< Back to News

Russia Agrees to Terms With Ukraine Over Gas Supply

PUTIN

Russia agreed to terms for restoring natural-gas exports to Ukraine, laying the groundwork to prevent residents going without heat as temperatures drop.

The gas negotiations, brokered by the European Union, came as pro-Russian rebels stepped up attacks on Kiev government forces. European leaders said they hoped the deal would help improve ties between the two countries.

“This breakthrough will not only make sure that Ukraine will have sufficient heating in the dead of the winter,” European Energy Commissioner Guenther Oettinger said at a news conference in Brussels last night. “It is also a contribution to the de-escalation between Russia and Ukraine.”

The 28-nation EU sought to avoid a repeat of 2006 and 2009, when disputes between the former Soviet republics over gas debts and prices led to fuel transit disruptions and shortages across Europe amid freezing temperatures.

The deal came after the EU rebuked Russia for an announcement by Foreign Minister Sergei Lavrov that the country would recognize separatist elections planned for Nov. 2 in Ukraine’s rebel-held territories.

Under yesterday’s agreement, Russia said it would resume sending natural-gas to Ukraine — halted since June — after receiving the first tranche of debt repayment and upfront payments for future deliveries.

Payments Set

Ukraine agreed to pay $3.1 billion to Russia by the end of this year to partially cover $5.3 billion of NAK Naftogaz Ukrainy’s debt to Russian exporter OAO Gazprom (OGZD), according to Russian estimates. The first tranche, $1.45 billion, will be paid “in the coming days,” Russian Energy Minister Alexander Novak said.’’

Ukraine has funds to pay for 4 billion cubic meters of gas purchases in November and December, Ukraine Energy Minister Yuri Prodan said. The EU and the International Monetary Fund will help Ukraine make payments, Oettinger said. The EU depends on Russian gas piped across Ukraine to meet about 15 percent of its demand.

Tensions between the two countries are hindering efforts to install a new Ukrainian government to steer the nation of 43 million people as it struggles with the seven-month insurgency in the east and its worst recession since 2009. That’s rekindling memories of the squabbles that dogged the camps of President Viktor Yushchenko and Prime Minister Yulia Tymoshenko after the 2004 Orange Revolution.

Bonds Weaken

Ukraine’s dollar-denominated bonds due in 2017 weakened yesterday after rallying for nine days, lifting the yield by about 10 basis points to 13.48 percent in Kiev. The hryvnia was trading little-changed at 13 per dollar, according to data compiled by Bloomberg.

The country’s economy shrank 5.1 percent in the third quarter from a year earlier, the most in about five years, the state statistics office said yesterday. That compared with the 9 percent estimate of six economists in a Bloomberg survey.

Seven Ukrainian soldiers were killed and were 11 wounded in fighting over the past 24 hours as pro-Russian rebels intensified shelling at Donetsk Airport, near the city of Mariupol and in 14 towns in the Donetsk and Luhansk regions, Ukrainian military spokesman Andriy Lysenko said yesterday in Kiev. The latest casualties are despite a wobbly truce that’s being violated on a daily basis.

Russia urged Ukrainian politicians to stop tussling over who should lead coalition talks after Prime Minister Arseniy Yatsenyuk’s and President Petro Poroshenko’s parties finished neck-and-neck at the top of voting lists in Oct. 26 parliamentary elections.

Blaming Russia

The U.S. and the EU blame President Vladimir Putin’s government for instigating the conflict. While Russia denies all involvement, it will recognize elections rebel-held in the Donetsk and Luhansk regions, Lavrov said in an Oct. 28 interview with Izvestia newspaper. His ministry said in a statement that Russia thought tensions would ease after last week’s ballot, but that wasn’t happening.

The EU said Lavrov’s comments would exacerbate the conflict and undermine a cease-fire agreed Sept. 5 in Minsk, Belarus.

“We deplored the comments made by Russian Foreign Minister Lavrov regarding the forthcoming elections on the territory of the self-proclaimed Luhansk and Donetsk People’s Republics,” Maja Kocijancic, spokeswoman for EU foreign-affairs chief Catherine Ashton, said yesterday. “It would disrupt progress that would lead to the finding a sustainable political solution.”

Voting Disrupted

Pro-European parties may have won enough seats in Kiev for a two-thirds constitutional majority, defeating Russian-leaning political forces that hail from the nation’s war-ravaged east, where fighting disrupted voting and prevented it altogether in some areas.

Yatsenyuk said he should lead coalition talks rather than Poroshenko after results showed his party led the Poroshenko Bloc 22.16 percent to 21.82 percent, with 99.53 percent counted of the party-list voting that makes up half of the legislature, according to the Central Electoral Commission.

He snubbed an agreement delivered by Poroshenko to his party and Lviv Mayor Andriy Sadovyi’s Samopomich party and said his team would draw up its own coalition framework. The three leaders met yesterday and said their representatives would hold talks today, Poroshenko’s party said in a statement. It added that the group was willing to speak with other pro-European parties in forming a coalition.

Ukrainians also voted for candidates in the single-seat constituencies that make up the other half of the assembly. Members of Poroshenko’s party were ahead in 63 of those 198 races, which Deputy Premier Volodymyr Hroisman said this week would give the president’s party the most members in parliament.

(Source: Bloomberg)