Future Fees May Solve Kiev Gas-Debt Puzzle

Crisis-stricken Ukraine may have to cover its $2 billion debt for Russian gas deliveries with future fees for transit to European customers, Gazprom spokesman Sergei Kupriyanov said Saturday.

Russia and Ukraine are locked in a dispute over gas deliveries, the fourth in as many years, and Kupriyanov said there was a 50 percent chance that Moscow would cut supplies to Kiev from next year if the debt is not repaid.

"We are looking for ways to [avoid a supply cut], including prepayment for transit," he told Ekho Moskvy radio. "I hope we will be able to [negotiate a settlement] in the remaining days."

Ukraine previously declined to accept the proposal. Russia currently pays Ukraine $1.70 to transit 1,000 cubic meters for 100 kilometers.

Kupriyanov said another option for Ukraine would be handing back gas it had stockpiled in underground storage facilities to help it survive the winter.

Ukraine's state energy company, Naftogaz Ukrainy, could raise a portion of the money to pay its bills by charging Gazprom more for storing gas, Mikhail Korchemkin, director of U.S.-based consultancy East European Gas Analysis, said in a research note Friday. The European Union rate for gas storage in underground facilities is at least $120 for 1,000 cubic meters, he said, while Gazprom is paying Naftogaz a mere $5.

Naftogaz says it has 17 billion cubic meters in storage, or 22 percent of the country's annual consumption. But even with full storage facilities, Korchemkin said, the tanks' internal pressure in them allows for only a certain amount of daily off-take.

He said a possible cut by Gazprom wouldn't affect Ukrainian consumers until at least Jan. 10. After that date, Ukraine might start siphoning off 15 percent of the gas headed for the EU -- or 50 million cubic meters per day -- to meet its gas from Gazprom's exports to the EU.

"On the whole, European consumers' losses as a result of the latest gas conflict between Russia and Ukraine are expected to be minimal," Korchemkin said.

Ukraine has been forced to accept International Monetary Fund assistance, including $16.5 billion in loans, as the global financial crisis bites. Gazprom chairman Viktor Zubkov, also a first deputy prime minister, said the international lender faced increased risks.

"The IMF should review possible risks. ... Ukraine should find the money [to pay gas debt], especially since they are getting a big loan from the IMF," Zubkov said last week, Itar-Tass reported.

Zubkov said Gazprom's board would convene on Monday to discuss the situation.

On Saturday, Ukrainian Prime Minister Yulia Tymoshenko called Prime Minister Vladimir Putin to discuss energy ties, according to a statement on the government web site.

Kupriyanov's suggestion marked some softening of the line expressed by President Dmitry Medvedev, who chaired Gazprom's board during previous disputes. Medvedev said last week that Ukraine should pay the debt "to the last ruble" and threatened it with sanctions.

European countries are watching the dispute nervously. A dispute in 2006 briefly disrupted gas supplies to the entire continent in the middle of winter, when Ukraine suspended transit to Europe, sending up spot gas prices.

Gazprom chief executive Alexei Miller wrote a letter to the company's European customers, warning them of possible supply disruptions this time around.

Kupriyanov declined to reveal any details of the negotiations or say how much Gazprom wanted Ukraine to pay for gas from next year, but he said the price would be higher than $179.5 per 1,000 cubic meters that it is paying now. Kupriyanov said Gazprom was ready to dump intermediary RosUkrEnergo and move over to direct supplies once the debt is fully paid.

Gazprom, which employs 400,000 people, plans no major job cuts next year and added that its $32.5 billion investment would help create new jobs, Kupriyanov said.

(Reuters, MT)