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Ukraine, Russia Work Out Gas Deal

  • Henry Ridgwell

Russia and Ukraine have signed an agreement to end their dispute over gas supplies.

Analysts said the deal, brokered by the European Union, would relieve Kyiv’s fears that it might not have enough gas in storage to get through the coming winter.

Russia-Ukraine gas pipeline

Russia-Ukraine gas pipeline

Russian Energy Minister Alexander Novak said Moscow compromised on the price of the gas and the structuring of debt payments in order to help stabilize the supply situation for Ukrainian and other European consumers.

Under the deal, Europe will act as guarantor for Ukraine’s gas purchases. The EU and the International Monetary Fund are also helping to pay off Ukraine’s gas debts to Russia.

Gas deliveries from November through March will cost Ukraine $1.45 billion. Ukraine also must pay the first installment on its debt. Alexei Miller, chief of Russia's Gazprom, the state-controlled gas exporter, put the payment at $760 million and said he thought it would be made next week.

Ukraine's government also must also pay off $3.1 billion for past deliveries by the end of the year, according to the protocol from Thursday's talks in Brussels, published Friday by the Ukrainian government.

Promising sign

European Energy Commissioner Guenther Oettinger hailed the agreement, calling it perhaps the first sign of a wise, well-functioning European neighborhood policy.

Russia had cut off gas supplies to Ukraine in a dispute over debt payments. Following the overthrow of Ukrainian President Viktor Yanukovych in January, Moscow scrapped the subsidies it had given Kyiv. A deal to end the standoff was becoming more urgent, said Professor Alan Riley of City University London.

“The Ukrainians were very desperate to get the deal done," Riley said. "Obviously, they had had no gas from Russia — their principal source of supply — since June. And clearly there isn’t enough gas in storage to keep Ukraine warm all winter.”f

Europe gets about one-third of its gas from Russia. Gazprom earns much of its profit from the European market. So a deal was in the interest of all parties, Riley said.

“Issues of Russia’s reliability as a gas supplier put enormous pressure on Moscow to do a deal,” he said.

Time to diversify

In the long term, Ukraine must look to diversify its energy supplies, said economist Oleh Soskin of the Institute of Society transformation in Kyiv.

“Over the last 10 years," Soskin said, "we have financed the Russian economy by around $100 billion. We have been buying oil and gas from them through really shady, opaque schemes.”

Despite the gas deal, tensions between Moscow and Ukraine — and Kyiv's Western allies — show little sign of subsiding.

NATO forces have monitored an increase in Russian bomber flights in European airspace this week, while in the eastern Barents Sea, Russia successfully tested a ballistic missile.

Material for this report came from Reuters.

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