Russia-Ukraine Gas Talks to Resume Today as EU Seeks Deal

Russia will resume later today negotiations with Ukraine on restoring natural-gas flows as the European Union seeks to broker an interim deal between the two countries to prevent supply disruptions this winter.

Russia’s Energy Ministry said its chief, Alexander Novak, his Ukrainian counterpart, Yuri Prodan, and EU Energy Commissioner Guenther Oettinger plan to restart talks at 7 p.m. in Brussels.

Overnight negotiations failed to bring an accord to ensure deliveries of Russian gas to Ukraine, the transit country for 15 percent of EU needs for the fuel. Financing of future payments for Ukrainian imports was the main sticking point, according to Russia, whose delegation left for Moscow earlier today.

“Information from European Commission allows to assume that we can go back to Brussels,” Sergei Kupriyanov, spokesman for Russian gas exporter OAO Gazprom, said by telephone.

The 28-nation EU is seeking to avoid a repeat of 2006 and 2009, when disputes between the former Soviet allies over gas debts and prices led to fuel transit disruptions and shortages across Europe amid freezing temperatures.

“Our common ambition is to come to an interim solution, a winter package to solve our security of supply challenges for next winter, from now until the end of March,” Oettinger told reporters before the talks started yesterday.

Common Understanding

The negotiations lasted until 4 a.m. in Brussels and “jointly prepared documents laying down a common understanding” have been sent to Kiev and Moscow for approval, the EU said. The package that needs to be signed includes an agreement between Gazprom and Naftogaz as temporary amendment to the main gas supply contract, a Russia-Ukraine-EU protocol on basic terms of resuming fuel supplies and a Ukraine-EU protocol on payment guarantees, Novak said.

Andriy Kobolyev, chief executive officer of Naftogaz, said “the probablity is high” that an interim accord will be reached. “All details will be released after signing,” he said on his Facebook page.

Gazprom stopped supplying its Ukrainian partner, NAK Naftogaz Ukrainy, in June because of unpaid bills as fighting raged between pro-Russian rebels and government forces in the country’s easternmost regions.

Under a preliminary accord brokered by the EU in September, Ukraine would pay $3.1 billion by the end of the year for earlier supplies. In return, Russia would cut prices $100 per thousand cubic meters to $385 through March.

‘Coming Days’

The first debt installment of $1.45 billion from Naftogaz is expected in “coming days,” Novak told Russian Prime Minister Dmitry Medvedev today. The country also needs around $1.6 billion to pay for future deliveries by the end of this year, he said.

Ukrainian Prime Minister Arseniy Yatsenyuk plans to raise the topic of gas supplies during phone conversations today with U.S. Vice President Joe Biden and German Chancellor Angela Merkel.

“One of main issues to be discussed is gas deal and additional financial instruments for Ukraine, which will allow to stabilize budget situation and pay for our energy bills,” Yatsenyuk told reporters.

The talks on approving the draft agreement and restoring gas flows come as Ukrainian President Petro Poroshenko moves to form a government among the pro-European parties that gained a constitutional two-thirds majority in the parliamentary election on Oct. 26.

‘Payment Problem’

Oettinger estimated yesterday in an interview with ZDF that there was a 50 percent chance of a gas deal. “Ukraine has a large payment problem; it is practically insolvent,” Oettinger said. Still, the country “gets billions in aid” and “now has to earmark some of the funds for gas purchases.”

Negotiators will discuss options for bridge financing to cover payments until an International Monetary Fund package for Ukraine is ready, by February at the latest, Germany’s Merkel said on Oct. 24. If flows to Europe suffer, Ukraine wouldn’t get supplies from EU nations because the bloc “would naturally need all the gas itself,” she said.

The EU is close to approving about $1 billion in extra funds for Ukraine, with part of that earmarked for gas supplies, the Wall Street Journal said earlier this week, citing two unidentified officials. Even so, Ukrainian Finance Minister Oleksandr Shlapak said on Oct. 28 he doubts a deal will be struck anytime soon.

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