Gazprom cuts off gas to Ukraine over penalty fees

Doris Leblond
OGJ Correspondent

Uchenna Izundu
International Editor

PARIS and LONDON, Jan. 2 -- Gazprom began cutting off gas supplies to Ukraine at 7 AM GMT Jan. 1 after negotiations failed on both a $600 million penalty fee that Ukraine's state energy company Naftogaz Ukrainy had not included in the $1.5 billion it paid Dec. 30 to RosUkrEnergo for November and December deliveries and on a dispute over the new price for gas deliveries in 2009. RosUkrEnergo is the Swiss-based gas trading company Gazprom uses for its gas deliveries to Ukraine.

Gazprom's gas supply contract to Ukraine expired Dec. 31, and the parties failed to reach an agreement on a new contract for 2009, as Ukraine considered too high the $250/1,000 cu m demanded, up from $179.50/1,000 cu m in 2008, and it claimed, in compensation, a higher tariff for transiting gas to Western Europe.

Gazprom indicated, however, that deliveries to the European Union were maintained "with a volume of 300 million cu m/day."

Naftogaz Ukrainy also said it would maintain gas deliveries to Europe despite the cutoff. Both the European Union countries and Ukraine previously had indicated that they had sufficient gas reserves to weather the winter months.

New negotiations sought
Meanwhile, as gas supplies remained suspended Jan. 2, Ukrainian president's energy adviser Bogdan Sokolovsky said Ukraine had appealed to Gazprom for a return to negotiations. A delegation led by Ukraine's energy minister Yuri Prodan began a tour of Europe to reassure governments that their gas supplies transiting through Ukraine would not be interrupted.

The first country visited will be the Czech Republic, which has assumed the EU presidency for the next 6 months.

Ukraine President Victor Yushchenko indicated in a press release that a compromise could be reached, and he was convinced negotiations would resume in a day or two. A contract could be signed "before Jan. 7" fixing the price of Russian gas supplies to Ukraine in 2009 and settling the matter of Naftogaz Ukrainy's full payment of its debt to Russia.

According to the press release, Naftogagz Ukrainy was suggesting payment of $235/1,000 cu m carried over 100 km in exchange for a 10¢ increase of the transit tariff.

However, Gazprom announced the evening of Jan. 1 that as its "preferential offer" had not been accepted, Ukraine should pay in the 2009 contract the EU price of $418/1,000 cu m, a position repeated on Gazprom's web site Jan. 2.

Gazprom's view
In a press conference Dec. 31, Gazprom Deputy Chairman and Export Chief Executive Alexander Medvedev and Gazprom spokesman Sergei Kupriyanov said that Naftogaz Ukrainy had recognized the $2 billion debt it owes Gazprom but had remitted only $1.5 billion to RosUkrEnergo, which will send it to Gazprom Jan. 11.

They said Naftogaz Ukrainy had announced that it might confiscate transit gas to Europe, and that their existing transit contract with Ukraine is valid to 2010 to transit at least 110 billion cu m/year of gas.

Gazprom pays Ukraine a fee of $1.60/100 km, which they said was comparable to transit fees paid to other European countries. Gazprom said it has offered Naftogaz Ukrainy a discounted price for gas deliveries in 2009.

However, they said if there is no contract signed for future gas deliveries, there is no legal basis for Gazprom to deliver gas to Ukraine.