Ukraine Asks To Review ‘Unfavorable’ Russia Gas Price

KIEV, Ukraine -- Ukraine’s government wants Russia to review the price it charges for natural gas supplies, saying that even with a discount, fuel costs are squeezing the economy.

Ukraine Prime Minister Mykola Azarov.

“Our aim is to review extremely unfavorable agreements with Russia,” Prime Minister Mykola Azarov said today at a government meeting. “Only the agreements signed in Kharkiv, under which we have a $100 discount, allow us to avoid collapse.”

Pricing disputes between Russia and Ukraine over supply and transit have disrupted gas deliveries to Europe twice since the start of 2006. Russian gas exporter OAO Gazprom’s contract prices, which are linked to global oil prices, have exceeded spot market levels.

Gazprom spokesman Sergei Kupriyanov declined to comment on whether Ukraine had formally sought a review of contracts.

Gazprom charged European customers an average $307 per 1,000 cubic meters in the first quarter, compared with an average of $187 per thousand cubic meters on the U.K. spot market, according to Troika Dialog.

Russian President Dmitry Medvedev in April cut Ukraine’s gas price by about 30 percent, in a deal he valued at $40 billion of aid to the neighboring country. In return, Ukrainian President Viktor Yanukovych agreed to extend Russia’s lease on a naval port in the Black Sea.

Transit Guarantees

Ukraine, which ships about 80 percent of Russia’s gas exports to Europe, also wants guarantees for transit volumes through its pipelines, Yuriy Boyko, the country’s fuel and energy minister, said in an e-mailed statement over the weekend.

Russia is planning several pipelines bypassing Ukraine, including Nord Stream, which is being built across the Baltic Sea, and South Stream across the Black Sea. The links may lower volumes crossing Ukraine.

Ukraine increased transit of Russian natural gas 22 percent to 57.4 billion cubic meters of in the first seven months of the year, the Fuel and Energy Ministry said today in an e-mailed statement.

The government is raising the gas price for households to help trim a budget deficit and qualify for future payments from a $15.2 billion loan program that the International Monetary Fund approved last month.

Source: Bloomberg