Ukraine payed Gazprom just enough cash for another week of gas supplies on Monday, following its “search the couch cushions” prepayment strategy of late. Kiev forked over a less than impressive $15 million, the latest of the meager tranches that it has deployed in recent weeks. These prepayments are a condition of Russia’s continued supply of Ukraine, but the provisional deal that’s kept gas flowing these past months (called the “winter package”) expires at the end of the month. On expiration, the gas supply arrangement will revert to terms set in a 2009 contract, including a price hike and a take-or-pay clause that Ukraine has vehemently protested. To find a more palatable solution, Ukraine and Gazprom are once again coming to the negotiation table at a meeting this Friday brokered by Brussels. As Reuters reports, Gazprom is already staking out its position:
Russia may consider giving Ukraine a maximum discount on gas supplies of $100 per 1,000 cubic metres (cm), Russian Prime Minister Dmitry Medvedev said on Wednesday…“Regarding a discount – it is provided by the government, this is our good will. It (the discount) could be provided in the amount of our export duty but no more than the export duty,” Medvedev said.Russian Energy Minister Alexander Novak told Reuters last week that if the gas price was $330 or more per 1,000 cubic metres in the second quarter, then the maximum discount for Kiev would be $100.
The two sides are leaving it fairly late to come to a new understanding. Ukraine will be breathing a sigh of relief that it seems to have managed to squeak through the coldest months of the year—and accordingly the period of highest demand for natural gas—with its small prepayments, but its heavy reliance on Russian supplies hasn’t changed. For its part, Gazprom is going to wring as much out of Kiev as it possibly can, and then some. From Putin’s perspective, gouging Kiev on gas is doubly beneficial: it weakens Ukraine’s already struggling economy, and when Europe steps in to help (some 40 percent of European gas supplies from Russia transit Ukraine) the West is essentially putting money in Putin’s pocket. Russia’s economy being what it is these days, every little bit helps.