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Author Topic: Gazprom puts Ukraine on gas prepayment plan after failure to pay debt  (Read 7585 times)

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Offline cufflinks

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Will be interesting how this plays out in the current RU UA chess match...:

http://news.yahoo.com/russia-cuts-gas-supply-ukraine-065942281--finance.html

Offline Manny

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From the Yahoo article:

Quote
Russia wanted a payment of $1.95 billion for past-due bills by 9 a.m. Kiev time Monday. As the deadline passed Gazprom issued a statement that it would start demanding payment in advance for gas.

Ukraine Energy Minister Yuriy Prodan to speak to reporters outside the government building in Kiev,  …
Gazprom announced on Monday that it is suing Ukraine's state energy company Naftogaz in an international court for the $4.5 billion. Naftogaz said it has also filed a suit against Gazprom, seeking a "fair and market-based price" for gas, as well as a repayment of $6 billion for what it said were overpayments for gas from 2010.

Ukrainian Prime Minister Arseniy Yatsenyuk angrily rejected the Russian position, saying that "we are not going to give in to Russian pressure... we are not going to subsidize Gazprom." He said Ukraine would press in the arbitration court for prices set "honestly, openly and on market principles."

In Moscow, Russian Prime Minister Dmitry Medvedev said at a meeting with the Gazprom chief and other officials that the Ukrainian position was "absurd."

The European Commission said in a statement that Ukraine was ready to accept a compromise in talks in Kiev of paying $1 billion now and more later, but Russia didn't accept the offer.

I find it surprising that a country can ask for a discount when it doesn't pay its past due bills and reneges on agreements to pay.
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Online andrewfi

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Cufflinks, this is not about Ukraine.

One day we will find out that the reason for not having reached a settlement has more to do with external meddling from a party that really has no place to meddle.

On a practical level, of course, Manny is spot on here. There's absolutely no reason why Ukraine should expect the best prices going especially given that Ukraine was unwilling to commit to the type of contract that enables the best prices; a long term deal called a Take or Pay contract. Under these contracts, as used by almost all national buyers, there is a volume purchase commitment and a very good price per unit volume, the exact value of that price related to market prices for oil and to the level of commitment in volume and time. That's why China signed up for 30 years.

Ukraine wanted to have the pricing of a Take or Pay contract but with the flexibility of a Pay As You Go deal; meaning no commitment from the buyer but a commitment to the best price from the vendor. Gazprom DID offer a pretty good price but that was not good enough for Ukraine's handlers. In addition they could not even agree to pay the contribution Russia asked for toward the money owed for gas already supplied under previous contracts.

By the way, now that the Nord Stream pipeline is functioning only about 15% of Europe's gas from Gazprom flows through Ukraine. Assuming that Ukraine don't steal gas or close the pipelines it is unlikely that Europe will have a significant problem even if Ukraine closes the pipelines across their country. Of course, Nord Stream does not serve the whole of Europe, hence South Stream's planned contribution in about 3 years.
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Offline Halo

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Quote
I find it surprising that a country can ask for a discount when it doesn't pay its past due bills and reneges on agreements to pay.

As I noted previously, Ukraine is not asking for a discount.  Naftogaz's position is that the contracted amount for the gas price is much lower than what Gazprom is demanding.  Gazprom has reneged on the contract entered into in 2010 with Yushchenko.  Those contract prices were partially tied to Russia's lease for the Black Sea Fleet.  Russia now asserts it is not obligated to pay the lease, hence, the gas price can't be tied to that lease.   It is, in fact, a triable issue, even if Russian apologists don't want to acknowledge it.
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Online andrewfi

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Halo, you may have forgotten that the price is but one aspect of any purchase.

You may have omitted to remember that Ukraine voided its contract by not paying for its gas as it agreed to do. In addition they have decided to not abide by the Take or Pay element of the purchase.

Take or Pay is central to the pricing because it is this that provides security for the vendor and purchaser.

Having defaulted on the contract by not paying and by then choosing to move to a no commitment form of purchase the price needs to be renegotiated. The price was the last significant element of the original contract that Ukraine chose to void. For your recollection: the key elements of the contract are as follows - price, period, quantity.

The price offered, even so, is actually a very good one. The offered price is apparently similar to the prices paid by EU buyers who are willing to commit to both volume and period and are in good standing, even though Ukraine was going to be experting on a cash and carry basis.

I have not seen the price that will be applied now that Ukraine has chosen to not proceed with Gazprom. My guess is that when Ukraine wants to buy more gas it will be at 'list price' which, if I remember correctly is currently around $485. This is the choice of Ukraine.
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Offline Halo

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Andrew, long term contracts generally are not voided by non payment, particularly if there is a dispute as to price. 

