Russia May Require Ukraine to Prepay for Gas as EU Summit Nears

Russia may require Ukraine to pre-pay for natural gas imports amid heightening tensions between the two countries over the former Soviet republic’s aspiration to join the European Union.

Ukraine owes Russia $882 million for gas supplied in August after missing the Oct. 1 deadline, OAO Gazprom’s Chief Executive Office Alexey Miller said today.

“The situation with Ukraine’s payments is escalating,” Miller said today at a meeting with Russian Prime Minister Dmitry Medvedev. “We need to consider shifting Ukraine to prepayment.”

Olena Yuriyeva, a spokeswoman for state-run energy company NAK Naftogaz Ukrainy, wasn’t immediately able to comment when contacted by Bloomberg News.

Ukraine is due to sign an association agreement which includes a free trade pact with the 28-member EU next month. Russia wants it to join an economic bloc in the former Soviet Union instead and has imposed more stringent checks on its neighbor’s exports after claiming it found carcinogens in Ukrainian chocolates.

Russia has cut gas supplies to Ukraine over pricing disputes twice since the 2004 Orange Revolution led the former Soviet republic to change its foreign policy and seek membership in the EU.

“Both those two crises were provoked by Ukraine,” said Alexander Medvedev, deputy chief executive Officer at Gazprom, adding that the company will decide today on whether Ukraine will be required to prepay.

A Gazprom spokesman said it was unclear when a decision would be made when reached by phone in Moscow.

Diversifying Supply

“I’d be very surprised if there were a physical interruption, but there will be continuing disputes in this area,” Chris Le Fevre, senior visiting research fellow at the Oxford Institute for Energy Studies, said in an interview in Amsterdam, adding that he doesn’t expect a quick resolution.

Ukraine, which depends on Russia for more than 60 percent of its gas needs, is trying to diversify, seeking to extract shale gas and importing from Europe. The country’s largest private energy company, DTEK, said today it plans test deliveries of gas Oct. 28-31 from Poland’s Polskie Gornictwo Naftowe i Gazownictwo SA, with maximum daily volume of 3.5 million cubic meters.

Russia will maintain a ban on Roshen products after inspectors visited the Ukrainian chocolate maker’s factories Oct. 22-24, according to a statement on the website of the Federal Service on Customers Rights Protection. The chocolates “are produced using old standards and do not meet Russian sanitary requirements,” it said yesterday.

Kazakhstan, Tajikistan and Moldova inspected Roshen products in August and said they found no dangerous ingredients.

Trade with Russia has plunged by a quarter this year, denting Ukrainian industry and exports. Russia is threatening to impose sanctions on its neighbor if it proceeds with the EU deal at a Nov. 27-28 summit in the Lithuanian capital of Vilnius, saying it needs to protect its market.

To contact the reporter on this story: Daryna Krasnolutska in Kiev at dkrasnolutsk@bloomberg.net

To contact the editor responsible for this story: Balazs Penz at bpenz@bloomberg.net

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