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Sunday, 2 November 2014

Ukraine-Russia gas deal: Cold self-interest | The Economist

Ukraine-Russia gas deal: Cold self-interest | The Economist:

A pressure gauge on a pipeline carrying Russian gas in Ukraine






IT IS getting chilly in Kiev. During parliamentary elections on October 26th, as temperatures hit 7° Celsius, polling-station officials huddled in padded coats; one warmed her hand over an electric heater while handing out ballots with the other. President Petro Poroshenko had promised to turn the country's radiators back on, but according to energy company figures, 60% of Kiev's buildings remained without heat. So Friday morning's news from Brussels came as a relief: Russia and Ukraine had agreed a deal to resume deliveries of gas, cut off since June over a payment dispute. The agreement removes the risk that Ukraine might run out of gas supplies this winter. But with the two countries still fighting what amounts to a proxy war in Ukraine's east, it is not clear how long the deal will hold.
The “winter package” protocol signed in Brussels comes after months of EU-brokered negotiatiations, culminating in a late-night finale this week. Ukraine will pay $378 per 1,000 cubic metres of gas until the end of the year, and $365 in the first quarter of 2015. Alexander Novak, Russia’s energy minister, called the deal a compromise. José Manuel Barroso, the president of the European Commission, was more ebullient: “There is now no reason for people in Europe to stay cold this winter.” Mr Barroso was referring to fears that, without a deal, Russia might have blocked or restricted gas flowing through Ukrainian pipelines (pictured) to European customers. Then the EU, which receives about 30% of its gas from Russia (including 15% through Ukraine), could have faced its own troubles this winter.
Supplies to Ukraine could resume next week, says Alexei Miller, head of Gazprom, the Russian gas export company. But first Kiev will have to pay $1.45 billion to cover part of its outstanding gas debts, as well as $760m in pre-payments for November. Another tranche of $1.65 billion must be paid by the end of 2014. Ukraine says it will finance these payments from existing international funds. Moscow had demanded a bilateral agreement from Brussels to guarantee Kiev's payments, but no such agreement was signed, though the commission did promise Ukraine "unprecedented levels of EU aid".
In the absence of gas from Russia, Ukraine has been relying onreverse gas flows from Slovakia, Poland and Hungary for the past few months. But Budapest suspended its deliveries in September, just days after a visit from Mr Miller. Earlier this month, Arseniy Yatsenyuk, Ukraine’s prime minister, told a television interviewer that he hoped the volumes of these reverse flows could be increased so that Ukraine could buy all its gas from Europe. This sounds like wishful thinking. Without a deal with Russia, Ukraine would have had to dig deep into its own gas reserves, which are only half full, to get through the winter.
The new gas deal is only temporary. The protocol signed between Gazprom and Naftogaz, the Ukrainian gas company, is valid until the end of March. And with Ukrainian troops and Russian-backed rebelsstill engaged in active combat despite a theoretical cease-fire, trust is in short supply. In the same interview in mid-October, Mr Yatsenyuk warned that it would be too early to speak of a deal until the gas started flowing. “I have no reason to believe [Russian President Vladimir] Putin,” he said.
Still, for the residents of one apartment block in Kiev’s Podil neighbourhood, the agreement was cause for rejoicing. They have been wearing jumpers to bed for weeks, and as the deal was announced Friday morning, their radiators and hot-water taps were still stone cold. With outside temperatures hovering just above freezing, there was only the dazzling October sunlight to relieve the chill, and winter had not even properly begun.
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