Russia ready to provide gas discount for Ukraine in Q3, maintaining price at Q2 level

Naftogaz Ukrainy has requested a discount on gas supplies from Russia, which is ready to offer a discount of $40 per 1,000 cubic meters to maintain the price at the level of the second quarter, Prime Minister Dmitry Medvedev said.

Medvedev made the announcement at a meeting with Energy Minister Alexander Novak and Gazprom CEO Alexei Miller on Monday, an Interfax correspondent reported.

"Lately we have discussed the situation with gas supplies to Ukraine in sufficient detail. The topic is very complicated. During the entire winter period and up until the end of Q2 the price for gas for Ukraine was calculated with the discount, at their request, of $100 per 1,000 cubic meters. Tomorrow the validity of this discount will run out. A request to extend the validity of the discount has arrived from Ukraine," he said.

"This for us is completely expected, with account of the difficult economic situation that prevails in Ukraine. It is very, very difficult. In essence, the country is in a pre-default state, which has already been recognized by the Ukrainian government," Medvedev said.

"We should realistically evaluate the current opportunities of the Ukrainian economy. And despite all the complications in our relations with Ukraine, we should reasonably make a compromise with our Ukrainian partners," the Russian prime minister said.

"When resolving this issue we need to take into consideration, in addition to our national interests, the position of our European partners - fulfilment of agreements on gas supplies to Ukraine is a guarantee of stable transit to Europe. And of course, we care about our reputation as a dependable gas supplier. It will be necessary to hold trilateral talks in the Russia-EU-Ukraine format this summer, given the need to prepare for the autumn-winter period," Medvedev said.

"So, in view of all these factors and given that the requests was accepted, it was decided to sign a government decree which temporarily, for a single quarter, will establish a special procedure for calculating the export duty for gas supplies to Ukraine," he said.

"Moreover I want to stress that we cannot grant the same discount as before due to the factors I've spoken about. And not just due to the Ukraine situation, but also the change in the price situation. As we all know, world oil prices have fallen heavily, and gas depends on these. Nor should we forget that Naftogaz has enormous unpaid debts of many billions to Gazprom. So, taking these factors into account, the final price for gas in the third quarter will be about $247.18 per thousand cubic meters," Medvedev said, adding that the discount would amount to around $40 per thousand cubic meters, and the price will be comparable with that of Ukraine neighbours, for example Poland.

"And I would ask Alexander Valentinovich [Novak] to notify our Ukrainian [partners] about our position and of course the European Union's leadership, given that they are concerned about the situation that exists with the Ukrainian economy. Let's issue all the documents, and in the next three months we'll be proceeding from these decisions. And then we'll see. Further decisions will depend both on the economic situation and on the situation in the gas market," Medvedev said.

The price of gas supplied by Gazprom to Naftogaz Ukrainy without a discount on the export duty is $287.15 per 1,000 cubic meters in the third quarter and $262.5 in the fourth quarter, Gazprom Deputy CEO Alexander Medvedev has said. The price in the second quarter is $247.2 including a discount from a lower Russian export duty.

The gas discount for Ukraine for the third quarter will most likely be less than 30% of the price, Russian Energy Minister Alexander Novak has said. "There is a formula now according to which the discount is provided. According to it, the discount is $100 if the price under the contract is over $333 per 1,000 cubic meters. If it's less, the discount might be up to 30%. The discount considered for the third quarter will most likely be less than 30%," he said.