Russia's Gazprom Eliminates Discount to Ukraine, Increases Gas Prices 29.1%

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Researched by Industrial Info Resources (Sugar Land, Texas)--Russia's state-owned natural gas company Gazprom (PINK:OGZPY) (Moscow) cancelled its discount on gas prices for Ukraine, which had been granted in December 2013 by Russian President Vladimir Putin. Gazprom CEO Alexei Miller said that the price hike decision was made because Ukraine has failed to pay off its debt for past supplies, which now stands at $1.7 billion.

The discount was part of a financial lifeline that Putin offered Ukraine's previous president, Viktor Yanukovych, after his decision to ditch a pact with the European Union in favour of closer ties with Moscow. Gazprom CEO Miller said in a statement that the price of Russian gas for Ukraine has gone up to $385.50 per 1,000 cubic metres in the second quarter of 2014, from the previous rate of $268.50.

The move is expected to hit Ukrainian consumers hard, with household gas prices set to rise 50% beginning May 1, Domestic gas prices will continue to be hiked through 2018. The move fuelled three months of protests that sent Yanukovych fleeing to Russia in February.

Ukraine has agreed to gradually withdraw state subsidies under a deal with the International Monetary Fund (IMF) that required the country to make its utility costs economically viable by 2018. This was a condition for up to $18 billion in loans from the IMF.

Talks with EU
Separately, Gazprom CEO Alexei Miller met EU Energy Commissioner Günther Oettinger on Tuesday in Brussels, the European Commission said. "Both Commissioner Oettinger and Gazprom agreed on the importance of a reliable and secure gas supply from Russia. Commissioner Oettinger underlined the EU's expectations that Russia respects its commitments in this regard," said in a statement from Oettinger's office.

Ukraine is the main transit route for Russian gas, and supplies have been suspended in earlier disputes. Russia supplies 30% of the EU's gas, making it the largest provider.

Russia annexed Crimea, a peninsula of 2 million people, from Ukraine last month after a hastily called referendum held just two weeks after Russian forces had overtaken the Black Sea region. The U.S., the EU and Ukraine said the annexation was illegal and illegitimate, and should not be recognized internationally. The annexation was condemned by 100-11 vote in the United Nations General Assembly in New York last week. Last month, Gazprom applied to develop Crimea's oil and gas sector. For additional information, see March 20, 2014, article - Gazprom Seeks to Develop Crimea's Oil and Gas Resources.

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