Gazprom Charges Ukraine $11.4 Billion Before EU Gas Talks

Apr 24, 2014 3:30 pm ET

(Updates with comment from Ukrainian minister in third paragraph, comment from EU in seventh paragraph.)

April 24 (Bloomberg) -- OAO Gazprom, Russia’s state gas exporter, presented Ukraine with an additional $11.4 billion bill for fuel it promised to buy last year, increasing pressure on the government in Kiev as the prospect of supply cuts looms.

Gazprom sent the document to NAK Naftogaz Ukrainy yesterday, Gazprom spokesman Sergei Kupriyanov said today by phone in Moscow. According to the terms of a 2009 contract, Ukraine owes a total of $18.4 billion under take-or-pay clauses, where customers must pay for gas whether they use it or not, President Vladimir Putin said earlier this month.

Ukrainian Energy Minister Yuri Prodan said that he considers Gazprom’s demands “unjustified” and Ukraine is ready to fight them in court. Ukraine informed the Russian state gas exporter “in time” about its gas requirements, he told reporters in Bratislava, Slovakia.

Ukraine, which is getting an international bailout to stave off default, met European Union and Slovakian officials today to discuss buying more gas from the rest of the continent. Ukraine gets about half its gas from Russia, making energy a central issue as tensions with Russia rise.

“Russia is clearly whipping up tension before Ukraine’s talks with Europe, understanding that Naftogaz won’t pay,” Bohdan Sokolovskyi, an energy adviser to former Ukrainian President Viktor Yushchenko, said by phone. “Under the contract, Gazprom truly has the right to demand $11.4 billion. The other issue is the contract was unfair.”

Reverse Gas

The EU, Slovakia and Ukraine failed today to agree on flows from the west, aimed at reducing Kiev’s dependence on Russian gas. Ukraine aims to use EU-bound pipelines in a so-called reverse mode to supply its domestic needs.

“We support Ukraine in solving certain issues Ukraine has with the Russian Federation and Gazprom, with a goal of reaching fair market prices, with a goal to pay justified invoices within the coming weeks and with a goal of rejecting unjustified invoices,” EU Energy Commissioner Guenther Oettinger told reporters in Bratislava.

The bill is in line with the contract and Gazprom is entitled to seek some of the $18.4 billion mentioned by Putin, Kremlin spokesman Dmitry Peskov said today.

Today’s talks didn’t include Russian representatives. No date or venue for negotiations with Russia have been set, Sabine Berger, a spokeswoman for Oettinger, said today. There have been contacts on possible talks, Peskov said.

Pricing Dispute

Gazprom and Naftogaz signed the 2009 gas supply agreement to end a pricing dispute that had led Russia to halt deliveries to Ukraine, which disrupted transit flows to Europe for about two weeks during freezing weather.

Naftogaz was obliged to buy at least 41.6 billion cubic meters of Russian gas last year under the contract, whether or not they took the volumes, according to Gazprom. Naftogaz imported 12.9 billion cubic meters of the fuel, Aliona Osmolovska, a spokeswoman for the Ukrainian company, said by phone from Kiev, declining to comment on the bill. Gazprom supplied 25.8 billion cubic meters of gas to Ukraine last year in total, including Naftogaz and private Ukrainian companies.

“We’ve never paid for not purchasing gas in the required volume,” former Ukrainian Deputy Prime Minister Yuriy Boiko said today in Kiev, according to Interfax. “We warned Russian partners at that time that we’d pump as much gas as the country needs.”

Discounts Ended

In January 2013, Gazprom charged Ukraine $7 billion for fuel that Naftogaz had to pay for under a take-or-pay clause in 2012. The bill wasn’t paid, and Ukraine won a discount on gas prices in December, a month after then-President Viktor Yanukovych pulled out of a European Union cooperation accord, favoring ties with Russia. Yanukovych’s decision kicked off protests that led to his downfall this year, souring Ukraine- Russia relations.

The government in Moscow canceled all gas discounts this month, increasing Ukraine’s fuel price 81 percent, to a level higher than for any European nation.

Russia has provided Ukraine’s economy with $35.4 billion of subsidies in the past four years, including $17 billion in gas- price discounts and $18.4 billion in the form of a take-or-pay fines it hasn’t enforced, Putin wrote April 10 in a letter to 18 European heads.

Before today, Russia had been pressuring Ukraine to settle its more than $2.2 billion debt for imported gas last year and in the first quarter of 2014.

Gazprom 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, Putin said in a televised call-in show on April 17.

--With assistance from Ewa Krukowska in Warsaw, Radoslav Tomek in Bratislava, Slovakia and Henry Meyer in Moscow.