Ukraine accepts Gazprom demands and signs ‘winter’ gas supplies contract with Russia

UKRAINE - In Brief 31 Oct 2014 by Dmytro Boyarchuk

---

Yesterday trilateral agreement for gas supplies till the end of March 2015 between Ukraine, Russia and EU was signed in Brussels. Kyiv accepted Gazprom demand to treat the suggested prices as “price with $100 discount”. Actual gas price will be $378 per tcm till the end of 2014 and $365 per tcm in 1Q 2015. Kyiv will purchase up to 4 bcm of gas till the end of March. Gas supplies for further periods are not defined. The issue of gas price in 2Q 2014 also remains unresolved (Ukraine insists on $268.5 per tcm). However, Kyiv agreed to cover $3.1 billion of gas debt which reflects $268.5 per tcm gas price and might be revised after Stockholm court finally decides on this issue. No doubt, the agreement was result of western pressure on Ukraine – nothing personal guys, it’s just very cold in winter. Media reported words of Angela Merkel that Ukraine should not expect reverse gas supplies if Kyiv does not reach agreement with Gazprom. Against this backdrop there was poor room for maneuvering. Though we did not expect the gas issue to resolve soon, we consider this outcome quite positive. In light of all hardships Ukraine is facing the risk of failing on heating apartment blocks was a really serious issue – new wave of social unrests might be deadly for the country. Now the key question is how the authorities will use these months before new round of negotiations with Russia starts. The story is that the authorities now are totally handing on the goodwill of western partners. Paying $3.1 billion gas debt as well as prepayments for gas will push gross international reserves down to $10 billion by the yearend ($16.4 billion by the end of September) which is extremely risky level...