Putin Gives Ukraine Month to Pay, Warns of Gas Disruption

Russia will demand Ukraine pay in advance for natural-gas deliveries in a month unless its neighbor resumes payments, a move that may lead to disruptions in fuel supplies to Europe, President Vladimir Putin said.

Russia “is ready to wait for a month” after not receiving “a single ruble or dollar” from Ukraine for deliveries in March, Putin said today during an annual televised call-in show.

Putin urged European leaders in a letter last week to provide aid to Ukraine to ensure uninterrupted gas deliveries to the region, without giving a deadline. OAO Gazprom, the state-controlled exporter, is supplying fuel to Ukraine with little chance of receiving payments for more than $2.2 billion owed, Dmitry Peskov, Putin’s spokesman, said April 11.

“We are willing to be patient, we will endure for a month. If during this month, next month, there are no payments, we will move to so-called prepayment, in line with our contract,” Putin said.“This is a very difficult payment method, which could lead to disruptions in our transit shipments to European clients.”

Ukraine carries about 15 percent of Europe’s gas supply through its pipelines from Russia, making energy a key component in the crisis over the future of the former Soviet republic. If Gazprom cuts supply to Ukraine, it’s likely to have a knock-on effect on shipments to Europe, forcing prices higher as utilities compete for other sources of fuel.

’Provocative Position’

Gazprom is charging Ukraine $485 per 1,000 cubic meters of gas from this month, up from $268.50 in the first quarter, reaching a level higher than for any European Union nation.

The price rose in early April, after Russia in two steps overturned all discount agreements it awarded to ousted Moscow-backed President Viktor Yanukovych.

NAK Naftogaz Ukrainy is ready to settle the debt if Russia cuts prices back to $268.50, the Kiev-based company said on April 15.

Naftogaz confirms this position, the company spokeswoman Aliona Osmolovska said today by phone.

“Ukraine obviously has taken a provocative position,” Alexander Paraschiy, an analyst at Concorde Capital in Kiev, said by phone. “The countries will likely negotiate in the coming month, so some agreement is possible. But if talks fail, switching Ukraine to prepayments would automatically lead to limited supplies from Russia, because Ukraine wouldn’t have enough money to pay in advance.‘‘

European Aid

Ukraine can manage without Russian gas until September, Paraschiy said. Nevertheless, fuel shipments from Europe won’t be able to compensate for Gazprom’s deliveries as Ukraine fills underground storage to prepare for the winter heating season. Ukraine should buy about 11.5 billion cubic meters of gas just to fill storage facilities, which would cost $4 billion to $5 billion, Gazprom Deputy CEO Vitaliy Markelov said last week.

Ukraine, which depends on Russian gas for about half of its domestic needs, is seeking to diversify by buying gas from Slovakia, Poland and Hungary by reversing east-west pipelines.

The country can get around 7 billion cubic meters from Europe this year, paying $350 to $400 per 1,000 cubic meters, Paraschiy said.

‘‘We don’t want to pay a political price for Russian gas, we are ready to pay a fair market price for the gas and do our best to create alternatives,” Sergiy Yevtushenko, head of Ukraine’s investment agency, said today in an interview in Zagreb, adding that the country may have a liquefied natural gas import terminal ready by the end of 2015.

’Closely Related’

Ukraine imported about 26 billion cubic meters of Russia’s gas last year, shipments from Europe were 2 billion before supplies halted when Russian gas became cheaper with the discount was introduced in December.

Germany’s RWE AG resumed supplying natural gas to Ukraine through Poland on April 15.

The European Union agrees with Putin’s proposal for consultations on Ukraine and “security of gas supply and transit,” European Commission President Jose Barroso told Russian president in a letter sent today and released on the European Commission website.

“The contractual reliability of the Russian Federation as a supplier of gas is at stake in this matter,” he said.

Before it's here, it's on the Bloomberg Terminal. LEARN MORE