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PM instructs Gazprom to supply gas to Ukraine on prepaid basis from May 13

Prime Minister Dmitry Medvedev instructed Gazprom to start supplying gas to Ukraine on a prepaid basis from May 13.

"Gazprom has a right to do what has been repeatedly discussed, namely to switch over to advance payments for Ukrainian consumers and Ukraine under the contract," Medvedev said on Monday, May 12. "I think it's high time we stopped dandling about. Notify them and move on to advance payments starting tomorrow," he said at a meeting with Gazprom CEO Alexei Miller and Energy Minister Alexander Novak.

"I think Gazprom has taken all possible steps to settle the situation: we talked with them, we consulted several times, you reported to me and to the president, but we were not heard," the prime minister said. "If this is so, we must start acting because this can't be tolerated anymore."

Medvedev said advance payments for Russian gas would not mean an end to supplies. "The transition to advance payments means only one thing: we will supply as much as they pay for. If they pay one euro, we will supply one euro's worth [of gas]; if they pay a billion, we will supply a billion's worth [of gas]," he said.

"Our Ukrainian partners have money," Medvedev said, referring to the first portion of a loan from the International Monetary Fund (IMF).

He believes that Europe should send a signal to the Ukrainian leadership that they must pay the gas debts and asked Novak to make this position known to European partners during the next round of consultations and talks with EU officials.

"We have the right to expect our European partners to send a signal to the Ukrainian leadership that they must pay the debts," he said.

He noted that Ukraine "still has the opportunity to pay everything before the end of May, to pay the whole sum or at least a part of it, thus showing its determination to pay the debt."

"We have not seen such determination from Ukraine so far, and this is very sad," the prime minister said.

Miller said Ukraine had to pay for Russian gas supplies before June 2.

"If Ukraine does not pay for the June supplies, Gazprom will notify Ukraine by 10 a.m. June 3 how much gas would be supplied to Ukraine in accordance with the advance payment made," he said.

If no prepayment is made, no gas will be supplied to Ukraine in June, he added.

Miller said that Ukraine's current debt for gas had exceeded 3.5 billion U.S. dollars, which matches 9.420 billion cubic meters of gas. This would be enough to supply gas to Poland for 12 months.

Ukraine did not make any payments for gas in March and April, he said.

Novak said Russia had not received any proposals from the European Commission or Ukraine regarding current payments for Russian gas.

"Following the talks we, unfortunately, have not received any proposals from the European Commission regarding the measures the European Commission, EU countries and Ukraine are taking to make current payments [for Russian gas]," Novak said.

Acting Ukrainian Energy and Coal Industry Minister Yuri Prodan "provided alarming information that Ukraine could not guarantee the storage of gas in its underground storage facilities as part of preparations for the autumn and winter period and therefore could not guarantee the transit of gas to European countries due to the absence of resources and due to the unwillingness to solve this issue in principle," the minister said.

"May 7 was the last day when Ukraine had to pay for the gas supplied. We have not received any payment from Naftogaz of Ukraine since March of this year. To date, Ukraine's overall debt for gas has reached $3.508 billion," Novak said.

In accordance with Clauses 5.1.5 and 5.8 of the contract for the supply of gas made by and between Gazprom and Naftogaz in 2009, failure to perform the obligations entails an automatic transition to gas supplies on a prepaid basis from June 1, 2014, Novak said.

On May 16, Gazprom will issue a preliminary bill for the supply of gas in June. Ukraine will have an opportunity to pay this bill by May 31, in which case the amount of gas to be supplied in June under the advance payment will not exceed the volume paid for until May 31.

"The Russian position on support for the Ukrainian economy was stated in President Vladimir Putin's letter [to European leaders on April 10] and said that Russia could no longer and should not alone bear the burden of support for the Ukrainian economy by giving it gas price discounts and forgiving debts, thus paying with its subsidies for the trade deficit in Ukraine and EU countries," Novak said.

