Russia Hands Ukraine $7Bn Gas Bill

KIEV, Ukraine -- Russia has demanded that Ukraine pay billions of dollars for failing to import an agreed amount of gas. The move came just as Kiev has taken a significant step to break free from its reliance on costly Russian gas imports. The bill was presented as Ukraine signed a deal with Royal Dutch Shell to exploit “unconventional” gas reserves in shale and sandstone that could ultimately involve $10bn-plus in investment, according to a senior official in Kiev. The Russian demand threatens to cause a third high-profile energy dispute between the former Soviet states after Russia twice cut off gas supplies to Ukraine since 2006 amid squabbles over prices. It comes at a time when both Russia and the EU are trying to persuade Ukraine to form a closer partnership with them. The bill also threatens to worsen Ukraine’s precarious financial situation, with the potential to hurt its credit rating and ability to borrow on international markets. Russian gas monopoly Gazprom alleges that Ukraine imported less gas last year than it was obliged to under a minimum “take or pay” clause in a 2009 supply contract. The Ukrainian official told the Financial Times that Gazprom sent a $7bn demand to Ukraine’s Naftogaz state gas company on Wednesday as Viktor Yanukovich, the president, was preparing to leave for Davos, where he attended Thursday’s deal signing with Shell. [The president] decided, nonetheless, to travel to Davos and go forward with Thursday’s signing . . . The geopolitical battle has started,” the official said. Naftogaz was unlikely to pay the bill, the official added, challenging Gazprom instead to take the issue to international arbitration. Gazprom’s refusal to reduce prices to its neighbour – though it has done for some west European clients since 2010 – has forced Ukraine to cut imports, seek alternative supply sources, and boost energy efficiency. Ukraine imported 33 billion cubic metres of gas from Russia last year – down a quarter from 2011 – of which Naftogaz’s share was 24.9bcm. Naftogaz confirmed that it had a received a “bill for gas which Ukraine did not import” but declined to reveal the value or volume of the alleged shortfall. “We feel that we met all obligations, paying all bills for gas imported from Gazprom in 2012, in full and in a timely fashion,” the company added. It said the company had notified Gazprom in advance that it would not need all its contracted gas, as permitted by its agreement. Gazprom declined to comment on Friday. The Russian monopoly told the FT a day earlier that Gazprom was not enforcing potential fines on Ukraine for the gas shortfall because it needed to “set realistically attainable goals” for Ukrainian consumption. Ukraine’s determination to pursue other sources, exemplified by its Shell deal, however, seems to have persuaded the Russian monopoly to send the bill. Mr Yanukovich also pulled out at the last moment from a meeting last month with Russian president Vladimir Putin. He was understood to be poised to receive a gas price discount in return for a loose commitment to join a customs union that Russia is creating with former Soviet states Belarus and Kazakhstan. Ukrainian officials have hyped up Thursday’s agreement with Shell, and the prospects of more production sharing agreements with US energy giants Chevron and ExxonMobil . They hope to repeat the US shale gas boom, betting that unconventional gas production technologies will wean its energy-intensive economy off costly Russian imports. But with its economy teetering on the verge of recession, Ukraine’s government is trying to cover or roll over some $10bn in sovereign external debt that matures this year. A mission from the International Monetary Fund arrived in Kiev this week to hold talks on a $15bn bailout programme sought by Ukraine. The IMF has long insisted that Kiev must raise heavily subsidised household gas prices in Ukraine, to reduce the burden of the subsidies on the budget, as a condition of any bailout – a move that would be deeply unpopular politically.