Russia Ratchets Up Ukraine’s Gas Bills in Shift to an Economic Battlefield

Courtesy of The New York Times. By STEVEN ERLANGER

LONDON — Gazprom, the natural gasgiant 50.01 percent owned by the Russian government, keeps ratcheting up the bill for Ukraine, increasing the economic pressure on Kiev in tandem with military pressure along Ukraine’s eastern border.

What Gazprom executives now say Ukraine owes them comes to more than $22 billion. In early March, Gazprom put the bill at less than $2 billion. How Gazprom now calculates its charges explains a lot about the way the company is used by the Kremlin for political purposes.

Behind the payment demands was a warning that Gazprom would cut off gas supplies to Ukraine, which it has done at least twice before, in 2006 and 2009, over political and financial disputes. And behind that warning is one to European countries that largely depend on Russian gas supplies moving through Ukraine.

In its annual report, Gazprom said that it might cut gas supplies to Ukraine unless its bills were paid, and that Europe could suffer reduced deliveries as a result. Ukraine has threatened to take Gazprom to court over what it said were inflated prices for gas.

Gazprom’s chief executive, Alexei B. Miller, escaped the American sanctions list for Russians involved in the Ukraine crisis as a political concession to European countries that depend on the company’s gas supplies. In 1989, Gazprom was created out of the Soviet Ministry of Gas Industry. And unless there was a clear invasion of eastern Ukraine by the Russian military, senior European officials said, the European Union was unlikely to push for harsher sanctions or punish Gazprom.

Late last month, Gazprom sent executives to countries like Germany to argue its case for collecting what they said Ukraine owes. Alexander Medvedev, the second in command at Gazprom, said that his company had done everything possible to keep gas flowing to both Ukraine and Europe, but that the time of reckoning was near, and that Ukraine owed them $18.5 billion.

But in early March, Mr. Miller said that Ukraine owed just $1.89 billion for unpaid gas. Mr. Medvedev said recently that the figure was $2.2 billion, and that Ukraine had stopped payment altogether after Gazprom raised the price of gas on April 1 to $385 for 1,000 cubic meters, the standard measure for gas in Europe. That figure was up from $268, an increase of about 44 percent. The debt will reach $3.5 billion by mid-May, Mr. Medvedev said.

The sharp increase was political.

The reduced price was part of a pact President Vladimir V. Putin ofRussia struck last December with the former president of Ukraine, Viktor F. Yanukovych, for turning down a European Union free-trade deal. Gazprom also paid Ukraine in advance for transit fees.

But after Mr. Yanukovych fled Ukraine in February, Mr. Miller announced that the price would revert to $385 per unit on April 1. Mr. Miller said Ukraine’s unpaid debt to Gazprom — and not any political motivation, like punishing and further destabilizing the European-minded interim government in Kiev — prompted the move.

Then the price went up again.

Under a 2010 accord between Mr. Yanukovych and Moscow, Ukraine received a 30 percent discount on gas in return for extending Russia’s lease on its base in Crimea for the Black Sea fleet. But after Russia’s annexation of Crimea, Moscow abrogated the accord, canceling the reduction and bringing the price Ukraine now pays Gazprom to $485 per unit.

Gazprom added that it intended to apply this price retroactively to 2010 when the deal was struck.

That’s not all.

Mr. Medvedev, Gazprom’s No. 2 official, insisted that Ukraine owed an additional $18.5 billion (mostly for gas never used). This figure stems from a January 2009 contract that the prime minister at the time, Yulia V. Tymoshenko, signed after Russia cut off gas to Ukraine, again over unpaid debts (then some $2.4 billion). In early 2009, after more than two weeks without gas, Ukraine and East European countries like Slovakia, which then got all its gas through Ukraine, were freezing.

The agreement eliminated a shadowy intermediary company, but committed Ukraine to a 10-year deal at a high level of consumption — some 50 billion cubic meters a year — and at a price higher than what the rest of Europe was paying. But Ukraine’s gas consumption declined from 44 billion cubic meters in 2011 to 32 billion in 2012 and some 28 billion last year, given the recession, said Dmitri Petrov, an analyst of emerging markets at Nomura. Gazprom insists it should be paid for the difference.

In January, Gazprom demanded the additional $7.1 billion under the contract as payment for unused gas for 2012, but Ukraine refused to pay it, and it is considered unlikely to be enforced in any court outside Russia itself. Now Gazprom has billed Ukraine for an additional $11.4 billion for unused gas in 2013 under the same contract, including the retroactive pricing after 2010 that represents the return of prepayment on the base lease.

That would bring the total Gazprom says it is owed to at least $22 billion by the end of May.

Whether Gazprom actually expects to get that extra money is debatable. A Czech unit of Germany’s RWE A.G. won a legal ruling in 2012 on a similar complaint, supporting its refusal to pay for gas it did not use.

But the issue is even more intriguing because Ukraine’s increasing debt would give Moscow the right to demand early repayment of a $3 billion loan made in late December, as part of Mr. Putin’s offer to Mr. Yanukovych to turn his back on Europe. Moscow bought Ukrainian Eurobonds, but a clause states that if Ukraine’s state debt and state-guaranteed debt increases beyond 60 percent of gross domestic product, Moscow can demand early redemption on the bonds. Ukraine’s debt is currently over 52 percent of G.D.P., and much of it is in foreign currency, while the hryvnia is losing value. If Ukraine borrows to pay Gazprom, it may come close to the ceiling.

But Gazprom isn’t done. It now insists on prepayment by Ukraine of another $4 billion to $5 billion to buy gas to put into underground storage facilities for itself and especially for European customers of Gazprom next winter. The deadline for Ukraine to pay up was Wednesday. If it was missed, Gazprom would require the prepayments, Mr. Medvedev said.

By May 16, he said, Gazprom would bill Ukraine for gas to be supplied in June, which must be paid for by the end of May to ensure delivery.

It is difficult to know how seriously to take such threats, but a gas cutoff would be easier to deal with in the late spring and summer than in the middle of winter, especially since Ukraine already has sizable amounts of gas in storage.

And it is also true that the dependency goes both ways — Gazprom is highly dependent on its European customers, too.

Energy exports represent up to half of Russia’s revenue, and natural gas represents about a third of that revenue. Ukraine, which gets about 60 percent of its gas from Russia, itself consumes 13 percent of the exports of Gazprom, while 53 percent of Russian gas exports to Europe still pass through Ukrainian pipelines. The European Union still gets a quarter of all its gas from Russia.

Just last week, the International Monetary Fund approved a $17 billion emergency loan for Ukraine. If Russia gets its way, however unlikely, it could all go to Gazprom.

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