'No one to stay cold', as Russia and Ukraine clinch winter gas deal

BRUSSELS - Ukraine and Russia have agreed terms on winter gas supplies in a deal the EU says will also contribute to “de-escalation” of the military conflict.

The breakthrough was sealed at a signing ceremony and press conference in Brussels on Thursday (30 October) evening after six months of EU-brokered talks in various locations around Europe.

The EU’s energy commissioner, Gunther Oettinger, Russian energy minister Alexander Novak, and his Ukrainian counterpart, Yuriy Prodan signed a “binding protocol” on the broad outlines of the deal.

The CEOs of Russian supplier Gazprom and Ukrainian distributor Naftogaz also signed an “addendum” to their 2009 gas contract on technical issues.

The event was also attended by European Commission chief Jose Manuel Barroso, who worked the phone to Ukrainian leader Petro Poroshenko until 2am local time on Thursday morning to help seal the accord.

Slovak diplomat Maros Sefcovic i, who takes over Oettinger’s portfolio this weekend, also joined the group.

Barroso said: “There is now no reason for people in Europe to stay cold this winter”.

In a note of caution, he added: “I expect all parties … to fully abide by the rules they have now agreed … It is obvious that no one would stand to gain from a potential disruption”.

He also said that in his past 10 years in the EU post he “spent more time than I care to admit dealing with the different energy issues between Russia and Ukraine”, referring to the 2009 gas crunch, which led to blackouts in parts of eastern Europe, and in which he said Russia was less credible a negotiating partner than some African states.

For his part, Novak promised that the Russian government will “in the coming days” adopt a resolution to bring the deal into life.

“Russia has been, is, and will be a reliable supplier”, he added.

Ukraine’s Prodan noted it is “the first time in history” that his country signed a trilateral energy agreement and that the European Commission’s signature on the protocol “will be a guarantee of [its] implementation”.

The complicated accord covers partial payment of Ukraine’s old unpaid bills and terms for pre-payment for new supplies between November and the end of March.

Russia, which stopped supplying gas to Ukraine in June following its pro-Western revolution in February, is to resume supplies after Kiev pays the first tranche of its debts, worth $1.45 billion, this weekend.

It is to pay a second tranche, worth $1.65 billion, by the end of December.

It will buy 4 billion cubic metres of gas - an amount deemed necessary to ensure transit to EU states as well as its internal needs - in November and December at a price of $378 per thousand cubic metres. The price for January to March will drop to $365.

The price is $100 or so less than Russia tried to impose after the February revolution. But it is about $100 more than Ukraine says would be a fair “market price”.

Russia also agreed to waive a “take or pay” clause in the 2009 contract, which obliges Ukraine to pay for pre-set gas volumes even if it uses less than the pre-set amount.

But the future of gas relations between the two sides beyond March is to be settled in a Stockholm arbitration court.

The EU’s Oettinger noted that Ukraine, which is near-bankrupt, will use EU and International Monetary Fund assistance, on top of whatever Naftogaz can chip in, to cover the winter-time fees.

He was short on detail of the financing structure, even though Russia had previously insisted on signing a third document - on EU financing - which never came to be.

With Russia and irregular pro-Russia fighters still waging war on Ukraine despite a 5 September ceasefire accord in Minsk, Oettinger added: "This breakthrough will not only make sure that Ukraine will have sufficient heating in the dead of the winter. It is also a contribution to the de-escalation between Russia and Ukraine”.

But the coming weekend is likely to see an increase in tensions despite the gas deal.

Increase in tensions?

Pro-Russia separatists in Donetsk and Luhansk in east Ukraine started early voting on Tuesday and Wednesday for what they call parliamentary elections in the self-proclaimed republics on Sunday.

The initiative is a clear violation of the Minsk accord, which said Kiev should organise regional elections in the conflict zones in December.

But Russian foreign minister Sergei Lavrov has promised that the Kremlin will recognise the result, in what German chancellor Angela Merkel called the creation of a new “frozen conflict” in Europe at last week’s EU summit in Brussels.

The EU earlier this week opted to maintain economic sanctions on Russia in view of the situation.

Asked by press earlier on Thursday whether Russia’s endorsement of the separatist votes will see the EU impose extra restrictive measures, an EU spokeswoman, Maja Kocijancic, said the sanctions regime is being kept “under constant review”.