €2bn from EU to pay for gas as talks with Russia falter

By bne IntelliNews October 22, 2014

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Ukraine has asked for a €2bn loan from the European Union to cover the cost of gas imports from Russia, including payment of arrears and advance payments on new supplies, the European Commission confirmed on October 21, after trilateral talks between Russia, Ukraine and the EU in Brussels on October 21 failed to lead to signing of an agreement. 

European Commission spokesman Simon O'Connor confirmed Ukraine's request for funds to Reuters and said that the EU was considering the request together with the International Monetary Fund.

News of the request came after a trilateral meeting in Brussels on October 21 between Ukraine, Russia and the EU failed to resolve the pricing and payment arrears dispute between Kyiv and Moscow.

European Energy Commissioner Guenther Oettinger mentioned "the financial gap" as the key current stumbling block, at a press conference following the talks. Russian energy minister Alexander Novak explained that Russia wanted to know exactly where Ukraine would find funds to pay Gazprom. "We haven't received these assurances, either from Naftogaz and Ukraine or the European Commission," he said, according to newswires.

Russian President Vladimir Putin earlier openly called on the European Union to help Ukraine pay arrears and advance payments for winter gas supplies, following talks in Milan on October 17. Moscow previously agreed to reduce its debt demands against Ukraine from $5.3bn to $4.5bn, which is still a massive sum of money for the country struggling with an economic collapse caused by an ongoing Russian-backed insurgency in the east.

Oettinger said that the three parties had agreed that Ukraine would pay Russia's state-owned energy giant Gazprom $385 per thousand cubic meters, under condition of advance payment, during the winter months. Oettinger said that the next meeting on October 30 should enable the parties to finally sign a deal.

But even if the EU of IMF agree to provide additional funding for Ukraine, it is not clear whether any progress was reached on another thorny issue: whether the new price for Ukraine of $385 per thousand cubic meters will be calculated as the market price agreed between Ukraine's energy company Naftogaz and Gazprom, or as a unilateral concession made by the Kremlin to Ukraine, and reached through Russia's waiving export tax payments on the gas. Ukraine has opposed the latter option, which it says means that Russia can revoke the concession at any time. 

Prior to the meeting in Brussels on October 21, Ukraine's Naftogaz said in a press release that Kyiv had established a common position with the EU that called for "obligatory signing of binding documents between Naftogaz and Gazprom” that “should exclude the possibility of any of the parties to unilaterally change the conditions”.

The Russian side is insisting "that gas for Ukraine should cost $485 per thousand cubic meters, less the $100 per thousand cubic meters discount granted by the Russian government," said Oleksandr Paraschiy of Kyiv brokerage Concorde Capital. "This is at least one and for sure the most critical difference between the Ukrainian and Russian sides."

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