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 The argument over prices for natural gas has quietly simmered in
the background even as the two countries have squared off over
Moscow's seizure of Ukraine's Crimea peninsula and over a
pro-Russian rebel uprising in eastern Ukraine.
Since a pro-Moscow president was toppled in Ukraine in February,
Russia has demanded a sharp increase in the price Ukraine pays for
gas. Kiev says it cannot afford it and wants to pay a discounted
price which it negotiated in the past.
While the dispute has gone on, Gazprom has continued billing Kiev at
the higher rate. It says Ukraine already owes it more than $5
billion in unpaid bills and is running up more debt at a rate of
more than $1 billion per month.
Moscow had previously threatened to switch off Ukraine's gas as soon
as this Tuesday unless it began paying up front for supplies, a
measure that could potentially have also hit European supplies
shipped through Ukrainian pipes.
But after Kiev paid some of its gas debt, Gazprom announced a
six-day extension of the deadline until June 9. Gazprom also said
that it would not sue Ukraine's gas supplier Naftogaz over unpaid
bills during the coming week.
"Payment for May should be done before June 9," Gazprom CEO Alexei
Miller said in a statement.
That means gas will continue to flow to Ukraine and Europe while
President Vladimir Putin and other world leaders - including
Ukraine's new president-elect Petro Poroshenko - are in France this
week for events commemorating the allied forces' "D-Day" landings in
Normandy during World War Two.
The Kremlin has announced no plans for talks with Poroshenko or U.S.
President Barack Obama during Putin's visit on Thursday and Friday
but has said it cannot rule out the possibility of informal
meetings. They are all due to attend a lunch on June 6.
Putin has pulled back some of the tens of thousands of troops he had
massed on Ukraine's border and says he is prepared to work with
Poroshenko, who won a landslide presidential election a week ago.
But the past week has also seen a sharp increase in violence in
eastern Ukraine, with dozens of pro-Moscow rebel fighters killed in
a government assault, most of them Russians whose bodies were sent
back across the border.
MORE TALKS
Talks between the Russian gas exporter and Ukraine were due to
resume later on Monday in Brussels, under the auspices of the
European Union.
EU mediator Guenther Oettinger said on Friday a $786 million partial
payment for back gas bills was on its way to Moscow, clearing the
way for further talks on Monday.
Gazprom confirmed on Monday that it had received the payment.
The delicate negotiations over gas supplies worth billions of
dollars provide the economic backdrop for the crisis in Ukraine,
which has led to the biggest confrontation between the West and
Russia since the Cold War.
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Ukraine's industry-heavy economy depends on Russian natural gas to
be competitive. Since the fall of the Soviet Union in 1991, Moscow
has frequently used its control over energy resources to influence
politics.
Kiev wants to return to a discount gas price of $268.50 per 1,000
cubic metres while Moscow is demanding $485 - the highest paid by
any client, which Kiev says would effectively bankrupt it. Most
European countries are believed to pay Russia around $300-$400 for
gas, although the prices are not published.
Gazprom's Miller said that averting the requirement for prepayment
for gas would depend on whether Kiev pays off the remaining $2.24
billion for deliveries from before April 1 and makes "progress" in
paying off for April and May.
"The Russian side would be ready to look into the resolution of the
pricing scheme issue through cuts in exports custom duty" if Ukraine
settles all its bills, he said.
Europe gets a third of its gas needs from Russia, and almost half of
these supplies are sent via Ukraine. On Monday, Gazprom said gas was
flowing to Europe as usual.
The debt Moscow says Kiev already owes is equivalent to around 3
percent of Ukraine's GDP. Delaying an agreement will make it
increasingly difficult for already cash-starved Ukraine to meet its
obligations.
Moscow's leverage is blunted somewhat because the peak winter demand
season is now over and storage tanks across Europe are full. Past
pricing disputes between Moscow and Kiev in 2006 and 2009 took place
during times of peak winter demand, causing shortages and freezing
across Europe. But following a mild winter and spring as well as
healthy supplies from non-Russian sources such as Norway and Qatar,
Europe's gas storage sites are well filled this year.
The healthy supply is reflected in wholesale prices, which have
fallen 30 percent since the start of the Ukraine crisis in late
February to the lowest levels since 2010.
(Additional reporting by Denis Pinchuk in Moscow and Henning
Gloystein in London; Editing by Timothy Heritage and Peter Graff)
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