Gas in debt, or energy independence in Ukrainian

Author : Elena Gerasimova

Source : 112 Ukraine

Ukraine has managed to accumulate the necessary minimum of gas for the current heating season. But it was done, firstly, due to discounts received from Russia, and secondly, by spending its own gold and foreign currency reserves, and, thirdly, thanks to loans from international financial institutions. And most likely, such a scheme remains valid as long as it’s possible.
09:11, 16 December 2015

In the coming year, according to the Draft Law on State Budget of Ukraine for 2016, the government suggests to buy natural gas at an average price of $225 per thousand cubic meters. At the same time, most likely, the Russian Federation (RF) will remain among the main suppliers to Ukraine. Thus, the board chairman of the National Joint Stock Company Naftogaz Ukraine, Andrey Kobolev, said the company expects an official offer from Gazprom for the price of this fuel for the I quarter of 2016. A deputy chairman of Gazprom, Valery Golubev, said that the accounting price of gas for Ukraine over this period - excluding possible discounts - will make $230 per thousand cubic meters.

Recall, that in March, before the start of the preparation for the heating season this year, the Cabinet of Ministers of Ukraine suggested that to pass this period, the state will need to save in its underground storage facilities (USF) not more than 14-15 billion cubic meters of gas. At the same time the representatives of the European Union (EU) insisted that Ukraine should reserve at least 20 billion cubic meters of this fuel. As a result, the Ukrainian government still decided to upload 19 billion cubic meters of gas to countries’ USF.

By that time - the beginning of April - the volume of gas reserves in Ukraine amounted to slightly more than 7.7 billion cubic meters, and therefore, it was necessary to buy another 11.3 billion. This meant, firstly, that, in addition to purchasing gas on the European market, the country will have to import it from Russia, and secondly, that for the accumulation of additional 5 billion it will need around 1.5 billion dollars, which it, of course, hadn't had. And so, the government hoped, that Russia will give a discount provision at the size of export duty, that would be 100 dollars if the price of gas is 333.3 dollars per 1 thousand cubic meters and above, and at a price lower than $333.3 - 30% of the initial cost, but mainly, the government hoped for the financial assistance from the EU.

On April 1, the Russian government has decided to extend preferential regime to the Ukrainian gas sales, and as the result Ukraine received proper discount. And on June 4, the EU promised to help with gas payment that it will store for the heating season 2015-2016, as well as for that gas, which it will buy in this period from Russia. But the EU declined to provide any financial guarantees. As a member of the Supervisory Board of the Institute of Energy Strategy, Yuri Korolchuk, predicted, in fact the EU will not pay for gas imported by Ukraine and will only contribute to the taking of its new loans from international financial institutions.

Indeed, 23 October, the European Bank for Reconstruction and Development (EBRD) and Naftogaz signed an agreement on granting a state guarantee on revolving credit for the purchase of gas in the amount of $300 million. In addition, the International Finance Corporation (IFC) of the World Bank Group expressed its readiness to carry out during the year a trade finance of European company ENGIE, supplying $200 million of gas to Naftogaz. Thus, Ukraine has managed to find about 30% of the minimum amount of funds needed, or $500 million out of 1.5 billion.

“Moreover, the state used money from gold and foreign currency reserves and the International Monetary Fund (IMF) to pay for gas. In this case, since the government hasn’t a vision of how these resources (including gold and foreign currency reserves) can be replenished, and loans - returned, ultimately, debt repayment, will likely be with the existing property. In this case - the gas transmission system (GTS) and underground storage facilities”, - explains Korolchuk.

Whatever it is, but according to the press service of PJSC Ukrtransgaz, in January-November this year, Ukraine imported 16.2 billion cubic meters of natural gas. At the same time, compared to the same period last year, shipments of this fuel from Europe increased by 2.5 times - up to 10 billion, and from Russia decreased by 2.2 times - up to 6.2 billion. That is, the structure of this year's gas imports into the country has changed dramatically - if previously almost the entire volume of this type of fuel was bought from Russia, then over the past 11 months the EU's share in the total supply reached 62%, and the Russian Federation share reduced to 38%.

As stated Korolchuk, such a dramatic transformation of initial status quo Ukraine owes to, above all, strong political support from the United States and personally of Vice President Joseph Biden.”We are talking about the technical side of the organization of reverse supply of gas through the pipeline Voyany-Uzhgorod through Slovakia, - says the expert. - However, the shift towards the so-called reverse gas is only a surrogate for achieving of independence from Russia."

And yet ... By December 5, according to Ukrtransgaz, the volume of gas reserves in underground storage facilities of Ukraine amounted to 15.812 billion cubic meters. This allowed to the Minister of Energy and Coal Industry of Ukraine, Vladimir Demchishin, assume that to pass the heating season, the country has enough accumulated volume replenished only by supplies from the EU. In turn, Prime Minister of Ukraine, Arseniy Yatsenyuk, expressed more categorically: “In this period, Ukraine can do without the purchase of gas from Russia”.

Indeed, as of December the country ceased to acquire this kind of fuel from Russia. Kobolev explained this decision by saying that the price offered by Gazprom, is a non-competitive in comparison with the established on the European market. For its part, the leadership of Gazprom has expressed another view. “Today, Naftogaz has no means to prepay of provided products, so - until the end of the year its deliveries won’t be renewed”- said Chairman of the Board of Gazprom, Alexey Miller.

Nevertheless, but there are reasons to believe that, at least in the second half of the current heating season, the issue of gas supplies to Ukraine will be solved by the already established scheme. Namely: first, according to the press service of Gazprom, the two sides will agree on a mutually acceptable price, and, in addition, the Ukrainian government will plead for the traditional discounts. And secondly, according to Yatsenyuk, the country plans to negotiate with the EU on granting new loans for the purchase of this type of fuel. And that means - the emancipation of Ukraine on this issue from both the Russian Federation and the EU will be postponed for “tomorrow”, which is likely will remain as such in the foreseen future.

Related: Ukraine can survive winter temperatures without Russian gas, - Yatseniuk

Related: European gas supplies and reserves in underground gas storage facilities will be enough for heating season - Demchyshyn

Related: Gazprom planned to halt gas supplies to Ukraine

Related: EBRD granted $300 mln loan to Ukraine for gas purchase - Naftogaz

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