Ukraine and Russia Come to Agreement on Natural Gas

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On Thursday the Ukraine and Russia came to an agreement regarding the supply of natural gas between Moscow and Kiev. The deal has been signed by Ukraine, Russia and the European Union (EU) and guarantees that the natural gas supply will continue through the winter and will pass through Ukraine and into the EU. This new deal was born out of a heightened necessity. With winter coming on, fast temperatures are already dropping below freezing and there was concern over the possibility of a new “gas war” that would disrupt supplies. Moscow had cut off supplies back in June due to debts owed by Kiev. Talks then continued, without success, for five months, during which time fighting between pro-Russian soldiers and government troops raged. The deal comes at a time of ceasefire between the two forces.

This is a $4.6 billion deal in total, calling upon the Ukraine to pay $3.1 billion to cover previous debts for supplies by Gazprom, Russia’s state-controlled gas giant. According to the deal,  the first payment of $1.45 billion will be made next week and gas supplies will resume within 48 hours of receiving the initial payment. The rest of the debt is to be paid off by the beginning of the year with Ukraine also promising to continue to pay up front, every month, for continued supply until March of next year. They will pay $378 per 1,000 cubic meters until the end of the year at which point prices are excepted to drop slightly. This agreement will maintain a level of flexibility for Ukraine and allow them to buy more should they need it.

Assistance from the EU was fundamental in brokering this agreement between Russia and Ukraine on natural gas. According to a statement from the European Commission, the level of aid given to Ukraine will be “unprecendented.” The International Monetary Fund (IMF) has also pledged financial help in this situation. There were some doubts as to whether or not Kiev would be able to afford Russia’s prices, however, all three nations are assured that they will have the necessary funds. According to Guenther Oettinger, EU energy commissioner, Kiev had already set aside money to pay for the debt owed to Gazprom and is currently working with the IMF to draw more cash. Naftogaz, Ukraine’s natural gas company, will also add its revenues to assist with the payments.

The EU was keen to assert that they would not be held financially responsible should Kiev not be able to pay. Marlene Holzner, EU spokesperson, stated that the bloc decided to give Ukraine financial aid, in the amount of $954 million, ahead of schedule to help with gas purchases. However she was quick to note that this money was not “new” or “additional,” it was money that had already been planned, but was now being given early. Moscow and Kiev both accepted the EU as co-signatory in the hopes that it would bring both financial stability and accountability to the deal.

Russia and Ukraine coming to an agreement over natural gas supplies holds benefits for all nations involved. Moscow’s gas assures that Ukrainians survive the winter, while Kiev’s financial support comes at a time when Russia’s economy is suffering due to oil prices and trade sanctions. The EU also receives an uninterrupted supply of natural gas through pipelines in Ukraine. The deal is good through March, at which point prices and payment plans will be revisited.

By Clara Goode

News Observer

Photo courtesy of  dmytrok –  Flickr License