Putin Calls on Europe to Aid Ukraine or Face Gas Supply Risk

Europe should provide aid to Ukraine to ensure uninterrupted natural-gas deliveries to the region, President Vladimir Putin’s spokesman said.

Russia is the only country helping Ukraine’s economy with energy supplies that are not paid for,” Dmitry Peskov told reporters today in Moscow, commenting on Putin’s letter yesterday to 18 European heads of state. “The letter is a call to immediately review this situation, which is absurd on the one hand and critical on the other.”

Gas export monopoly OAO Gazprom (GAZP) is supplying the fuel to Ukraine with little chance of receiving payments for more than $2.2 billion owed, Peskov said. Under the terms of its contract, Gazprom has the right to switch to prepayment on shipments, Peskov said, declining to comment on when it may happen and referring this question to Gazprom.

About 15 percent of Europe’s supplies flow through Ukraine’s pipelines from Russia, making the country a linchpin in the continent’s energy security. Putin has often used gas as a tool to pressure the government in Kiev to abandon attempts to reorient the economy toward the European Union.

Russia will honor contracts with European customers, Putin said today, but security of supply depends on Ukraine meeting its obligations. Gazprom has the right to demand pre-payment from Ukraine, Putin said.

Gazprom spokesman Sergei Kupriyanov declined to comment.

Cutting Supplies

“The pre-payments would lead to limiting or even cutting off gas supplies to Ukraine because it has no money to pay in advance,” said Alexander Kornilov, an oil and gas analyst at Alpha Bank in Moscow.

Gazprom’s price increase of more than 80 percent earlier this month amounted to “aggression against Ukraine,” Prime Minister Arseniy Yatsenyuk said last week. Ukraine, which buys half its gas from Moscow-based Gazprom, is seeking alternative supplies, including imports from Europe.

Ukraine is preparing an arbitration claim over a money-losing 2009 contract between Gazprom and NAK Naftogaz Ukrainy, Energy Minister Yuriy Prodan said today in Kiev.

U.K. natural gas headed for the biggest weekly gain since 2011 because of the worsening tensions between the governments in Moscow and Kiev.

European Reaction

Russia has provided Ukraine’s economy with $35.4 billion of gas subsidies in the past four years, Putin wrote in his letter. The document isn’t a demand for Ukraine to repay this sum, Peskov said.

Europe should help Ukraine, and the prospects for Russian-Ukrainian gas talks depend on European reaction to Putin’s letter, Peskov said, adding that Russia hadn’t received any replies yet.

Ukraine will probably receive $7 billion in International Monetary Fund financing this year to support the state budget and central bank reserves, Finance Minister Oleksandr Shlapak said in an interview in Washington. The country doesn’t plan to use the first tranche of IMF aid to repay gas debts to Russia, he said.

There is “no reason to panic,” because Russia needs its European gas revenues, while Europe seeks to keep Ukraine solvent and prevent its gas debt to Russia from rising, European Energy Commissioner Guenther Oettinger told Austria’s ORF radio, according to the station’s website.

“I’m preparing a solution that will be part of the aid package for Ukraine from the EU, the IMF and the World Bank, which makes possible payment of the outstanding bills,” Oettinger said.

To contact the reporters on this story: Elena Mazneva in Moscow at emazneva@bloomberg.net; Ilya Arkhipov in Moscow at iarkhipov@bloomberg.net; Daryna Krasnolutska in Kiev at dkrasnolutsk@bloomberg.net

To contact the editors responsible for this story: Will Kennedy at wkennedy3@bloomberg.net Dan Stets, Charlotte Porter

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