Russia sharply hikes gas price for Ukraine as IMF puts the screws on

by 1389 on April 3, 2014

in 1389 (blog admin), energy, Russia, sovereign debt, Ukraine

Haaretz has the story:

Gazprom oil and gas refinery in Serbia
A Gazprom oil and gas refinery in Serbia. Photo by Bloomberg

Gazprom withdraws December’s discount that put the price of gas at $268.50 per 1,000 cubic meters and sets the price at $385.50 per 1,000 cubic meters for the second quarter.

Russia on Tuesday sharply hiked the price for natural gas to Ukraine and threatened to reclaim billions previous discounts, raising the heat on its cash-strapped government, while Ukrainian police moved to disarm members of a radical nationalist group after a shooting spree in the capital.

Alexei Miller, the head of Russia’s state-controlled Gazprom natural gas giant, said Tuesday that the company has withdrawn December’s discount that put the price of gas at $268.50 per 1,000 cubic meters and set the price at $385.50 per 1,000 cubic meters for the second quarter.

The discount was part of a financial lifeline which Russian President Vladimir Putin offered to Ukraine’s President, Viktor Yanukovych, after his decision to ditch a pact with the European Union in favor of closer ties with Moscow. The move fueled three months of protests which led Yanukovych to flee to Russia in February.

Radical nationalist groups played a key role in Yanukovych’s ouster, but they quickly fell out with the new government. Last week, one of the leaders of the most prominent radical group, the Right Sector, was shot dead while resisting police.

Right Sector members then besieged parliament for several hours, breaking windows and demanding the resignation of Interior Minister Arsen Avakov. They lifted the blockade after lawmakers set up a panel to investigate the killing.

Late Monday, a Right Sector member shot and wounded three people outside a restaurant adjacent to Kiev’s main Independence Square, including a deputy city mayor, triggering a standoff that lasted overnight.

Police responded by surrounding the downtown Dnipro Hotel, which Right Sector had commandeered as its headquarters, demanding that the radicals lay down their weapons and leave. Avakov said that Right Sector members got into buses Tuesday morning leaving their weapons behind and headed to a suburban camp under the escort of officers of Ukraine’s Security Service.

The Ukrainian parliament then voted to order police to disarm all illegal armed units. If police carry out the order, it would undermine Russia’s key argument: the allegation that the new Ukrainian government was kowtowing to nationalist radicals, who threaten Russian-speakers in southeastern Ukraine. Russia has pointed at the perceived threat from ultranationalists to defend its annexation of Crimea, and has concentrated tens of thousands of troops along its border with Ukraine, drawing Western fears of an invasion.

Putin and other officials have said that Russia has no intention of invading Ukraine. Defense Minister Sergei Shoigu insisted Tuesday that the Kremlin wants a “political settlement that would take into account interests and rights of the entire Ukrainian people” and had no intention to threaten Ukraine’s statehood.

At the same time, Russia has used financial levers to hit Ukraine that is teetering on the verge of bankruptcy. Gazprom’s Miller said that the decision to charge a higher price in the second quarter was made because Ukraine has failed to pay off its debt for past supplies, which now stands at $1.7 billion.

Preparing to further raise the heat on Kiev, the Russian parliament moved to annul agreements with Ukraine on Russia’s navy base in Crimea. In 2010, Ukraine extended the lease of Russia’s Black Sea Fleet’s base until 2042 for an annual rent of $98 million and price discounts for Russian natural gas supplies. The lower house voted to repeal the deal Monday, and the upper house was to follow suit Tuesday.

Russian Prime Minister Dmitry Medvedev has said that Russia had given Ukraine $11 billion in gas discounts in advance and should claim the money back once the lease deal is repealed — a threat repeated Tuesday by Deputy Foreign Minister Grigory Karasin.

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Now that the putsch government has walked out on Yanukovich’s agreement with Russia, and instead has sold out Ukraine to its masters on Wall Street, IMF is free to put the screws on:

RIA Novosti: Ukraine’s Economy Would Have Collapsed Without Russian Aid – IMF Chief

MOSCOW, April 3 (RIA Novosti) – Ukraine’s ailing economy would have collapsed without Russia’s financial help, the head of the International Monetary Fund said Wednesday.

IMF Managing Director Christine Lagarde said that the Eastern European country’s economy had hit a wall last year and was heading for disaster when Russian bailout money averted a catastrophe.

“Without the support that they were getting from this lifeline that Russia had extended a few months ago, they were heading nowhere,” Lagarde said in an interview broadcast on the US PBS channel.

Russia made a crucial decision to invest a hefty $15 billion in Ukrainian eurobonds late last year, disbursing the first tranche of $3 billion in December. Moscow and Kiev also agreed to steeply cut gas prices for Ukraine in an effort to boost the country’s ailing economy.

But the cash injections and discounts were frozen following a coup amid violent protests in February that led to far-right parties gaining key positions in the new government.

The IMF chief confessed that Ukraine had been cut off from international financial markets. She stressed that IMF money comes at a price, meaning Ukraine was expected to do what it had to do to reform its economy, including making some hard choices.

“It’s an economy that needed reforms, that needed profound transformation of its fiscal policy, of its monetary policy, and of its policies on energy,” Lagarde said.

The Washington-based fund said last week it had signed a binding accord with Ukraine, under which Kiev was to receive $14 to $18 billion in standby credit in exchange for painful economic reforms. Ukraine expects to get a total of $27 billion in the next two years.

Here’s how it will all play out. Once the screws get tighter, it won’t be long before other oblasts within Ukraine will demand to reunite with Russia.

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