Ukraine and Russia Negotiating new Intergovernmental Gas Agreement

by Roman Kupchinsky

On November 9, the Ukrainian-Russian intergovernmental commission met to exchange views on a new Intergovernmental Gas Agreement between the two countries, which if agreed upon, would replace the 2004 agreement now in effect.

The Ukrainian side needs such a new agreement in order to change the terms of the gas contract signed between Naftohaz Ukrayina, the Ukrainian state-owned energy company, and Russia’s Gazprom, on January 19, 2009. This contract is in effect until 2019.

In 2009 Ukraine has been unable to buy the full quantity of gas specified in the contract (40 billion cubic meters (bcm) and might wind up owing Gazprom about $1.66-1.82 billion under the take or pay clause.
According to Ukrainian and Russian estimates, Ukraine might only purchase 24 bcm in 2009.

The Russian side has also broken the terms of the January 2009 contract under which it was obligated to send 110 bcm of gas to Europe and in the first 10 months of 2009 only shipped 74 bcm. Gas going to Europe via Ukraine however, is not covered by a “send or pay” clause and the Ukrainians stand to lose millions of dollars in transit revenue.

Earlier this year Russian Prime Minister Vladimir Putin agreed not to charge Ukraine any penalties for failing to buy the contracted amount of gas. However he also stated that he was against changing the January 2009 contract.

The Ukrainian side has floated the idea that Russian gas bound for Europe be subject to a “send or pay” clause, a proposal which Gazprom has rejected and, according to Russian specialists, is not at all interested in any changes to the existing contract, even if a new intergovernmental agreement is signed.

It appears that Gazprom might have the last word in the debate regardless of what the two governments sign.