Russia cut off gas supply to Ukraine over the due payment

Jun 17, 2014 18:45 IST

Russia on 16 June 2014 cut off all gas supplies to Ukraine over the due payment. Energy Minister of Ukraine Yuri Prodan confirmed that the Gas supplies to Ukraine have been reduced to zero.

After a while, both Gazprom and Naftogaz filed lawsuits against each other at the International Council Commercial Arbitration (ICCA) in Stockholm.

Gazprom maintained that supply was halted because Ukraine has failed to settle its huge debt. Gazprom asked from Ukraine's state gas firm Naftogaz to pay 1.95 billion US dollar out of the total debt of 4.5 billion US dollar owed by Naftogaz to Gazprom.

On the other side, Naftogaz alleged Gazprom that it seek to recover 6 billion US dollar in overpayment for gas since 2010. Further, Ukraine refused to clear its debts completely in protest at Gazprom's recent 80% price increase.

Ukraine's discounted rate for gas was axed in April 2014 after Russia accused Ukraine of failing to pay its bills. Ukraine's gas bill was 268 US dollar per 1000 cubic metres until April 2014. The price is now 485.50 US dollar.

Ukraine was ready to make the 1.95billion US dollar payment if Russia cut its price to 326 US dollar, but Russia maintained 385 US dollar as the final offer.

Analysis

Russia-Ukraine ties remain tense since Moscow annexed Crimea in February 2014. The move to cut off gas supply will affect the Europe as about 15% of the EU's gas supply is Russian gas piped through Ukraine.

Although, Russia will continue to supply gas to Europe but Gazprom chief Alexei Miller warned there were significant risks for gas transit to the EU via Ukraine.

However, EU Energy Commissioner Guenther Oettinger said he was not pessimistic about a deal.

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