Two long-term natural gas contracts between Russia and Ukraine are set to expire in December. And as this deadline approaches, the two sides are preparing for necessary renegotiations. Kyiv needs to avoid a repetition of January 2009, when parts of Europe were left without gas because Russia stopped pumping it into Ukrainian pipelines due to the absence of contracts. Having run out of time and under pressure not only from Moscow, but also the European Union, Kyiv then had to accept the Russian conditions and sign long-term gas purchase and transit contracts detrimental to its economy.
The situation has changed since 2009, both commercially and politically. The two sides no longer critically depend on one another. Ukraine has not been buying gas from Gazprom since 2015, having cut consumption, boosted domestic production, and begun relying on gas purchases from European firms. Whereas, Russia is preparing to launch two new gas pipelines, Nord Stream Two and TurkStream, after which the old Ukrainian pipelines may entirely fall into disuse by Russian state-owned monopoly exporter Gazprom. And on the political plane, bilateral relations were spoiled beyond repair by Russia’s forced annexation of Crimea in 2014 and the continuing support by Moscow of Russian-fabricated separatism in the Donbas region.
In spite of concerns expressed by Ukraine and the European Union, Russia has been dragging its feet regarding talks on new contracts, apparently having wanted to first see the outcome of April’s presidential election in Ukraine. Eventually, however, Moscow began to send signals that it was ready to come to the negotiating table. At this point, it is clear that Moscow is again preparing to use gas as a political weapon throughout the talks. From Kyiv’s point of view, Moscow’s latest gas contract proposals (see below) are not commercially viable and can be interpreted as little more than an attempt to influence public opinion.
Russia is willing to extend the existing contracts with Ukraine and to continue its transit via the existing routes, Russian Prime Minister Dmitry Medvedev said last week (June 5). Speaking at a press conference with his Slovakian counterpart, Peter Pellegrini, Medvedev summed up Moscow’s conditions for the talks. Transit tariffs should be “acceptable,” a “necessary background” is essential, and Ukraine should stop “endless court litigation” (Interfax, June 5). Yet, these conditions far outweigh anything Ukraine is willing to accept, particularly since it is not presently desperate enough to secure any more of Gazprom’s gas.
The “necessary background” Medvedev raised presumably refers to a resumption of normal relations, an impossibility as long as Moscow controls Crimea and part of Donbas. Ukraine’s newly elected president, Volodymyr Zelenskyy, reiterated this stance in his inauguration speech (Krymr.com, May 20). Regarding court litigation, Gazprom has been refusing to pay $2.6 billion in damages, awarded to the national oil and gas company Naftogaz Ukrainy by the Stockholm arbitration court in February 2018 as a result of almost four years of disputes over the 2009 contracts. And as far as transit tariffs are concerned, Naftogaz has been revising them upwards retroactively, suing Gazprom in Stockholm again last year, and estimating its claim at $11.6 billion (Naftogaz.com, July 6, 2018). This is big money for Naftogaz, which complains that it is short of funds to import enough gas for storage ahead of next winter and is owed $2.3 billion by customers (Facebook.com/andriy.kobolyev, June 6).
Several days after the Russian prime minister addressed the gas talks with Ukraine, Gazprom CEO Alexei Miller offered another proposal, no less vague. The Russian gas giant is ready for talks to resume gas sales to Ukraine, he said, adding that Gazprom could offer the country a price low enough so that end consumers would pay 25 percent less than they are paying now (TASS, June 7). Naftogaz CEO Andry Kobolev reacted to this offer in a social media post on the same day. He said current prices paid by Naftogaz for imported gas are already lower than those at which the Stockholm court had obliged Gazprom to sell its gas to Naftogaz, but refused to abide. Kobolev doubted that Gazprom would sell its gas to Ukraine any cheaper, and he reiterated that Gazprom would not be forgiven the debt that had arisen as a result of its legal defeat in Stockholm. Kobolev also said Naftogaz is ready for talks with Gazprom, but only in a trilateral format (Facebook.com/andriy.kobolyev, June 7). Undoubtedly, he meant with mediation and support of the European Commission—a crucial ally for Kyiv in talks with such a tough adversary as Moscow but also in order to avoid sharing blame with Russia for any possible disruptions to Russian gas flows to Europe in 2020, as had happened in 2009.
The circumstances in which Miller made his statement showed that Russia has not abandoned its goal of forcing a (beneficial for Moscow) change in the Ukrainian political landscape. Miller spoke after meeting with leaders of the Ukrainian party Opposition Platform–For Life, former energy minister Yury Boyko and Vladimir Putin’s friend Viktor Medvedchuk, at the St. Petersburg Economic Forum. Furthermore, the Gazprom executive commended this Russia-friendly Ukrainian party for its “enthusiasm and perseverance” in “organizing direct talks” with the Russian Federation (TASS, June 7). In its prime-time news bulletin the same evening, Ukraine’s television channel 112, whose ownership is attributed to Medvedchuk, portrayed him and Boyko as capable negotiators with Moscow, whose goal is to eventually cut gas prices for households—an extremely sensitive issue in Ukraine (112.ua, June 7).
Recent opinion polls show that Opposition Platform–For Life is likely to perform better in the early parliamentary election, scheduled for July 21, than any other party except President Zelenskyy’s own Servant of the People. But the gap in popular support between the two is extremely wide (around 30 percentage points), according to the latest polls (Ukraine-elections.com.ua, accessed June 8). Medvedchuk and Boyko will strive to narrow it, evidently with Moscow’s support, in order to have a say in the formation of a government more lenient toward Moscow than its predecessors.