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Russia Cuts Ukraine’s Gas After Talks Fail

Russia Cuts Ukraine’s Gas After Talks Fail

Kiev (AFP) – Russia cut the flow of gas to Ukraine on Monday after last-ditch talks failed to end a dispute over debts that threatens to disrupt supplies to Europe for the third time in a decade.

Ukraine hosted the last-gasp talks hoping to keep an energy shortage from compounding the problems of its new pro-Western leaders as they confront a two-month separatist insurgency threatening the very survival of the ex-Soviet state.

Kiev was dealt a further blow on Monday when dozens of Kalashnikov-wielding pro-Russian rebels seized the central bank building in the eastern separatist stronghold city of Donetsk in a bid to win control over its assets.

Russia’s state gas giant Gazprom said it had switched Ukraine to a pre-payment system at 0600 GMT — a move that effectively halts all shipments because Kiev has not forwarded any money for future gas deliveries to Moscow.

“We have been informed that gas deliveries to Ukraine have been reduced to zero, with only the volumes sent for transit to European states,” Ukrainian Energy Minister Yuriy Prodan told a government meeting.

Prime Minister Arseniy Yatsenyuk called the supply halt “another stage of Russia’s aggression against the Ukrainian state”.

Gazprom said it had further notified Europe of possible gas disruption and lodged a $4.5 billion lawsuit against Ukraine with an arbitration court in Stockholm.

Kiev responded by lodging its own $6.0-billion suit against Gazprom with the same Stockholm court to recover past “overpayment” for gas.

Analysts said Ukraine had enough gas in storage to last through the summer months and that no disruptions to Europe were likely until the winter heating season begins.

“Ukraine is able to cover summer gas consumption with its own gas production,” Moscow’s VTB Capital investment bank said.

The third “gas war” between Russia and Ukraine since 2006 flared when Moscow nearly doubled its rates in the wake of a deadly winter uprising that pulled Kiev out of the Kremlin’s historic orbit for the first time.

Ukraine receives half its gas from Russia and transports 15 percent of the fuel consumed in Europe — a reality that prompted EU Energy Commissioner Guenther Oettinger to urgently step in to try to resolve the feud.

The nation of 46 million people had tapped into some Russian shipments destined for Europe to make up for its shortfalls during previous disputes.

Prodan on Monday promised to both “guaranteed the gas needs of Ukrainian consumers and ensure reliable gas transits to European countries”.

Oettinger said problems for Europe would probably only begin once Ukraine uses up the gas it had kept in reserve.

“The next weeks will not be a problem, we will receive our gas volumes,” Oettinger said in Vienna.

But he added that Europe “would have a problem with a cold winter” if Ukraine ran out of its storage supplies.

The European Commission said Oettinger had offered a compromise deal that would have seen Ukraine pay $385 per 1,000 cubic meters of gas — the price proposed by Russian President Vladimir Putin — in the winter and see its rate drop to $300 “or a few dollars more” during summer months.

“The Ukrainian side was ready to accept this, but for the moment the Russian partners were not,” the European Commission said in a statement.

The raid by pro-Russian militias on the central bank building in Donetsk threatened to deprive Kiev of effective control over the economically vital industrial region’s finances.

“We have been preparing this for more than a month,” a rebel named Oleksandr Matyushyn told AFP as five separatist gunmen stood guard at its main entrance and bank staff filed out of the building.

“We want the tax revenues to stay here instead of going to Kiev,” he added.

Matyushyn said his unit had entered discussions with local administrators about transferring control over the local treasury and tax collection service to the separatist leaders of the self-proclaimed “Donetsk People’s Republic”.

Donetsk and the neighboring heavily Russified region of Lugansk declared independence in disputed May 11 referendums whose legitimacy was rejected by Kiev and decried as a sham by the West.

Putin urged Ukraine’s new leaders to listen closely to the opinions expressed in the referendums but also refused to recognized the two regions’ independence from Kiev rule.

The escalating campaign by Ukraine government forces to regain control over the region of seven million people has now claimed the lives of more than 370 civilians and fighters on both sides.

AFP Photo/Alexander Zobin

Russia Threatens To Cut Off Ukraine Gas From June 3

Russia Threatens To Cut Off Ukraine Gas From June 3

Moscow (AFP) – Russia’s state gas giant Gazprom warned on Monday it may halt shipments to Ukraine on June 3 in a repeat of previous energy wars that hit Europe.

Gazprom chief executive Alexei Miller said Russia’s crisis-torn neighbor must pay upfront for its June deliveries because of debts totaling $3.51 billion (2.55 billion euros).

Kiev had until the morning of June 3 to make the payment “or Ukraine will receive zero cubic meters (of gas) in June,” he added.

Miller’s comments — made during a meeting with Russian Prime Minister Dmitry Medvedev — marked a sharp escalation in a trade war that European Union officials have urgently tried to avert without success.

Ukraine has refused to cover its obligations in protest over Moscow’s decision to nearly double the price it charges Kiev for gas imports following the February overthrow of its Kremlin-backed regime.

