Ukraine Refuses To Pre-Pay For Russian Gas: Bilateral Gas Deal Expected By End Of October

As the latest in the ongoing gas disputes between Ukraine and Russia, the former has rejected Russia's demand to make pre-payment for deliveries of Gazprom's natural gas. Ukraine refused the proposal saying that it is violative of the existing contractual conditions. Ukraine's Energy Minister Yuriy Prodan said last Monday that "the provisions of the contract are clear that the payments should be made only upon the delivery and not before that." The Ukraine minister stated this in a interview with Ukrainian publication Apostrof. Last June, Russia's energy giant Gazprom had introduced a pre-payment system for gas deliveries to to avoid the massive gas debt incurred by Kiev.

Winter Package

However, there was a thaw in the tripartite ministerial gas meeting in Berlin, last month, where Moscow was persuaded by the European Commission for offering a winter package to Ukraine on the condition that Ukraine will pay $3.1 billion of its debt to Russia by the end of the year, for resuming gas deliveries during the winter at the rate of $385 per 1,000 cubic meters, reported Russian News Service en.ria.ru.

Russia wanted Ukraine to pay the first tranche of $2 billion before the deliveries could start. Last Monday, Russian Energy Minister Alexander Novak reiterated Russia's willingness to offer Ukraine a flexible schedule for repaying the dues. Under the proposal, Russia said it was open to Ukraine paying $1.45 billion as a first installment with the rest of the debt payable by the year-end.

Deal Possible

Despite the frictions, there are positive Indications that the Russian-Ukrainian gas deal might get through before the end of October. One more scenario will be that Ukraine's Naftogaz may lose its request for an interim order against Gazprom at the Institute of Arbitration in Stockholm. That will leave Ukraine with little choice but to sign the "winter gas package" with Russia, at the next gas talks in Berlin on October 21, reported Trading Floor.

Perhaps the deal may also happen much earlier. On October 16 to 17, the Ukrainian and Russian presidents are expected to meet in Milan during the ASEM (Asia-Europe Meeting) bi-annual summit. The deal would also reduce transit risks for Russian gas supplies to Europe for the coming winter.

If Ukraine wins the interim arbitration in Stockholm, it would still be positive. In that case, Gazprom has to restore gas supplies to Ukraine and receive the much-needed revenues. As Europe gets its winter supplies from Russia, Ukraine too will have access to cheap Russian gas. Interim orders are to maintain the status quo pending final resolution of the dispute.