Ukraine Pays for May Gas but Future Payments are Unsure

2009/06/11

by Roman Kupchinsky, JamesTown Foundation

On June 5, 2009, the Ukrainian stated-owned oil and gas concern, Naftohaz Ukrayina, paid Gazprom, the Russian gas monopoly $475 million for gas delivered in May 2009. By beating the June 7th deadline by two days, Naftohaz once again threw a monkey wrench into the propaganda blitz which had been carefully choreographed by Russian Prime Minister Vladimir Putin and Gazprom leadership in order to discredit Ukraine as a reliable transit country in the eyes of the European Union.

Speaking at a meeting of the Ukrainian National Defense and Security Council, Ukrainian President Viktor Yushchenko was uncommonly blunt about the state of affairs at Naftohaz and revealed how the payment was made. “The situation in Naftohaz is critical” Yushchenko stated, “frankly speaking it has never been so severe.” The Ukrainian President stated that Naftohaz owed $157 million for gas which was consumed and almost $500 million for gas placed in underground storage. “I had no choice but to order an emission (of the Ukrainian currency, the hryvnia) and in time the full sum owed Gazprom of 3.8 billion hryvnia will be paid.”

After news of the payment was released, Yushchenko’s advisor for energy matters, Bohdan Sokolovsky demanded that the Russian leadership apologize for their “incorrect and libelous statements about Ukraine’s ability to pay for gas.”

Gazprom officials told Kommersant that at the time the paper went to print they could not confirm receiving a payment, but added that the sum owed Gazprom by Naftohaz was about $640 million.

While the May payment was met before the deadline, Ukrainian officials are worried that this was due to a stopgap measure – a new emission. The average monthly debt to Gazprom is approximately $200 million for consumed gas and $500 million for gas placed into storage.

Come the end of June there remains a real possibility that Ukraine will be unable to pay $700 million for June gas deliveries and this will most likely give Putin the chance to again insist that the E.U. pick up part of the Ukrainian gas tab or else the gas spigot to the E.U. might once again be shut.

How will the E.U. Commission react? This remains anyone’s guess, but as oil prices keep rising, the Russian leadership is placing its bets that by mid 2010, when gas prices will once again begin to climb, the E.U. will finally throw its full support behind the South Stream and thus doom Ukraine’s most valuable geopolitical asset, it gas pipeline network, to the dustbin. This could also spell the beginning of the end for Ukraine as a fully independent state.

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