January 28, 2013 6:43 pm

Ukraine’s gas bill

  • Share
  • Print
  • Clip
  • Gift Article
  • Comments
Gazprom’s $7bn demand could push Kiev towards Europe

Russia’s Gazprom makes a habit of appearing the bully. Twice since 2006 it cut off gas to Ukraine amid midwinter pricing disputes. Now, it has hit Kiev with a $7bn bill for gas it did not import last year, just as Ukraine signed a landmark gas deal with Shell that could reduce its reliance on Russian imports. Even more than in the previous two disputes, however, the reality may be more complex.

So-called “take or pay” clauses – whose purpose is clear from their name – are a feature of many gas contracts, not just Gazprom’s. The Russian monopoly says Ukraine imported far below its minimum contracted volume last year. Ukraine says it notified Russia well in advance it would not need that amount, as the contract permits, and that its price is unfairly set higher than that for more distant western European customers. Arbitration may now have to decide between the two claims.

Yet the timing and manner of the Russian demand still looks like a hardball tactic as Ukraine finds itself caught between the choice of pursuing more integration with the EU or Russia. The signing of a groundbreaking trade and political deal with the EU has been frozen by Ukraine’s politically tinged imprisonment of Yulia Tymoshenko, the former premier. Moscow is dangling a gas price discount if Ukraine joins a customs union Russia is creating with Belarus and Kazakhstan – but that would torpedo Ukraine’s EU deal.

Moscow’s strong-arm tactics may yet backfire by pushing Ukraine towards Europe. Russia’s partnership terms already looked too onerous for Kiev. The latest gas demand will make Ukraine, scrambling to cover $10bn in external sovereign debt maturing this year, even more needy of a bailout from the International Monetary Fund.

So that gives the IMF and EU leverage they should use. The IMF should make tough structural reforms, including raising subsidised household gas prices, a precondition of any bailout. Brussels should spell out exactly what Ukraine must do to see the trade deal signed. That means an end to selective prosecutions of Ms Tymoshenko and allies – and the escalating charges against her. It means, too, measurable progress on restoring democratic and media freedoms that Viktor Yanukovich, president, has curtailed.

Some European officials worry such toughness could drive Mr Yanukovich into Moscow’s arms. But last week’s massive gas bill will surely make Ukraine’s leadership even less keen to leap into Russia’s embrace than before.

Related Topics

Copyright The Financial Times Limited 2015. You may share using our article tools.
Please don't cut articles from FT.com and redistribute by email or post to the web.

  • Share
  • Print
  • Clip
  • Gift Article
  • Comments
SHARE THIS QUOTE