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Russia concerned over Ukraine delaying multi-million dollar gas payments

Highlights

Russia's Gazprom is concerned about Ukraine delaying its $882 million payment for the August gas supplies and may request Kiev to pay in advance for future gas supplies, CEO Alexei Miller said in a company statement Tuesday.

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"A supplement to the [supply] contract has been signed that extends the deadline for the $882 million payments for the August supplies until October 1. October is nearly over, but the bill has not been paid," Miller said, as quoted in the statement.

Gazprom may oblige Ukraine's national energy company Naftogaz Ukrayiny to make pre-payments for the future gas supplies if the debt is not settled promptly, the statement said.

"The breach of contractual obligations regarding the payment entails the introduction of the advance payment mode for gas deliveries," the statement said.


Russia's Prime Minister Dmitry Medvedev echoed Miller's concerns saying he supported the potential introduction of pre-payments in gas supplies to Ukraine.

"Considering such a clause exists in the contract, it is a viable option. However, it may aggravate the situation," Medvedev said at a meeting Tuesday, as quoted on the government website.

"We need to see the reaction of our Ukrainian partners...If there is no reaction, we need to switch to the pre-payment mode," Medvedev said.

Earlier in the day, Ukraine's Prime Minister Mykola Azarov admitted Ukraine had problems with paying for the Russian gas supplies but said the issue was "not critical," according to a Prime report.

To ensure stable financial relations between Gazprom and Naftogaz Ukrayiny, the Russian gas provider has paid in advance for gas transiting Ukraine, Miller pointed out.

"So far, [the transit charge] has been paid up until January 2015," he said.

Gazprom has also given Ukraine a discount of more than $500 million to make it possible for the country to fill its underground gas storage facilities ahead of peak winter demand, Miller added.

"We have sold 5 billion cu m of gas to Ukraine at a price of $269/1,000 cu m," Miller said, according to Gazprom's statement.

The comments by Azarov, Medvedev and Miller come shortly before EU Eastern Partnership Summit in Lithuania on November 28, at which Kiev may sign free trade and association agreements with the European Union.

Should Kiev sign the agreements, this may lead to strained relations with Moscow, which has invited Ukraine to join the Customs Union between Russia, Belarus and Kazakhstan.

For three years, Ukraine has been trying to renegotiate a gas supply agreement with Russia that was signed in January 2009, claiming the agreed gas price is too high. To decrease its dependence on Russian gas, Ukraine is now hiking its imports from Europe.

Naftogaz Ukrayiny plans to cut Russian gas imports to 18 Bcm in 2013 from 24.9 Bcm in 2012 and 40 Bcm in 2011, according to the energy and coal industry ministry.

As of last Tuesday, Ukraine accumulated 17.6 Bcm of gas in its storage facilities, according to a Naftogaz Ukrayiny official, below the 19 Bcm level Gazprom considers necessary.

"That can be explained by increased consumption in Europe," Vadym Chuprun, deputy head of Naftogaz Ukrayiny told reporters at the time.

He said Ukraine will continue to accumulate gas -- at the pace of 50 million cu m/d -- through November to make sure there is enough gas for the season.

--Dina Khrennikova, dina.khrennikova@platts.com
--Edited by Maurice Geller, maurice.geller@platts.com