Gazprom will review its gas supply contract with Ukraine in order to allow for the purchase of less gas without Ukraine fearing penalties. Ukraine's Naftogaz expects to receive up to $1 billion in loans from Russian banks.
The revision of the contract was ordered by Prime Minister Vladimir Putin, who coordinated the issue with his Ukrainian colleague, Yulia Tymoshenko, in Yalta late Thursday night. The contract is a legal document, Putin said, but Gazprom has been instructed not to fine its Ukrainian partners for failure to purchase the contracted amounts of gas.
The clause on penalties will not be removed from the contract, said Viktor Chernomyrdin, an adviser to the Russian president. However, Naftogaz and Gazprom will coordinate new supply volumes for 2010, so that Ukraine will not be obliged to buy more than it needs and will not be fined, Putin said.
The contract between the two companies for 2009-2019 stipulates two types of sanctions for failure to buy the contracted amount of gas, a monthly fine and a demand that the buyer pays up to 80% of the cost of the contracted gas.
Naftogaz was to pay for 32 billion cubic metres of gas in 2009 and 41.6 billion cu m in 2010. In fact, it will buy only 25-26 billion cu m in 2009 and 27-32 billion cu m next year. Ukraine's penalties for 2009 could be as large as $8.5 billion, while payment for the delivered gas will be less than $6 billion, the Ukrainian president's office reported.
Last summer Putin told Tymoshenko that Gazprom would charge only for the gas it delivers. His spokesperson, Dmitry Peskov, and Gazprom managers said the contract would not be reviewed because they had spent too much time and effort to coordinate it. A Gazprom manager said that the oral promise [not to fine Ukraine for failure to buy the contracted amounts of gas] was a trump card ahead of the presidential election in Ukraine.
The new gas supply volumes coordinated for 2010 amount to a revision of the contract, even if it is done with a supplement to the contract. Peskov admitted as much, but added that this is only an amendment and that Ukraine would have been unable to pay the fines during the economic crisis.
Gazprom's benefits
A Naftogaz delegation is going to Moscow tomorrow for talks on new supply volumes for 2010, a representative of the Ukrainian company said. It hopes to set supplies at 27-32 billion cu m, the Kiev-based weekly Zerkalo Nedeli writes citing Ukraine's Economics Minister Bohdan Danylyshyn and Naftogaz chairman Oleh Dubyna.
A Russian official confirmed the figure, while a Gazprom spokesman refused to comment on the talks.
If the supply volumes are amended, Gazprom will lose up to $4.4 billion for undelivered gas, given the price of gas for Europe ($300 per 1,000 cu m) and the amount of gas it was to deliver to Ukraine under the contract.
However, Gazprom will also gain if the adjustment is limited to the 2010 supplies.
Naftogaz said last summer that the basic rate in the gas price formula should be lowered and a new "pump or pay" clause added to the transit contract. There is no such clause in the contract now (see "contracts" on www.vedomosti.ru) while the shipment of gas to the European Union has slumped as a result of the economic downturn. Ukrainian President Viktor Yushchenko also touched on these issues in an open letter to Russian President Dmitry Medvedev.
However, Putin and Tymoshenko did not mention a change in prices or in the transit contract. Everything in them suits Ukraine, Tymoshenko said. Her energy adviser, Oleksandr Hudyma, said the change was advocated by Naftogaz and tentatively discussed in expert groups.
The basic rate set for Naftogaz, $450 per 1,000 cu m, is too high, said Mikhail Korchemkin, head of the US-based East European Gas Analysis consultancy.
Gazprom said in January, when the contracts were signed, that it was an average price for Europe and that therefore it would be used as the basis for calculating the price for Ukraine, which would be raised or lowered on a quarterly basis depending on the price of refined oil products. And Gazprom added that Ukraine has a 20% discount for 2009.
According to Gazprom's budget, the price for Europe was lower, $397 per 1,000 cu m in the first quarter of 2009. Given that basic rate, Ukraine would have paid between $300 million and $760 million less for gas in 2009 (based on the average price and the actual purchasing volumes calculated by Korchemkin) and $8.4 billion less within 11 years.
Money first
"They must pay up, and any surprises must be ruled out," Chernomyrdin said in a quote to Prime Tass summing up the result of the Yalta talks.
Naftogaz could solve its problems if it negotiates a loan with Russian banks. Tomorrow the Ukrainian company plans to discuss borrowing between $500 million and $1 billion from Vnesheconombank, Alfa Bank and Gazprombank, Zerkalo Nedeli writes.
A Naftogaz spokesperson has confirmed the report, but the Russian banks declined to comment.
A Russian official said that before the Yalta meeting Naftogaz had discussed the possibility of a loan with Russian banks, but the talks were suspended.
Energy adviser Oleksandr Hudyma believes that even if Naftogaz fails to coordinate commercial loans with Russian banks, Ukraine could use its reserves to pay for gas; the funds from the previous advances on IMF loans, for example, may be used.
Yelena Mazneva, Maxim Tovkailo