Ukraine rejects Putin’s offer of gas discounts

Russian President Vladimir Putin. Twitter photo courtesy of Corbis.

MOSCOW — Russia on Wednesday offered to restore the discounted gas price it granted Ukraine under the ousted pro-Russian president, but Ukraine demanded an even better deal and called for arbitration to settle the dispute.

Speaking in Moscow, Russian President Vladimir Putin said Russia was offering the discount as a “partnership deal.” Russia’s energy minister, Alexander Novak, specified the price offered as $385 per 1,000 cubic meters of gas.

“We believe that our offer is more than in a partnership spirit, aimed to support the Ukrainian economy at a rather difficult time,” Putin said in televised remarks. “But if our offers are rejected it means we will enter another stage. This is not our choice. We do not want it.”

Russia and Ukraine have been locked for months in a dispute over the price of Russian gas supplies and Ukraine’s debt for previous deliveries. Moscow has threatened to turn off the tap if Ukraine fails to settle the multibillion-dollar debt, but has repeatedly pushed back the deadline after Ukraine paid off part of the sum.

European Union-brokered talks between the two countries in Brussels on Wednesday failed to reach a compromise over the price.

The bruising gas dispute comes amid continuing fighting in eastern Ukraine, where government forces have battled pro-Russian rebels for two months. The insurgents have pushed for joining Russia following Moscow’s annexation of Ukraine’s Crimean peninsula in March, but Putin has ignored their appeal in an apparent bid to avoid another round of crippling Western sanctions.

Putin also seemed eager to avoid cutting off gas to Ukraine, a move that would likely disrupt shipments to European customers via pipelines crossing Ukrainian territory.

He emphasized Wednesday that the latest offer would restore the price Ukraine had under pro-Russian President Viktor Yanukovych.

In December, Russia offered Ukraine an even lower price of $268 as it sought to give a financial lifeline to Yanukovych, who was facing massive protests triggered by his decision to ditch a pact with the European Union and opt for closer ties with Moscow.

After Yanukovych was chased from power in February, Russia denounced his ouster as a “coup” and annulled all gas discounts, bringing the price back to $485 per 1,000 cubic meters, in line with a 2009 contract.

Ukraine has refused to pay for Russian gas, calling the price politically motivated and demanding that Moscow lower it.

Ukraine’s Energy Minister Yuri Prodan told reporters after the talks in Brussels that the price discount offered by Russia isn’t enough and demanded an even lower price. He said the Ukrainian government now believes that arbitration is the best option to solve the dispute.

Prodan, however, added that Ukraine is open to talks to hammer out a temporary price while arbitration is proceeding.

Despite the sharp disagreements, EU Energy Commissioner Guenther Oettinger, who is involved in the talks, said he hopes the parties will make progress in the next 48 hours.

“I can see movement on both sides, and both sides will need to continue to move,” he told reporters. “There are differences of opinion … and we’re talking about billions.”

Oettinger said that he has drawn up a draft agreement on the EU’s behalf that he hopes both Russia and Ukraine can ultimately agree to, including a temporary “$385 minus” price tag.

He said the final price will depend on two factors: the volume of Russian gas purchased by Ukraine, and the length of the agreement, which he has suggested should be 15 months. That would be enough for Ukraine to see through the winter of 2014-2015 and allow it to build up its reserves for another winter.

Oettinger said that Putin and Ukraine’s President Petro Poroshenko are to discuss the issue, but the Kremlin said there is no immediate plan for such talks.

Ukrainian Prime Minister Arseniy Yatsenyuk earlier Wednesday said that Kiev initially rejected the Russian offer because there was no guarantee that it would last. Putin and Novak responded by saying that Russia was ready to guarantee the discounts would remain in place for one year.

Gazprom, Russia’s gas giant, gave Ukraine a few more days to settle its gas debt before it would start demanding prepayment for gas, without which it has threatened to cut off supplies. Gazprom’s CEO Alexei Miller said the deadline would be pushed forward to next Monday.

Georg Zachmann, a research fellow at Bruegel, a Brussels-based think tank that specializes in economic affairs, said that despite the impasse, Russia and Ukraine will likely finally come to agreement.

“There are large sums of money involved so they are fighting hard for that,” Zachmann said. But in the end, he said, “everybody would lose” from a cutoff of Russian gas to Ukraine that could also disrupt supplies to the EU.

Dahlburg reported from Brussels. Vladimir Isachenkov in Moscow contributed to this report.