Gazprom notifies Naftogaz of switch to pre-payment for gas supplies

Tuesday, May 13, 2014

Today, Gazprom notified Naftogaz that it will switch to pre-payment for its gas supplies, as stipulated in article 5.8 of the 2009 contract.

The reason for switching to pre-payment is the continuous unpaid debt for the gas delivered to Naftogaz, amounting to $3.5bn as of today. As a result Gazprom presented Naftogaz with a preliminary bill for $1.66bn for June gas supplies from Russia.

Commenting on the issue today, Gazprom spokesman Sergey Kupriyanov said: “Ukraine’s current overdue debt is $3.5bn, and no one can doubt that it is a weighty and objective reason for applying the pre-payment mode stipulated in the relevant contract”.

Here is the detailed explanation of how the gas prepayment will work in practice:  

  • The preliminary monthly bill is based on the take-or-pay delivery volumes set out in the contract, which amount to 114mn cubic metres/day, or 3.42bcm/month or 41bcm/year.
  • The amount of $1.66bn was calculated using the current gas price for Ukraine of $486.5 per tcm which is calculated using pricing formula included in the 2009 contract.  
  • Naftogaz has to settle 100% of the bill by 2 June (the first working day in June).
  • In June Ukraine will receive the amount of gas it will have paid for, which means that if the bill is not prepaid, zero gas volumes will be delivered to Ukraine.
  • European transit will continue as normal.  Ukraine has a separate transit contract (prepaid by Gazprom to Naftogaz for a total amount of $5.5bn and valid until 31/12/2014) and is obliged to transit the contracted volumes of Russian gas to the European border.  
  • Ukraine currently has 9bcm in Ukrainian Gas Storage, but needs a total of ~18.5bcm to ensure smooth gas supplies to Europe during the cold season.