Gazprom hikes Ukraine gas price by a third

  • 1 April 2014
  • From the section Business

The Russian energy company, Gazprom has raised the price it charges Ukraine for gas by more than a third.

The company's chief executive Alexei Miller says the change was because Kiev has failed to pay its bills.

He said its current debt to Russia stood at just over $1.7bn (£1.02bn).

Russia had previously offered Kiev a subsidy, but the recent political crisis in Ukraine has led to a deterioration in relations.

Mr Miller says 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.

It will mean Ukraine paying more than the UK for gas, having previously paid less, according to calculations by ICIS, the energy price-reporting agency.

Its research shows the from 1 April Ukraine will pay 25.40 euros (£21.04, $35.04) per megawatt hour for gas.

That compares to 21.17 euros per megawatt hour in the UK and 18.51 euros per megawatt hour that Ukraine previously paid.

"It's now cheaper for Ukraine to buy elsewhere," ICIS European gas market analyst Tom Marzec-Manser said. What would stop state energy company Naftogaz doing so was the very limited pipeline capacity it had with the EU that could pipe gas eastward, he said.

Smaller pipelines from Hungary and Poland served the country, but were not able to supply enough, enabling Russia to charge more than prices in the UK and the rest of Europe, he said.

The move marks the end of a discount Russia agreed to give Ukraine in December. The deal came after talks between Russian President Vladimir Putin and Ukraine's then President Viktor Yanukovych, in which Russia also said it would buy $15bn-worth of Ukrainian government bonds.

That agreement meant the cost of Russian gas supplied to Ukraine was slashed from more than $400 per 1,000 cubic metres.

Image caption US Secretary of State John Kerry will attend Nato talks over Ukraine

Nato meeting

The news comes as Nato foreign ministers prepare to discuss ways to help Ukraine in the first meeting of ministers from the 28 member states since Russia's takeover of Crimea caused a diplomatic crisis.

Ukraine's interim government last week said it will raise gas prices for domestic consumers by 50% to secure an International Monetary Fund (IMF) aid package.

Ukrainians are accustomed to buying gas at heavily subsidised rates. But the IMF has made subsidy reform a condition its deal worth as much as $18bn.

The IMF is also asking Ukraine to crack down on corruption and end central bank support for the Ukrainian currency.

Ukraine's interim Prime Minister Arseniy Yatsenyuk has told parliament the country was "on the edge of economic and financial bankruptcy".

The US Senate and House of Representatives have both passed legislation backing a $1bn loan guarantee to Ukraine.

Russia's economic power lies in its key natural resources - oil and gas. The energy giant Gazprom is close to the Russian state and critics say it is little more than an economic and political tool of the Kremlin. NTV, a national television network, is also owned by Gazprom.

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