The only way you could know whether the actions to date have voided the contract is if you had actually reviewed the contract at issue, which I doubt you have done, and are an expert in the law of the applicable jurisdiction.  Even then, the answer may not be clear, which is why international courts of arbitration exist.

The upper end, which was the base price in the contract, was higher than what any EU member was paying Gazprom at the time, and gas prices have collapsed at least once since then.  The price was negotiated based on numerous factors, including the discounts being added in, as transit fees, Gazprom access to Ukraine's commercial market, minimum monthly volumes Ukraine is required to purchase (which was disadvantageous to Ukraine), and so on.  It is a very complex formula, based as much on non commercial considerations between the parties as simple commercial matters.  It certainly is not as simple as many here naively present, and frankly, most commercial contracts of that size are not simple. 

Prepayment for future supplies if Ukraine is in default is covered in the current contract.  Cutting off supply is not.
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A correction to an earlier post.

I wrote that only 15% of Europe's gas from Gazprom came through Ukraine. That was incorrect. 30% of Europe's gas comes from Gazprom, half of which flows through Ukraine.

So, 15% of Europe's gas comes across Ukraine. However the essential fact is that the amount is not insurmountably huge. Until recently almost all of Europe's gas from Gazprom came across Ukraine.

Apologies.
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Offline TomT

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"According to the agreement, Ukraine would pay $360/mcm (thousand cubic meter) for the first quarter of 2009, and each following quarter will be stipulated depending on the price formula. Additionally, Ukraine must pay for supplies for any given month by the seventh day of the following month. If payment is late, Ukraine has to pay in advance, which could be grounds to nullify the agreement."

"Russia, Ukraine: The New Natural Gas Deal's First Test". Stratfor. February 7, 2009

Offline Halo

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Tom, we don't have the original text.  Furthermore, the way I read the clause you quoted, an argument could be made the price point, rather than the agreement, is what is nullified.  The whole agreement has to be read in context and, even then, an arbitrator may not agree.  If the resolution of contracts were as simple as you seem to suggest by that post, there would not be centuries of contractual litigation, going back to the Romans. 

BTW, it was EU advisors suggested the Ukrainian government take the matter to arbitration.  So, all those Ukrainian neo Nazis who don't respect the rule of law [contrary, of course, to the Russian former commie nomenklatura who, rather conveniently, have sealed the records of their atrocities], have advice from the pinkos of the EU, bent on establishing a new world order.
After the fall of communism, the biggest mistake Boris Yeltsin's regime made was not to disband the KGB altogether. Instead it changed its name to the FSB and, to many observers, morphed into a gangster organisation, eventually headed by master criminal Vladimir Putin. - Gerard Batten

Offline TomT

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... If the resolution of contracts were as simple as you seem to suggest by that post...

I didn't suggest anything; I just posted (without comment) a quotation that I came across in the course of reviewing the history of the 2008/2009 gas dispute.

Offline Halo

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Re: Gazprom puts Ukraine on gas prepayment plan after failure to pay debt
« Reply #10 on: June 16, 2014, 03:16:09 PM »
... If the resolution of contracts were as simple as you seem to suggest by that post...

I didn't suggest anything; I just posted (without comment) a quotation that I came across in the course of reviewing the history of the 2008/2009 gas dispute.

Noted, although the Stratfor reference wasn't in the post I read.  It is still an issue to be decided by arbitration.



After the fall of communism, the biggest mistake Boris Yeltsin's regime made was not to disband the KGB altogether. Instead it changed its name to the FSB and, to many observers, morphed into a gangster organisation, eventually headed by master criminal Vladimir Putin. - Gerard Batten

Offline TomT

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Re: Gazprom puts Ukraine on gas prepayment plan after failure to pay debt
« Reply #11 on: June 16, 2014, 03:40:22 PM »
"'Ukrainians will not reach for their pockets to pay $5bn per year in order that Russia can use this money to buy weapons, tanks and planes and bomb Ukrainian territory with them,' said Yatsenyuk."

Poetically, Ukraine increases their chances of a large scale attack if they don't pay for the gas that they received. Yatsenyuk bears so much resemblance to our perpetually moderated member that it's scary.

Offline Ste

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Re: Gazprom puts Ukraine on gas prepayment plan after failure to pay debt
« Reply #12 on: June 16, 2014, 03:47:50 PM »
They should put a pre-payment meter on the Ukr border lol!
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Online andrewfi

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Re: Gazprom puts Ukraine on gas prepayment plan after failure to pay debt
« Reply #13 on: June 16, 2014, 03:55:29 PM »
They should put a pre-payment meter on the Ukr border lol!

Maybe give them a few hundred million little blue plastic keys!

Do they still have those in the UK?

====================
Tom, that's just crazy. However, as I noted up thread, this is Ukraine's choice. Their self appointed leaders are doing this stuff with full information.

