New Price for Russian Gas Supply to Ukraine Comes into Effect

Source: 4/8/2015, Location: Asia

Alexey Miller, Chairman of the Gazprom Management Committee informed Russian President Vladimir Putin on the current situation with gas supplies to Ukraine.

It was pointed out that starting from April 1, Ukraine was facing a new price for Russian gas. Taking into account the discount granted by the Russian Government through export duty reduction, the price equals USD 247.18 per 1,000 cubic meters. The discount is effective throughout the second quarter.

With due consideration for the aggravated situation in the Ukrainian economy, Gazprom agreed to make an allowance for Naftogaz of Ukraine and gave up its intent to penalize the Ukrainian company this time for its failure to fulfill the ‘take-or-pay’ condition under the 2009 contract. Gazprom also deems it possible to support the statement by the Ukrainian counterparts concerning the prolongation of the no-penalty period under ‘take-or-pay’.

Verbatim transcript

Vladimir Putin: Mr. Miller, you were going to report on how the work with our closest partners – Ukraine – is coming along.

Alexey Miller: Mr. Putin, a new price for Russian gas supply to Ukraine comes into effect starting from April 1. It equals USD 247.18. It includes the discount granted by the Russian Government with the account of customs duty.

Vladimir Putin: Through its reduction.

Alexey Miller: Yes, through the customs duty reduction. The decision will remain in force for three months, though Ukraine requested a discount for a longer period.

The decision on the three-month period is conditioned by an extremely high volatility in the gas market today. We understand that the trends in today’s oil market can change dramatically and they can show a further downward tendency. Such risks exist, so the decision on the discount amount can ultimately be taken only in the context of the real price level that will evolve in a period of three months.

Otherwise there are risks that the price for gas supply to Ukraine will be lower than the spot price and considerably lower than the prices of countries neighboring Ukraine.

Vladimir Putin: Right, I think we should act so that our partners feel themselves quite confident in our intentions, we should stick to healthy business relations. Also, we have to deepen their confidence that we will never use our economic connections as a tool to lobby our interests, which are not really tied to economics – we’ve never done this before and, of course, we are not going to follow this path in the future. That’s why it is important to hold to the terms of 2009 contract.

Talking about discounts – we should use them in a way that Ukraine’s price would be comparable to the gas prices in neighboring regions, I mean countries located near Ukraine.

Alexey Miller: The Ukrainian partners also appealed to us not to impose the ‘take-or-pay’ penalties under the 2009 contract. We responded positively and confirmed – in a letter to Naftogaz of Ukraine – that Gazprom was not going to penalize it within the next three months. The Ukrainian party requests to extend the non-payment period.

At the moment we see that Ukraine offtakes a very little amount of Russian gas – this is the consequence of industrial downturn and soaring costs of energy supplies in Ukraine. For instance, approximately 14 billion cubic meters of Russian natural gas were delivered last year. Talking about the ‘take-or-pay’ clause, the figure makes up 41.6 billion cubic meters. This is a huge difference, and we believe we can support our Ukrainian partners by extending further the non-payment period before bringing in the ‘take-or-pay’ penalties.

Vladimir Putin: I agree with you. I think it would be a right move to show loyalty to our partners, bearing in mind the difficult economic climate in Ukraine. And there is one more thing – we should provide stable gas supplies to all our customers, including the citizens in the south-east of Ukraine.

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