Ukraine is ready to pay the debt for Russian gas within ten days if its price is set at $268.5 per 1,000 cubic meters, parliament-appointed Prime Minister Arseniy Yatsenyuk said.

"We have sent a proposal to Russia's Gazprom to extend the contract at a price of $268.5 per 1,000 cubic meters as in the first quarter of 2014. As soon as this price is set and an additional agreement is signed, Ukraine will be prepared to pay all debts within ten days, including the debts of the previous government," Yatsenyuk said.

However, Novak said that Ukraine had no right to revise the price of gas from Russia unilaterally.

He recalled that the contract signed 2009 was still in force. "The contract has been in effect for five years and has been implemented. Ukrainian Energy and Coal Industry Minister Yuri Prodan reaffirmed this yesterday," he said.

Under the contract, the price of gas supplied to Ukraine is determined by the formula that is pegged to the price of oil. "This formula is used everywhere in the world for pipeline gas supplies. Therefore there are no grounds to discuss the price today and especially unilaterally offer the first quarter price of 268 U.S. dollars per 1,000 cubic meters as the Ukrainian authorities are doing," Novak said.

Parliament-appointed acting President Oleksandr Turchynov on May 1 instructed the Ministry of Energy and Coal Industry to secure gas supplies from Russia at the price that was in effect in February and March 2014.

If Russia disagrees to meet the demand, the relevant Ukrainian ministries and agencies have been instructed to "file a corresponding lawsuit with an international court of arbitration within a month of the receipt of the notice".

Prodan said Ukraine was ready to pay its debt to Russia's Gazprom for gas supplies at a price of $268.5 per 1,000 cubic meters.

"Ukraine is ready to pay the debt. But we cannot pay the price Gazprom set from April 1. It is unjustifiably high and is about $500. We are ready to pay under our obligations," the minister said.

He disagreed with price of gas set by Gazprom which put Ukraine's debt for gas at $3.5 billion.

Yatsenyuk also reiterated that Ukraine was prepared to pay the price of $268 per 1,000 cubic meters of Russian gas.

This is 45% below the established price of gas. If Moscow disagrees, Kiev will be prepared to contest its debt in court, he said.

Gazprom spokesperson Sergei Kupriyanov said Ukraine had so far not paid the gas debt. "The deadline for payments for April has passed. Nothing was paid. Ukraine's overdue debt for the Russian gas has increased to $3.508 billion," he said.

Now that the debt has not been paid, Gazprom will start supplying gas to Ukraine against advance payments from June.

On April 30, the IMF authorized the disbursement of more than $17 billion loan to Ukraine over the next two years. The first tranche of $3.2 billion has already been transferred to Ukraine.

However, Kiev did not say which part of this money would be used to pay for current and previous Russian gas supplies.

Kiev said it would the first portion of IMF loan for augmenting its gold and currency reserves in order to stabilize the financial situation in the country.

"Over $1 billion from the first portion of the loan will go into the gold and currency reserves of Ukraine, which will strengthen the financial system of the country. The remainder will go to the budget to stabilize the macroeconomic and financial situation in Ukraine," National Bank Chairman Stepan Kubiv said.

He believes that the IMF loan "will send a positive signal to foreign investors and domestic entrepreneurs, improve the investment climate in the country and stabilize the hryvnia".

An IMF evaluation mission will arrive in Ukraine in late June or early July, IMF Resident Representative in Ukraine Jerome Vacher said last week.

He said technical assistance would be provided to the government of Ukraine within the next two months, including on matters related to public expenditures.

The aid package for Ukraine includes enough funds to cover its debt for gas supplies, the official said, adding that the package was structured in such a way as to allow Ukraine to pay its gas debts and fulfill its main obligations.

Vacher said that aid was based on the gas price of 385 U.S. dollars per 1,000 cubic meters and noted that the price should be discussed by Naftogaz of Ukraine and Russia's Gazprom.

He admitted that it was hard to determine the market price of gas but different price levels could be found.

[Source: Itar Tass, Gorki, 12May14]

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