Ukraine Rejects Gas Offer as Talks End Without Deal

Photographer: Chris Ratcliffe/Bloomberg

Russia offered to supply gas for about 20 percent below the current price, a level Ukraine said was still more than it’s willing to pay, EU Energy Commissioner Guenther Oettinger said at a press conference after the three-way meeting. Close

Russia offered to supply gas for about 20 percent below the current price, a level... Read More

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Photographer: Chris Ratcliffe/Bloomberg

Russia offered to supply gas for about 20 percent below the current price, a level Ukraine said was still more than it’s willing to pay, EU Energy Commissioner Guenther Oettinger said at a press conference after the three-way meeting.

Ukraine rejected a Russian proposal for the price of future natural-gas deliveries as European Union-brokered talks in Brussels ended without an agreement.

Russia offered to supply gas for about 20 percent below the current price, a level Ukraine said was still more than it’s willing to pay, EU Energy Commissioner Guenther Oettinger said at a press conference after the three-way meeting. Russia’s energy minister said the country also wants $1.95 billion for past fuel supplies before June 16 or it may cut shipments.

“In the next 48 hours we’ll try to make progress, not waste time,” Oettinger said. “Monday is quite a way off so there’s still a good opportunity.”

The EU, dependent on Russian gas piped through Ukraine for about 15 percent of its supplies, is trying to broker a deal to maintain shipments amid a dispute over payments for the fuel. In Ukraine, government forces and rebels claiming allegiance to Russia continue to clash in the east of the country.

Oettinger is optimistic an agreement can be reached to end the gas price dispute in the next few days, he said at the press conference.

‘Package Deal’

Russia proposed a “compromise” package, supplying Ukraine with fuel for $385 per 1,000 cubic meters, $100 below the current price, Novak said. That discount is similar to what Russia granted Ukraine from 2010 until April this year, he said.

Russia may guarantee the discount from April through the next 12 months, if Ukraine is ready to settle its debts, according to Novak.

Ukraine should first pay $1.45 billion for the last two months of 2013 and an additional $500 million as part of the debt for gas received in April and May, Novak said. If there is no payment by the morning of June 16, Ukraine will only get fuel it pays for upfront, at the current price, he said.

The next step would be settling the rest of the debt for April and May, which would total $2.35 billion at the new price, according to Novak.

“Within a year we are ready to provide adequate safeguards or to sign the necessary documents,” Novak said.

‘Fair Price’

In response, Ukraine’s energy minister Yuri Prodan said his country is ready to pay once Russia sets a “fair” market-based price. The proposed government discount may be canceled at any time, he said. Russia has done it once before, Ukrainian Prime Minister Arseniy Yatsenyuk said in Kiev today before the talks.

“We know Russian tricks,” Yatsenyuk said.

The state energy company NAK Naftogaz Ukrainy will file for international arbitration in Stockholm if Russia fails to agree on the price. Ukraine could get the gas from the EU at a significantly lower price through a so-called reverse route, Prodan said. If Russia cuts the supplies, “Ukraine will employ maximum possible reverse and wait for the decision of the Stockholm arbitration,” he said.

‘Dead End’

Ukraine refused to pay after Russia raised the gas price by 81 percent in April. Supplier OAO Gazprom rescinded a price discount granted in December because of Ukraine’s mounting debts, while Russia stripped its neighbor of a 2010 export-duty break that it exchanged for a lease on its Black Sea fleet’s port in Crimea, which Russian President Vladimir Putin annexed in March.

“If our offers are rejected, events will reach a completely different stage,” Putin said today in Moscow minutes before the talks in Brussels ended.

If Ukraine wants guarantees that Russia won’t cancel the new discount, the government in Moscow should consider the issue. But if the smaller country finds the discount too low and wants more, “then this whole affair looks to be deliberately heading for a dead end,” Putin said.

Summer Time

There’s no guarantee there will be an agreement in coming days, because the arrival of summer takes the pressure off, said Ekaterina Rodina, an oil and gas analyst at VTB Bank in Moscow.

Russia has shown it’s ready to negotiate by suggesting discounts and debt-repayment extensions, while Europe and Ukraine have managed to build significant gas stock in underground storage, Rodina said.

“When all are comfortable and there is no pressing issue - - the freezing weather -- negotiations could be extended until September.”

To contact the reporters on this story: Ewa Krukowska in Brussels at ekrukowska@bloomberg.net; Elena Mazneva in Moscow at emazneva@bloomberg.net; Volodymyr Verbyany in Kiev at vverbyany1@bloomberg.net

To contact the editors responsible for this story: Will Kennedy at wkennedy3@bloomberg.net; Lars Paulsson at lpaulsson@bloomberg.net Alex Devine, Reed Landberg

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