Background
Throughout 2008 there were numerous contract and pricing disputes between Russian and Ukrainian gas/transit companies. In October 2008, Ukrainian Prime Minister Yulia Tymoshenko and Russian Prime Minister Vladimir Putin signed a deal that included provisions to raise import prices and transit tariffs to "market, economically based and mutually agreed levels" within three years, and that Naftogaz would buy gas directly from Gazprom and be the sole importer to Ukraine, removing intermediaries. In November, Gazprom and Naftogaz signed a long-term contract with similar provisions; however, this document differed in that it referred to transit fees remaining at their 2008 level and didn't specify an import price.
In the third week of November, Gazprom CEO Miller announced that if no agreement was reached by the end of the year, prices could rise significantly higher than what was currently being proposed. A few days later Prime Minister Putin warned that if there was any interference with transit gas, supplies to Ukraine would be cut off. These warnings were repeated throughout December, with additional warnings that disruptions to European supplies could result. The European Commission did not attempt to intervene, but the Energy Charter Secretariat issued a statement on December 23 which recalled the principle of uninterrupted transit. This was seen as a reminder to Ukraine of its obligations under the Energy Charter Treaty, which it has signed and, unlike Russia, ratified.
Large amounts of debt remained outstanding by year's end. Naftogaz CEO Vladimir Trykolych said that Naftogaz owed $1.26–1.27 billion to RosUkrEnergo in total, but claimed that Naftogaz had no debt to Gazprom. However on December 2, Naftogaz acknowledged that it owed $1 billion to Gazprom, and said it was having trouble making payments on time due to unexpected losses in 2008. Later in mid-December, Gazprom stated that a debt of $2.195 billion had accumulated. In response, Naftogaz made a payment of $800 million, and promised to pay another $200 million soon. Gazprom proposed to make an upfront transit payment at the 2008 rate in order to provide funds for the debt to be cleared, but Naftogaz rejected the offer.
On December 19, Gazprom released a statement saying that no supply contract could be signed for 2009 because Ukraine said it would not make any more payments in 2008. This was denied by a Naftogaz spokesman. On the same day, Ukrainian President Viktor Yushchenko's spokesman on international energy security stated that Ukraine had paid for its October and September supplies, and that although it still had to pay for November's supply before the end of 2008, no other payments would be due until the end of January. On December 23, President Yushchenko said that part of the debt was restructured for January – February 2009, but Gazprom denied that there was any such agreement and said that it remained committed to cut supplies to Ukraine on January 1 if Ukraine did not pay its remaining $1.67 billion debt for gas supplies and an additional $450 million in fines.
By December 30, Naftogaz made a payment of $1.522 billion to RosUkrEnergo for outstanding gas deliveries. RosUkrEnergo confirmed receiving this payment but said that Naftogaz still owed $614 million in fines, (although later on January 2, Naftogaz insisted that no further amounts of debt were outstanding, and said it was ready to go to international arbitration to resolve the issue). Along with the payment, the chief executive of Naftogaz, Oleh Dubyna, wrote a letter to Gazprom threatening that if it delivered gas for transit to Europe, Naftogaz would consider the gas to belong to an "unidentified owner" and could confiscate it under Ukrainian customs law. This was received as a threat to divert gas as Ukraine had done during the 2006 gas dispute.
On December 31, after which gas supplies to Ukraine would be cut off, the two parties failed to come to an agreement on import and transit prices, and obstacles remained. Naftogaz promised to transit gas to Europe even if supplies to Ukraine were cut, however, it added that without a contract in place it would not supply technical gas and would instead take gas from Russia's volumes to keep the system functioning. Gazprom refused, arguing that this would be theft.
Read more about this topic: 2009 Russia–Ukraine Gas Dispute
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