Gazprom says it has deal on gas with Kiev

By Catherine Belton in Moscow and Roman Olearchyk in Kiev, Financial Times
Published: Oct 04, 2007

Gazprom, the Russian state-controlled energy group, yesterday said it had secured an agreement from Ukraine's current government to pay $1.3bn (€921m, £639m) in natural gas arrears by November 1, thus avoiding potential cuts in supplies.

Dmitry Medvedev, the Gazprom chairman and Russia's first deputy prime minister, said that following talks with Yury Boiko, Ukraine's energy minister, "we have reached agreement to avoid such problems in the future". He added: "Euro-pean consumers won't suffer. European consumers are in an absolutely comfortable situation."

But despite his assurances, confusion remained about the exact nature of the agreement reached in Moscow, with analysts suggesting it might be only an initial step towards resolving a standoff that has rekindled fears over possible shortages in gas supplies to Europe.

Nikolai Azarov, Ukraine's finance minister, disputed the size of the debt, while the question of who would lead future negotiations with Gazprom remained in doubt as talks over forming a new coalition government in Kiev following weekend elections looked set to drag on.

President Viktor Yushchenko of Ukraine went further: "The Ukrainian state and [the state gas distributor] Naftogaz Ukrainy have no debts to Gazprom." He also raised doubts about the timing of the dispute that erupted days after the elections. "I don't think that . . . this statement was formulated in such a way and at such a time so as to be constructive for our relations," he said.

Even a spokesman for Gazprom later conceded it was too early to say a deal had been reached. "I would not say this is an agreement. The current [Ukrainian] government has said it will take control of the problem," said the spokesman, Sergei Kupriyanov. He added that the standoff would only be solved once payment had been made.

Analysts said Mr Boiko's hasty departure to Moscow for talks looked like an attempt by the pro-Russian government of Viktor Yanukovich, prime minister, to seize the initiative in the debt talks while back in Kiev his position appeared under threat following the elections in which his party failed to win a majority.

"It seems Yanukovich is going to fight to the end," said Valery Nesterov from the Troika Dialog brokerage.

Mr Yushchenko earlier this week looked poised to resurrect his partnership with opposition leader Yulia Tymoshenko in forming a coalition that would have probably seen Ms Tymoshenko replace Mr Yanukovich as prime minister.

Ms Tymoshenko has promised to clean up the involvement of intermediaries in the gas trade between Ukraine, Russia and Central Asia.

The European Commission, which said it considered Gazprom a "reliable supplier", has invited Russia and Ukraine to talks in Brussels later this month about energy security.

But yesterday Mr Yushchenko called, in a televised address to the nation, for Kiev's leading politicians to put differences aside in forming a coalition of "unity".

Mr Yanukovich interpreted the president's words as a signal that he favoured a broad coalition government including his faction. Ms Tymoshenko's bloc, meanwhile, said they would not enter into a coalition with Mr Yanukovich's Regions party. Formal coalition talks are expected to start later this week.

Ms Tymoshenko yesterday said the debt must be settled but also called for an investigation into how it had built up. "We will not leave Ukraine with such debts, not even for two months," she said. "We need to find out where this debt came from, where the money was divided, who made the decision not to pay Gazprom on time, and to take the money out of the shadow sector."