What can be discerned from this is that Russia (Gazprom) has been bending over backwards to accommodate people who went into the negotiations dishonestly. Whatever happens now there will be plenty of kompromat pointed at Russia.

Another point springs up. We know that Poroshenko as president is pretty much a figure head now because of the constitutional changes. While I am certain that the 'government' as constituted now is a tool of US foreign policy I find myself wondering why it is that Poroshenko keeps making statements about things that he wants to do that are then over ruled by 'his' ministers. Are 'his' ministers seriously intent upon destroying his credibility? Is this some kind of ongoing stalling tactic (but that can only work for as long as he has any shreds of credibility and he must be touching cloth by now.)

If what is happening is that Poroshenko is stating what he wants to happen and his 'colleagues' are overruling him then I wonder how long before he has a heart attack?

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Offline SOUTHERN X

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Re: Gazprom puts Ukraine on gas prepayment plan after failure to pay debt
« Reply #14 on: June 16, 2014, 05:02:06 PM »
bigger question in this conflict might be how much does russia owe ukraine for crimea ??

its very unconsionable imo for russia to be demanding payment when it has stolen billions from ukriane

however that style of thinking does sit well with corrupt gangsters in putins circle

halo , i admire your constant efforts to make headway with the [derogatory term removed]s ,
alas  your logic and well researched posts are falling on deaf ears with them

SX


Offline TomT

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Re: Gazprom puts Ukraine on gas prepayment plan after failure to pay debt
« Reply #15 on: June 16, 2014, 06:53:01 PM »
bigger question in this conflict might be how much does russia owe ukraine for crimea ??

How much does Ukraine owe Poland for Lvov, Lutsk, Rivne, Ternopil, Ivano-Frankivsk, Uzhhorod and Chernivtsi oblasts?


Offline WestCoast

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Re: Gazprom puts Ukraine on gas prepayment plan after failure to pay debt
« Reply #16 on: June 16, 2014, 06:59:42 PM »
Halo, you may have forgotten that the price is but one aspect of any purchase.

You may have omitted to remember that Ukraine voided its contract by not paying for its gas as it agreed to do. In addition they have decided to not abide by the Take or Pay element of the purchase.

Take or Pay is central to the pricing because it is this that provides security for the vendor and purchaser.

Having defaulted on the contract by not paying and by then choosing to move to a no commitment form of purchase the price needs to be renegotiated. The price was the last significant element of the original contract that Ukraine chose to void. For your recollection: the key elements of the contract are as follows - price, period, quantity.

The price offered, even so, is actually a very good one. The offered price is apparently similar to the prices paid by EU buyers who are willing to commit to both volume and period and are in good standing, even though Ukraine was going to be experting on a cash and carry basis.

I have not seen the price that will be applied now that Ukraine has chosen to not proceed with Gazprom. My guess is that when Ukraine wants to buy more gas it will be at 'list price' which, if I remember correctly is currently around $485. This is the choice of Ukraine.

Andrew your entire post is nonsense. You can't know if Ukraine "voided its contract by not paying for its gas as it agreed to do". You have absolutely no frame of reference to make this statement.

Next paragraph you state "The price offered, even so, is actually a very good one. " Again you have absolutely no frame of reference to make this statement. Were you present during negotiations? What were the terms of negotiations? You know nothing about the negotiations so you can know nothing about how good the price was.

You talk about the gas contract between Russia and Ukraine yet you can't possibly know anything about the contract. Have you seen the contract? No you haven't. Do you speak Russian or Ukrainian? No you don't. Do you have a law degree with experience in contract law from a Russian or Ukrainian university? No you don't.

You know absolutely nothing about the contract. You know absolutely nothing about contract law and yet you're commenting as if you have the contract in front of you and you're an expert on international contract law.

Andrew you can't even have an opinion on the contract because you know nothing about it. What happened to the thread you started about how we post and engage readers? In the thread you state how "To not be careless in what we share: that means taking care to do our best to be honest about what we write and to get the facts right."

andrewfi says ''Proximity is almost no guarantee of authority" and "in many cases, distance gives a better picture with less emotional and subjective input."

That means I'm a subject matter expert on all things Russia, Ukraine and UK.

Offline TomT

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Re: Gazprom puts Ukraine on gas prepayment plan after failure to pay debt
« Reply #17 on: June 16, 2014, 07:12:59 PM »
Stratfor Global Intelligence is more qualified that you to comment about the Naftogaz/Gazprom contract and they agree with Andrew.

Offline WestCoast

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Re: Gazprom puts Ukraine on gas prepayment plan after failure to pay debt
« Reply #18 on: June 16, 2014, 07:36:59 PM »
Stratfor Global Intelligence is more qualified that you to comment about the Naftogaz/Gazprom contract and they agree with Andrew.

