Bloomberg News

Ukraine-Russia Loan Talks Said to Be on Up to $15 Billion

December 16, 2013

Gas Control Valves sit on Pipework in Kiev

Gas control valves sit on pipework bringing gas from Russia at a substation in Kiev. Ukrainian President Viktor Yanukovych walked away from the EU deal after Russia, which supplies 60 percent of Ukraine’s natural gas and buys a quarter of its exports, threatened trade sanctions. Photographer: Vincent Mundy/Bloomberg

Ukraine is likely to get a discount for Russian natural gas of at least 25 percent from the price it now pays, according to Viktor Medvedchuk, a Ukrainian ally of Russian President Vladimir Putin.

“I believe that the gas price will be reduced,” Medvedchuk, who’s lobbying for Ukraine to join an economic bloc championed by Putin, said last week in his office in the center of Kiev, Ukraine’s capital. Russia may agree to cut the price by $100-$140 per 1,000 cubic meters from the current level of more than $400, he said. Shares in OAO Gazprom, Russia’s pipeline gas monopoly, rose to the highest in more than a month.

Putin and Ukrainian President Viktor Yanukovych meet tomorrow in Moscow, and there is a “big probability” that the two countries will sign a gas deal, Ukraine’s Energy Minister Eduard Stavytskyi said today in Kiev, declining to elaborate.

Ukraine, in its third recession since 2008 and with foreign-currency reserves at a seven-year low, is seeking a bailout to avoid a default and cheaper fuel to boost the economy. The country last month backed out of a trade deal with the European Union in favor of closer ties with Russia, which provides 60 percent of its natural gas, sparking the biggest protests in almost a decade.

Ukraine is in talks with Russia for a loan of as much as $15 billion, two people familiar with the negotiations said. Ukraine may receive as much as $5 billion this year, one of the people said. Russia’s Finance Ministry confirmed that the sides were negotiating a loan, without providing further details.

Loan Talks

Ukraine will probably get a loan should it be requested, said Putin’s chief economic aide, Andrei Belousov. Talks with the International Monetary Fund have stalled as the Washington-based lender demands Ukraine cut gas subsidies.

Russia would be able to help Ukraine without the conditions attached to an IMF deal, Medvedchuk said in comments cleared late Dec. 13 for publication. He briefed Putin after the Ukrainian government’s decision on Nov. 21 to pull out of the EU deal, