May 28 (Bloomberg) -- Russian President Vladimir Putin called on Ukraine to pay down its debt and take steps to avert a shift to advance payments for natural gas in June and a looming supply cutoff.
“I hope that we won’t reach a situation where we have to move to prepayments,” Putin said in the Kremlin after Energy Minister Alexander Novak laid out a proposal from the European Union to resolve a gas dispute with Ukraine. “The government should determine what it’s willing to do” if Ukraine agrees to the plan, the president said.
Ukraine will start paying only after Russia agrees to a temporary price of $268.50 per 1,000 cubic meters, Ukrainian Energy Minister Yuri Prodan said after Putin’s statement, according to Interfax. That was the rate charged in the first quarter before OAO Gazprom raised prices by 81 percent.
“Russia and Ukraine are still far from a compromise,” said Ekaterina Rodina, an oil and gas analyst at VTB Bank in Moscow.
Ukraine carries about half of Russia’s EU-bound gas across its territory, or about 15 percent of Europe’s demand for the fuel, making it a linchpin in energy security. Gas price and debt disputes between Russia and Ukraine disrupted Europe’s deliveries during freezing weather in 2006 and 2009.
Ukraine’s debt will have climbed to $5.2 billion by the June 7 deadline for May supplies, Alexey Miller, head of OAO Gazprom, Russia’s gas producer, said at the meeting with Putin.
Under the EU plan, Ukraine would pay $2 billion of its gas debt by May 30 and $500 million more by June 7. If Gazprom gets the first tranche, the state-controlled gas producer agrees to continue supplies without prepayment and start talks on prices, according to the EU proposal. The governments of the former Soviet allies have a deadline of tonight to accept the agreement.
The debt plan “was proposed by the EU and Russia jointly as a compromise,” Novak said at the meeting with Putin and Miller. The Energy Ministry’s and Gazprom’s press services declined to say immediately whether Russia had sent its answer to the EU and it will guarantee to drop the prepayment plan.
The Ukrainian Energy Ministry’s press service didn’t respond to phone calls.
To contact the editors responsible for this story: Torrey Clark at email@example.com Alex Devine, Reed Landberg