You didn't link to the article so there's no way to determine if true. Either way it's irrelevant. If Andrew had posted a link to the Stratfor Global Intelligence article and said 'it looks likes an interesting read' that would be OK.

However Andrew's commenting on the contract dispute as if he had first hand knowledge and expertise, which he doesn't. Add to that his thread about being honest when you post and respecting your readers and you have a situation where Andrew is so far from being honest he's being hypocritical.
andrewfi says ''Proximity is almost no guarantee of authority" and "in many cases, distance gives a better picture with less emotional and subjective input."

That means I'm a subject matter expert on all things Russia, Ukraine and UK.

Offline TomT

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Re: Gazprom puts Ukraine on gas prepayment plan after failure to pay debt
« Reply #19 on: June 16, 2014, 08:21:33 PM »
Andrew made a reasonable assumption about the consequences of nonpayment and you are rattling on as if you are stuck in a let's-pick-on-Andrew loop. 

Offline WestCoast

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Re: Gazprom puts Ukraine on gas prepayment plan after failure to pay debt
« Reply #20 on: June 16, 2014, 09:04:00 PM »
Andrew made a reasonable assumption about the consequences of nonpayment and you are rattling on as if you are stuck in a let's-pick-on-Andrew loop.

Reasonable assumption? Based on what? He hasn't seen the contract. He doesn't speak/read Russian or Ukrainian. He doesn't have a law degree. He has no clue as to the contents of the contract and absolutely no frame of reference to make an opinion let alone state any fact.
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Offline Annushka

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Re: Gazprom puts Ukraine on gas prepayment plan after failure to pay debt
« Reply #21 on: June 16, 2014, 09:08:03 PM »
If Ukraine tries to steal Europe-bound gas, Gazprom will develop alternative routes - Miller.

http://rt.com/business/166236-russia-ukraine-europe-gas/

Offline Manny

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Re: Gazprom puts Ukraine on gas prepayment plan after failure to pay debt
« Reply #22 on: June 16, 2014, 11:21:55 PM »
From the RT article that Annushka posted:

Quote
Ukraine’s economy is in a very fragile state, and it received a $3.2 billion bailout tranche from the IMF in May, but hasn’t used this to finance its repayments to Russia. The European Commission told Moscow that Kiev would use the money to repay its gas bill, but hasn't.

And from this article on the same site:

Quote
The gas crisis is an artificial tension created by Washington and Brussels, which want to see friction between Russia and Ukraine, political expert Alexander Nekrassov told RT, adding that the West smiles every time the two can't sort out a disagreement.

RT: Gazprom says Ukraine has threatened to siphon the transit gas. Could we be looking at a repeat of 2009 – with power shortages in Europe?

Alexander Nekrassov: Basically, let’s look at it from a different point of view altogether. These talks on the gas prices basically had nothing to do with gas, because we know that the Ukrainian government is under pressure from the EU and America.

Now, America first of all does not need to have any sort of agreement in place at the moment. America needs more tension between Russia and Ukraine, and it is doing everything to keep the tension intact. I think that until we have a crisis, a sort of a civil war situation in eastern Ukraine, to try to negotiate with the Ukrainian side and expect reason and logic from it, would be probably impossible.
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Re: Gazprom puts Ukraine on gas prepayment plan after failure to pay debt
« Reply #23 on: June 16, 2014, 11:35:55 PM »
Westcoast, the broad terms of the Gazprom offer are not secret, the negotiating position of both Gazprom and the Ukrainian side are not secret. The concepts under discussion are not secret. Please do not blame other participants in a discussion for the information deficits that you have that render you unable to participate fully.

Go do the learning so that you don't feel embarrassed by your lack of knowledge; understand that we can not make up for your lack of implicit knowledge.
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Offline WestCoast

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Re: Gazprom puts Ukraine on gas prepayment plan after failure to pay debt
« Reply #24 on: June 16, 2014, 11:54:17 PM »
Westcoast, the broad terms of the Gazprom offer are not secret, the negotiating position of both Gazprom and the Ukrainian side are not secret. The concepts under discussion are not secret. Please do not blame other participants in a discussion for the information deficits that you have that render you unable to participate fully.

Go do the learning so that you don't feel embarrassed by your lack of knowledge; understand that we can not make up for your lack of implicit knowledge.

BS Andrew. As Halo stated, you have no idea of the contents of the contract. You certainly have no idea if non payment voids the contract. The only way to know if the contract was voided is to read the contract which is probably in Russian and/or Ukrainian, neither of which you speak/read. Therefore your comments are nonsense.

andrewfi says ''Proximity is almost no guarantee of authority" and "in many cases, distance gives a better picture with less emotional and subjective input."

That means I'm a subject matter expert on all things Russia, Ukraine and UK.