Sunday, 8 November 2009

Ukraine pays Russia gas debt, easing dispute fears

Fears of a repeat of the January dispute that saw Russia cut gas supplies to Europe eased on Friday after Ukraine said it had paid its latest bill on time. Monday is the deadline for Ukraine to pay the $500 million owed for gas used in October, which Prime Minister Yulia Tymoshenko said had been paid in full.A spokesman for Gazprom, the Russian gas monopoly, declined to comment on whether the funds had been received.Tymoshenko's announcement followed a string of mixed signals from Ukraine, which has kept Europe and Russia in suspense as to whether it could foot the bill and avoid another gas dispute.Russian Prime Minister Vladimir Putin warned European countries last week that Ukraine may not be able to meet its commitments to Gazprom, Russia's state gas monopoly. On Monday, he urged the European Union to lend Ukraine at least $1 billion to help it pay for the gas supplies.Bogdan Sokolovsky, the chief energy advisor to the Ukrainian president, said last week that Kiev's ability to pay for the gas was "an open question" and may even require a loan from Moscow.Ukraine has been sticking to the payment schedule since it settled its January gas dispute with Russia. That dispute saw Gazprom cut supplies to EU nations through Ukraine for two weeks after price negotiations failed. The halt in supplies led to severe fuel shortages across southeastern Europe in the dead of winter.Europe gets around 20 percent of its gas from Russia, most of it via pipelines that cross Ukraine.In July, the European Commission brokered an agreement between Ukraine and international lenders — including the World Bank, the European Investment Bank and the European Bank for Reconstruction and Development — to provide up to $1.7 billion in loans to help it pay its gas bills. As part of that deal, the Ukrainian government also agreed to make its gas transport system more transparent.Ukraine's payment on Friday does not solve the country's problems, analysts said, as its shaky financial position and feuding leaders are likely to keep tensions high for months to come.A bitter rivalry between Ukraine's president and prime minister is seen as one of the main problems. Tymoshenko says President Viktor Yushchenko, against whom she is competing in presidential elections in January, was making it difficult to pay the gas bill.Shirvani Abdullayev, gas analyst at Alfa Bank in Moscow, believes it is just a matter of time before Ukraine fails to meet a payment."It's true that Ukraine's economy is in chaos," said Abdullayev. "But if someone in Ukraine wanted a reasonable solution, it would be found. But the problem is, none of the Ukrainian political forces is able to come up with a particular agenda for relations with Russia."Ukraine's gold and currency reserves currently stand at $27.7 billion — worth a few years of payments for Russian gas, but authorities say the problem is that consumers are not paying their gas bills.Tymoshenko urged Ukrainians earlier this year to pay their gas bills on time, describing it as a civic duty.Observers say a hike in the tariffs for domestic consumers — although unlikely to go down well with voters — could be a solution.In previous gas disputes, Moscow suggested that the payment problems would be settled if only Ukraine were to agree to sell its pipeline network to Russia. However, Ukraine's constitution does not allow its sale to foreigners.Russia hasn't lost hope to gain control of the system, observers said, and it now may be pushing even harder."The only thing that could prevent the escalation of this conflict is Ukraine selling or promising to sell the Ukrainian pipeline to Russia," Abdullayev said. "Russia feels this is about time."

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