Ukraine, Russia extend stop-gap gas deal

European Commission mediates extension of “winter package” deal until mid-summer.

A short-term deal brokered by the European Commission to ensure supplies of gas from Russia to Ukraine has been extended until mid-summer.

The extension, which was announced by the Ukrainian gas distributor Naftogaz this morning and has now been confirmed by Gazprom, means that a pricing formula established to cover the winter months – from November to the end of March – will be extended to the end of June.

Another important element of the agreement obliges Ukraine to pay in advance for gas.

The extension will be included in what Naftogaz described as a technical addendum to an agreement struck on 31 October in Brussels. October’s agreement ended a period of four and a half months in which Russia stopped supplying Ukraine with gas for domestic consumption. Gazprom continued to supply customers in the European Union via Ukrainian pipelines.

Naftogaz did not make immediate use of October’s agreement, preferring to use gas sent to Ukraine by European distributors. This year, Ukraine has taken more gas from Europe than from Russia and Naftogaz has indicated that it intends to take advantage of the lower prices offered by European companies.

Both Naftogaz and Gazprom calculate that, under the extension announced today, Ukraine will pay €227 per thousand cubic metres of gas in the second quarter of the year.

The Commission is currently trying to convince both sides to reach a longer-term agreement that would last until a ruling by an international arbitration court in Stockholm. The arbitrators have been asked to rule on an agreement dating from 2009 in which the Ukrainian government agreed to a price formula that left the country paying far more than other European countries. It also included a ‘take or pay’ clause that obliged Ukraine to pay for a set volume of gas even if it did not take delivery of that much gas.

The Commission brought together the two sides on 20 March and another meeting is pencilled in for 13 or 14 April. Today’s agreement was reached without a formal meeting, after a letter sent by the Commission and exchanges between the chief executives of Naftogaz, Andriy Kobolyev, and of Gazprom, Alexei Miller.

Miller, who has not attended the last two meetings with the Commission, said today that today’s agreement waives the ‘take or pay’ clause until mid-2015.

Naftogaz says that it expects the extension to set the principles of a deal to take it through to a ruling by the Stockholm arbitrators.