Russia’s threat to reduce gas to Ukraine, the main transit country for its European Union customers, has been put on ice while Russia and Ukraine consider proposals put forward by the European Commission. No time limit has been put on the internal consultations but the international talks, which are being mediated by the European Commission, could resume over the next week.

This is the second deferral of a Russian threat to reduce supplies starting 1 June. The postponements followed two meetings in the past week chaired by Günther Oettinger, the European commissioner for energy. After the first meeting, in Berlin on Friday (30 May), Ukraine paid Russia $786 million (€578m) to clear its bills for the first quarter of this year. The two sides still need to agree on a price for gas supplied to Ukraine last November and December and this April and May.

Oettinger said after a second meeting, on Monday (3 June) in Brussels, that he was pushing for a one-year deal to run to mid-2015, ensuring no interruption of supplies of Russian gas over the winter. According to the European Commission, two-thirds of Russian gas supplies to the EU pass through Ukraine. In addition to settling the issue of Ukraine’s debt, the one-year deal would require Russia to establish a “normal commercial contract”, by dropping its recent insistence that Ukraine pay for gas in advance. It would also set a price for Russian gas at between $268 per thousand cubic metres – Ukraine’s demand – and $485, the price that Russia is calling for and the price cited in the invoices that Ukraine has yet to pay.

Price fluctuations
In the bills that Ukraine has paid, the price was $268, reflecting a price discount that Russia gave Ukraine in December after its then president, Viktor Yanukovych, decided not to sign a political and trade deal with the EU. After Yanukovych fled Kiev in February, Russia reverted to a price, $485, set in a contract signed with Ukraine in 2009.

The 2009 deal fitted a pattern in which Russia’s closest neighbours pay more than Russia’s western European customers. In mid-May, Lithuania announced that it had persuaded Russia to lower its gas prices by 20%. Lithuania has not disclosed the new price. Ukraine signed the 2009 deal after Russia’s decision the previous winter to cut gas supplies, a move that also affected European consumers.

In a bid to allay EU concerns about the reliability of energy supplies through Ukraine, Kiev has been suggesting a change in contracts struck between Russia’s Gazprom and its EU customers, so that the contracts would state that the point of delivery is Ukraine’s eastern border rather than the EU’s border with Ukraine. Under that arrangement, agreements for the gas’s transit across Ukraine would be struck between Ukraine and EU customers rather than between Ukraine and Russia. That proposal is not part of the current negotiations on Ukraine’s gas debt and price, officials say.

Ukraine has threatened to refer the question of gas prices to international arbitration. Its energy minister, Yuriy Prodan, last week also said that Ukraine was preparing a legal case against Russia over its annexation of Crimea in March, a process that saw Russia take over Ukrainian companies, pipelines and stocks of stored gas.