Gas to Start Flowing to EU Tuesday

ReutersIgor Sechin holding up an agreement on international gas monitors during a news conference with Alexander Medvedev, right, in Brussels on Monday.��
Gazprom will resume full exports to the European Union on Tuesday after Ukraine re-signed an agreement to allow international monitoring of EU-bound deliveries traversing its territory.

Gazprom will turn on the taps at 10 a.m. Tuesday, ending the worst supply disruption in EU history that has affected at least 20 European countries, Gazprom deputy chief executive Alexander Medvedev said.

Eighty percent of the EU's Russian gas imports come through Ukraine. If supplies are resumed as planned, the first gas is expected to reach EU borders late Wednesday.

It was unclear why it would take so many hours for Gazprom to turn on the taps, considering that Ukraine endorsed the EU-brokered agreement Monday morning and EU Energy Commissioner Andris Piebalgs added his signature at about 5 p.m. Moscow time. Moscow re-signed the document Sunday night.

When Ukraine first signed the agreement Saturday, it supplemented it with a declaration of its view of the conflict, prompting Russia to declare the document void, even as companies and homes were left without heat in much of southeastern Europe.

When Deputy Prime Minister Igor Sechin landed at the Brussels airport to deliver a new copy of the agreement to Piebalgs' office on Monday afternoon, he said he felt sorry for the people who had been left without heat.

"I want to express my sympathy to the citizens of the European countries that suffered as a result of the so-called gas blackmail on the part of Ukraine," he said, Interfax reported.

Gazprom on Jan. 7 suspended exports traveling to the EU through Ukraine, saying Ukraine was keeping all the gas to itself. Ukraine denied the charge.

Monitors from the EU were in place at gas metering stations in Russia and Ukraine and at gas flow control centers in Kiev and Moscow on Monday and had complete access to the information they needed, said Philip Cornelis, head of the EU monitoring team.

Gazprom chief executive Alexei Miller ordered the company to send its monitors to Ukraine and neighboring EU countries right after the agreement signing ceremony in Brussels.

The initial deal fell through because Kiev supplemented it with a declaration that President Dmitry Medvedev said defied "common sense."

Vitaliy Hrabar / Reuters
An EU monitor visiting a gas station at the Polish-Ukrainian border Monday.
"It basically turned the agreement into a meaningless piece of paper," said Constantine Lusignan-Rizhinashvili, whose law firm DLA Piper advises Gazprom on legal issues. "Unfortunately, there was 1 1/2 days lost as a result of this move by the Ukrainians."

After a new round of talks, Kiev agreed to discard the declaration and re-sign the trilateral monitoring agreement.

Putin's spokesman Dmitry Peskov warned, however, that further problems could erupt because at least one issue remained unresolved in the transit arrangement.

Ukraine insists that Gazprom has to provide gas to fuel the Ukrainian pumping stations that are engaged in the transit.

Gazprom pays a transit fee and will therefore not bear any extra costs, Peskov said in a conference call with reporters.

Gazprom spokesman Sergei Kupriyanov suggested in an e-mailed statement that Ukraine's national gas company, Naftogaz Ukrainy, buy this gas from Gazprom. Prime Minister Yulia Tymoshenko said later Monday that Ukraine would pay for the so-called "technical gas" as soon it signs an agreement for this year's overall supplies.

When transit disruptions are out of the way, Kiev and Moscow will have to face off in talks about deliveries to Ukraine.

Gazprom is asking for $450 per 1,000 cubic meters, a price that could break the backbone of the Ukrainian economy, which is fueled by energy-intensive metallurgy and chemicals industries.

Medvedev told Ukrainian President Viktor Yushchenko by telephone late Monday that Russia was ready to restart negotiations to supply Ukraine immediately.

Czech Prime Minister Mirek Topolanek called Prime Minister Vladimir Putin late Monday to discuss Russia's involvement in a possible EU loan to Ukraine, the Cabinet's press service said. Putin suggested Sunday that Ukraine draw a loan to pay for gas supplies from Russia.

Ukraine's presidential energy envoy Bogdan Sokolovsky said Gazprom paid too little for the transit of its gas and for storing it in Ukraine's underground facilities.

"This is ... a cease-fire, if you wish, to allow the resumption of transit," Lusignan-Rizhinashvili said about Monday's deal, speaking by telephone from Brussels.

"All other issues that have transpired as being in dispute remain," he said.

The Disputed Declaration

Moscow rejected a deal to restore Russian gas supplies via Ukraine to Europe after Kiev added a declaration about the conflict. A scanned copy of the monitoring agreement has the handwritten words "with declaration attached" next to the signature of the Ukrainian government's representative.
Following are some key points from the attached Ukrainian declaration, on which Moscow and Kiev disagreed:
  • Ukrainian Text: "Ukraine has always been and remains a reliable transit country and has not interrupted transit of gas to the EU member states."
    Russian Position: Moscow accuses Kiev of halting supplies of Russian transit gas to the EU after Moscow cut off supplies to Ukraine because of a pricing dispute.
  • Ukrainian Text: "Ukraine has not made any noncontractual gas takeoffs in 2009."
    Russian Position: Gazprom accuses Kiev of stealing at least 65 million cubic meters of gas this year. Kiev says it was technical gas needed to maintain pressure in the gas transit system.
  • Ukrainian Text: "Ukraine has no debts to Gazprom and reached a financial settlement for all gas consumed."
    Russian Position: Gazprom says Ukraine paid some $1.5 billion for supplies in 2008 but still owes it some $614 million in fines.
  • Ukrainian Text: "The EU side is expected to provide a general coordination of activity of the observers designated by the EU member states; those observers, including experts designated by the European companies, shall report to the EU side. The Ukrainian side emphasizes that Gazprom is a shareholder in some of those companies, which could lead to a conflict of interest."
    Russian Position: Gazprom says the presence of major European gas importers is necessary even if it holds stakes in those companies.
  • Ukrainian Text: "The transit of Russian natural gas to European consumers through the territory of Ukraine shall be provided along with the delivery by the Russian side of 6.4 billion cubic meters per annum of the technical gas, or 21 million daily."
    Russian Position: Gazprom says Ukraine must buy this gas from Gazprom or other firms. It says the request for technical gas is "an attempt by Ukrainian authorities to legalize the theft of gas."
  • Ukrainian Text: "These rules of procedure shall remain in force for a period of 30 days. These rules of procedure can be renewed for another 30-day period if the parties deem it necessary."
    Russian Position: Gazprom says the rules should remain in force longer, but it doesn't say for how long.
Source: Reuters