Thirteen and a half hours of three-way talks intended to ensure that Ukrainians receive gas supplies through the winter ended at 4am this morning in Brussels with no agreement between Russia and Ukraine, with the head of Russia’s gas giant Gazprom suggesting that the keys to a solution now lie principally in the hands of the European Union.
The talks will resume for an unscheduled second day late this afternoon, with the European Commission, which is mediating the talks, saying that a deal is “within reach”.
Pressure for a deal comes not just from the onset of winter in Ukraine, which has received no Russian gas since mid-June, but also from a pending change in the top personnel in the European Commission. Günther Oettinger, the outgoing European commissioner for energy, has been leading months of talks with Russia and Ukraine, but will leave his post on Saturday (1 November).
Going into yesterday’s meeting, Oettinger said that there was a fifty-fifty chance of a deal. The meeting broke up at 4am, seven and a half hours after the scheduled press conference. The European Commission announced this morning that its president, José Manuel Barroso, had spoken “a number of times yesterday” with Ukraine’s president, Petro Poroshenko, to emphasise that “an agreement was within reach on the basis of the proposals put forward by the European Commission” and that the negotiations should “secure a continuous, reliable and market-based supply of gas to Ukraine”. He did not speak with Russia’s president, Vladimir Putin, but Barroso’s spokeswoman said that the Commission was “fully engaged with both Russia and Ukraine, so don’t read anything into who is the bigger problem in these talks”, based on Barroso’s lack of a conversation with Putin.
She said that the documents for an agreement had been drawn up and were now being reviewed by the governments in Kiev and Moscow. The Commission has otherwise refused to provide details of the emerging deal.
Aleksandr Novak, Russia’s energy minister, told Russian media that the “basic parameters” of an agreement had been reached, including prices, the volume of gas deliveries and re-payment of Ukraine’s gas debt. He said that Russia wanted certainty about payments, saying: “If there’s money, there will be gas.”
It is not clear whether Russia is still demanding pre-payments by Ukraine for deliveries, EU funding to cover Ukrainian payments or both – or another role for the EU. In normal commercial agreements, payment is made after delivery, and in previous months of these protracted negotiations Ukraine has rejected Russian demands for pre-payment. In recent weeks, Russia has increasingly talked of the need for the EU to provide money, but Novak last week said that Russia would not accept anything that it considered a loan to Ukraine. Yesterday, the head of the Russia’s state-owned gas giant, Aleksei Miller of Gazprom, suggested that what Russia now wanted was a protocol in which the EU guaranteed payments. Another possibility mentioned in the past has been for a European gas distributor to buy Russian gas and then resell it to Ukraine, but last week Novak objected that this would require changing the terms of an agreement struck in 2009 on the supply of Russian gas to Ukraine.
Angela Merkel, Germany’s chancellor, last week said that “there is a need for a certain amount of bridging finance” for Ukraine, which could be used to pay for Russian gas. Ukraine is currently receiving macroeconomic financial assistance from the World Bank, the International Monetary Fund and the EU. Earlier this week, EU member states agreed to release €760 million in two tranches by the end of this year. This, though, would not be large enough to cover Ukraine’s debt to Russian for past gas deliveries.
Other significant question-marks remain, including the duration of the agreement. Oettinger had originally, this summer, hoped for a one-year deal. In recent months, ambitions have been scaled back, to an agreement to see Ukraine through the winter months. However, Novak spoke yesterday only of an agreement on the volume of gas supplies in November and December.
There have also been divergent positions not just on the value of Russian gas, but how to describe the price of Russian gas, whether the price should vary and what price should be applied to calculate Ukraine’s gas debt to Russia. Russia has suggested different prices for the summer and winter, and has said that the price should be agreed as a ‘discount price’ – avoiding a reference to ‘market’ prices and implying that the standard price of gas should be considered to be higher than the price offered to Ukraine. It argues that the term ‘discount’ should be used because the price set in the 2009 gas-supply agreement is much higher than is now being discussed. Russia has also argued that the price for two months of unpaid gas deliveries at the start of this year should be based not on the lower price that applied at the time, under an agreement with former president Viktor Yanukovych, but at the far higher price that applied from 2009 to late 2013.
After Yanukovych refused to sign an association agreement with the EU in November 2013, Russia slashed the price of gas. After Yanukovych fled Kiev in February, in the face of sustained protests, Russia returned the price of gas to 2009 levels. Ukraine argues that neither the 2009 price nor the price given to Yanukovych was market-based, and insists that the new agreement should be based on prices set by the market.