Nearly 15 percent of all gas consumed in Europe is delivered from Russia via Ukraine.

The danger for EU nations is that Ukraine — its state coffers effectively empty and almost completely reliant on $17 billion promised by the International Monetary Fund — will not cover its debt and instead start taking the gas Russia had earmarked for its European clients.

The nation of 46 million began dipping into supplies meant for Europe when it was cut off from Russian gas during previous price disputes in 2006 and 2009.

Miller’s comments came shortly after Russia’s deputy energy minister stepped up the rhetoric by noting that Moscow saw no point in discussing the dispute until Kiev began paying its debts.

“We are saying that in order to discuss any sort of compromise, the debts must be paid first,” news agencies quoted Russia’s Deputy Energy Minister Anatoly Yanovsky as saying. “Pay the debts and then we can agree on something.”

Russia’s prime minister noted that Kiev could simply dip into its IMF aid package and questioned Ukraine’s refusal to do so until now.

“Our Ukrainian partners have the money,” news agencies quoted Medvedev as saying. “According to our information, Ukraine has received money from the first IMF tranche.”

Ukraine’s Finance Minister Oleksandr Shlapak said earlier on Monday that Kiev was willing to cover its outstanding payment to Moscow as soon as Russia lowered its price.

Shlapak told reporters in Kiev that Ukraine was prepared to issue bonds worth $2.16 billion to cover its gas arrears.

“If Russia extends the old price of $268 per 1,000 cubic metres through the end of the year, we will immediately cover the debt,” the UNIAN news agency quoted Shlapak as saying.

Gazprom now charges Ukraine $485.50 per 1,000 cubic metres — the highest rate of any of its European clients.

Medvedev received Miller and Russian Energy Minister Alexander Novak moments after their return from what appears to have been a failed round of talks on the crisis with EU and Kiev officials in Brussels.

The first round of negotiations conducted in Warsaw last week had resulted in an agreement for Russia to maintain its deliveries while the talks continued.

AFP Photo/Andrey Sinitsin
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IMF Approves $17 Billion Aid For Ukraine

IMF Approves $17 Billion Aid For Ukraine

Washington (AFP) – The International Monetary Fund approved a $17 billion aid deal for Ukraine, even as Kiev fought to prevent pro-Moscow separatists from grabbing another chunk of the country.

Greenlighting a rescue program for an interim government which took power after an uprising two months ago, IMF chief Christine Lagarde said it was crucial to strengthen Kiev’s economy.

“Urgent action was necessary,” the Fund’s managing director said, after her executive board’s approved of the plan.

“Deep-seated vulnerabilities together with political shock have led to a major crisis in Ukraine,” she warned.

“The economy is in recession, fiscal balances have deteriorated, and the financial sector is under significant stress.”

The global crisis lender’s decision opens the way for an immediate deployment of $3.2 billion to Kiev, which the Fund said has pledged to implement tough reforms.

Those include slashing subsidies for fuel, cutting a large fiscal deficit, getting more control on salary increases, reducing corruption, and strengthening a frail banking system.

The plan also assumes a quick resolution to the country’s fight with Russia over some $2.2 billion owed to Gazprom, and agreeing a new price for gas purchases from the Russian energy giant.

Some of the money from the IMF loan could go toward repaying Gazprom.

“Decisive measures were taken by Ukraine and decisive measures have just been taken by the IMF,” Lagarde said.

But Lagarde conceded that the rescue of Ukraine — which totals $27 billion with additional aid from the World Bank, the European Union and others — faces deep challenges, especially geopolitical.

“Risks to the program are high. In particular, further escalation of tensions with Russia and unrest in the east of the country pose a substantial risk to the economic outlook.”

“We’re trying to mitigate the risks as much as we can,” she said.

The Fund has moved quickly to aid the country, under immense economic and political pressure since February’s overthrow of the pro-Russia government of president Viktor Yanukovych.

It warned that the Ukraine economy faces a 5.0 percent contraction this year, even with external support.

The IMF has been wary about lending to Ukraine after two previous loan plans since 2008 failed because of the government’s failure to meet reform conditions set by the global crisis lender.

Prime Minister Arseniy Yatsenyuk has promised to implement new IMF-proposed reforms, including the fuel price hike that will be unpopular and politically difficult.

The IMF points out that natural gas prices in Ukraine are half those of Russia, which produces and exports gas, and less than a quarter of Poland’s.

Reza Moghadam, director of the IMF’s European Department, said some fiscal austerity is necessary to stabilize government finances.

Without a “moderate” amount of austerity, he said, the combined deficit of the government and the state energy company Naftogaz would rise to an “impossible-to-finance” 12 percent of GDP.

“The authorities see the program as a historical break with a past marked by crony capitalism, pervasive corruption, and poor governance which weighed heavily on the economy,” he said.

“They believe that there is a window of opportunity for bold and ambitious reforms.”

At the same time, the ongoing siege in economically important eastern Ukraine poses a more immediate danger.

