Ukraine, Russia battle over $7 bn gas bill

Ukraine and Russia were locked on Monday in a high-stakes energy dispute after Kiev refused to pay a stunning $7 billion bill for energy it allegedly promised to purchase from Moscow but never did.

The new crisis between the two uneasy neighbours came just as Ukraine signed a $10 billion shale gas project with the super-major Royal Dutch Shell -- a deal that could relieve the country's painful dependence on Russian gas.

It also comes four years after Russia's gas giant Gazprom interrupted pipeline deliveries to Europe in a reminder of what bilateral disputes can do to unsuspecting clients in distant locales such as Italy and France.

"We are not going to pay it," a high-ranking Ukrainian told AFP on condition of anonymity.

A source at the national oil company Naftogaz called the Russian bill -- reportedly presented to Kiev just hours before it was to sign its Shell deal in Davos -- a form of diplomatic pressure aimed at eventually wresting control of Ukraine's energy distribution network.

"We see this is a form of pressure that comes in the midst of continuing negotiations about the creation of a gas transport consortium (with Europe) and a reduction in the price of gas for Ukraine," the Naftogaz source told the Kommersant Ukraine daily.

The neighbours have fought for years over the gas Ukraine uses in large quantities because of its inefficient industry but for which its stuttering economy is often unable to pay.

Ukraine has attempted to use its transit nation status to negotiate lower prices. It has even been accused of syphoning off European supplies.

But Kiev's latest strategy involves seeking a one-third reduction in the amount of gas it buys from Russia per year.

The difference was to come from a new liquified natural gas plant built in the south of the country as well as the development of "unconventional" sources of energy such as the eastern Ukrainian shale.

Russia had forseen these efforts and structured most of its contracts under a "take-or-pay" policy requiring nations to purchase a minimum volume of it product per year or pay for the difference.

Ukraine imported 32.9 billion cubic metres (bcm) of Russian gas has last year.

Ukraine argues that it had the right to reduce its purchases from 52 bcm to 42 bcm -- and even further to 33 billion if it gave notice at least six months in advance.

But the national oil company purchased only 24.9 bcm while the rest was acquired by a private player -- a fact apparently used by Russia when it was writing up its bill to the Ukrainian state.

Some observers are not impressed with Gapzrom's case.

"This claim will likely result in a long-lasting litigation in international courts," Moscow's Alfa Bank wrote in a research note.

But the Kremlin's top spokesman Dmitry Peskov said the energy dispute featured in "every single conversation" between Yanukovych and Russian President Vladimir Putin.

Many in the Ukrainian media linked Russia's new complaint with Kiev's efforts to move further away from Moscow's energy grasp.

But analysts warn that shale and other unconventional gas deposits may take at least five years to explore and many more to develop.

A switch to liquified natural gas purchases from countries such as Qatar would also be gradual and involve continued strong early reliance on Russia.

Some analysts said Ukraine's best chance in the short term required improvements in the energy efficiency of its industries -- a Soviet-era problem that particularly plagues the industrial eastern half of the country.

"To date, our energy expenditure per unit of production exceeds that of Europe by a factor of two or three," said International Centre for Policy Studies analyst Ildar Gazigullin.

by Ania TSOUKANOVA © 2013 AFP

Source: AFP
Date: Jan 28, 2013