News.Kyiv.Me.

Ukraine Faces Frigid January If No Money for Russia Gas Deal

Ukraine risks a repeat of past New
Year natural-gas shutdowns after agreeing yesterday to a deal
with Russia that lacked a European Union financial guarantee.

The EU didn’t give any guarantees to Russia for Ukrainian
payments, Marlene Holzner, energy spokeswoman for the European
Commission, told reporters in Brussels today. Earlier, Russian
Energy Minister Alexander Novak said any resumed supplies could
be halted again on Jan. 1 if Ukraine doesn’t pay $3.1 billion in
debt as well as upfront payments for future deliveries.

The lack of a guarantee “opens the door for further
problems later this winter if Kyiv’s bankrupt treasury fails to
pay,” Luis Saenz, the head of equity sales and trading at BCS
Financial Group, said in an e-mailed note.

The EU-brokered accord will restore gas supplies halted
since June and intends to prevent Ukrainians going without heat
as winter approaches. The 28-nation bloc, which relies on
Russian gas piped through Ukraine for 15 percent of its needs,
was seeking to avoid a repeat of 2006 and 2009, when disputes
between the former Soviet republics over gas debts and prices
led to fuel-transit disruptions and shortages across Europe amid
freezing temperatures.

The deal, which sets a fixed discount and debt-restructuring conditions, covers Gazprom deliveries through
March. Ukraine must pay Russia about $4.6 billion by the end of
the year under the deal, according to EU estimates.

Two Tranches

In addition to the debt payments, Kyiv has to prepay in two
$760 million tranches for the gas it needs over the next two
months, OAO Gazprom Chief Executive Officer Alexey Miller said
in an interview with state-run Rossiya 24 TV channel.

While NAK Naftogaz Ukrainy says it has $3.1 billion
available to pay its debt, the state-owned energy company lacks
money for new supplies and must rely on Europe to finance the
purchases, Miller and Novak have said.

Prior to signing the deal, Russia was told by “officials”
that Ukraine has enough money for both debt and advance
payments, Novak said today.

Kyiv can use funds under an existing EU and International
Monetary Fund assistance package, possibly drawing 760 million
euros ($952 million) from it ahead of schedule, the European
Commission’s Holzner said.

Ukraine plans to pay Russia the first tranche within a
week, according to Ukrainian Prime Minister Arseniy Yatsenyuk,
who also said he would meet with the IMF about the gas issue
today.

Supply Risk

“The EU and the IMF will help Ukraine make payments, even
if they aren’t explicitly guaranteed,” Richard Mallinson, a
London-based analyst at Energy Aspects Ltd., said by phone.
“Any breakdown of the deal would lead to an increased supply
risk for Europe, and it’s in their interest to make sure that
doesn’t happen.”

The European Commission, the bloc’s executive arm, said
Oct. 21 it had received a Ukrainian request for an additional
loan of 2 billion euros.

The winter gas package consists of two documents: a binding
protocol signed by the three parties and an addendum to the
existing gas-supply contract signed by the CEOs of Gazprom and
its Ukrainian counterpart NAK Naftogaz Ukrainy. Russia
previously wanted an EU-Ukraine protocol on payment guarantees,
although that demand has not been mentioned in the final deal.

Moscow hopes that there won’t be a Ukraine gas crisis this
year, Novak said. “We trust our partners.”

Gazprom can resume shipments to Ukraine within 48 hours of
receiving Kyiv’s first payment of about $2.2 billion, which it
expects to receive by the end of next week, Miller said today in
an interview with state-run Rossiya 24 TV channel.

“The deal is only for this winter, suggesting Russia wants
to maintain leverage over Kyiv,” Energy Aspect’s Mallinson
said. “The post-election government is much more western
oriented, and if they continue to strengthen ties with the EU
they risk provoking a reaction.”

To contact the reporters on this story:
Jake Rudnitsky in Moscow at
jrudnitsky@bloomberg.net;
Elena Mazneva in Moscow at
emazneva@bloomberg.net;
Ewa Krukowska in Brussels at
ekrukowska@bloomberg.net

To contact the editors responsible for this story:
Alaric Nightingale at
anightingal1@bloomberg.net
Ana Monteiro, Tony Barrett