Moscow has already engineered the secession of Crimea, which Russia then annexed, and Russian forces are massed on Ukraine’s border, threatening to join pro-Moscow secessionists in the east.

On Wednesday, Kiev said its forces were on “full combat alert” against a possible Russian invasion.

But authorities admitted they were “helpless” to prevent pro-Kremlin insurgents tightening their grip on the eastern region.

Adding fuel to the situation are Russia’s threats to cut off gas supplies to Ukraine, and the heightened sanctions against Russia by the U.S. and Europe.

“On the geopolitical front, clearly, the bilateral support and the cooperation of all parties will be extremely helpful to reinforce the position of the economy of Ukraine,” Lagarde said.

“Anything that undermines the economic situation of the country will jeopardize the implementation of the program.”

Sergei L. Loiko/Los Angeles Times/MCT

Putin Threatens Gas Shutdown Amid Ukraine Standoff

Putin Threatens Gas Shutdown Amid Ukraine Standoff

Donetsk (Ukraine) (AFP) – Russian President Vladimir Putin threatened on Thursday to cut off Ukraine’s gas unless Europe drummed up the cash to cover its debts and ensure its own supplies in a flaring standoff over the splintered ex-Soviet state.

The veteran strongman’s most direct warning about deliveries on which EU nations’ economies depend came with Ukraine facing a new secession crisis following its loss of Crimea and relations between Moscow and the West plumbing new post-Cold War lows.

Ukraine’s embattled leaders tried to keep what was left of their nation of 46 million people whole by vowing to amnesty pro-Russian separatists occupying eastern state buildings if they laid down their arms and halted a four-day siege.

The militants’ demand to join Russia has added extra urgency to the first round of direct talks that EU and U.S. diplomats have managed to convince both Moscow and Kiev to attend in either Geneva or Vienna on April 17.

But Putin did not appear to be in a conciliatory mood as he dispatched a note to 18 EU nations warning that his energy-rich country was tired of accruing debts from a Western-backed leadership in Kiev whose legitimacy it did not recognize in the first place.

A copy of the letter distributed by the Kremlin showed Putin warning that Russia’s state gas firm Gazprom would be “compelled to switch over to advance payment for gas deliveries, and in the event of further violation of the conditions of payment, (to) completely or partially cease gas deliveries” if Ukraine failed to settle a $2.2 billion (1.6 billion euro) debt.

Putin added that “Russia is prepared to participate in the effort to stabilize and restore Ukraine’s economy” but only on “equal terms” with the European Union.

About 13 percent of the gas consumed by the bloc’s 28 countries transits through Ukraine — a Russian neighbor whose two previous supply interruptions in 2006 and 2009 also came during efforts to build closer EU ties.

The threat of a Russian gas cutoff is a worry for Europe and a longer-term problem for cash-strapped Ukraine.

But the team that toppled Kremlin-backed president Viktor Yanukovych in February is more immediately anxious about regions where the ousted leader held sway breaking away to join Russia.

A group of armed assailants who stormed the state security building in the eastern city of Lugansk and the seat of government in nearby Donetsk want to hold independence referendums like the one that led to Crimea’s annexation last month.

Ukraine’s interior minister had earlier set a Friday morning deadline for the separatists to end their siege or face the possible use of force.

Acting President Oleksandr Turchynov tried to stave off the possibility of a bloody confrontation whose repercussions would be difficult to predict by offering to amnesty everyone who voluntarily gave up to the police.

“We can solve this problem today,” Turchynov told lawmakers.

The two building occupations have drawn only small rallies of supporters and some polls show the region’s majority would actually prefer not to join the Russian Federation.

But there were few signs the fighters were willing to cede ground.

The Donetsk separatists had earlier proclaimed the creation of their own “people’s republic” and called on Putin to push the tens of thousands of troops now massed along the border into Ukraine’s eastern industrial heartland.

They were busy on Thursday fortifying their barricades with razor wire and old tires that could be set on fire in case of a police assault.

Someone had painted a huge sign reading “Russia” on the side of the imposing building, while a small group of elderly people handed out fliers under the drizzling rain claiming “Nazis are in power” in Kiev.

“We do not need an amnesty — we need freedom,” 40-year-old Katerina said while standing next to the barricades. “They want to kill us.”

The negotiations in Donetsk — a blue-collar coal mining region where Yanukovych once served as governor — have involved some of Ukraine’s most powerful security officers as well as its richest tycoon.

Officials said businessman and Shakhtar football club owner Rinat Akhmetov and the region’s governor have both joined Kiev’s efforts to tone down the militants’ demands.

“They are working on a peaceful solution, and this fills us with optimism,” said First Deputy Prime Minister Vitaliy Yarema.

Akhmetov — his wealth estimated by Forbes magazine at $11.4 billion — was a key financial backer of Yanukovych and still wields tremendous influence throughout Donetsk.

But Akhmetov is believed to be trying to establish closer relations with the new pro-Western leaders who are likely to prevail in snap May 25 presidential polls.

AFP Photo/Maxim Shipenkov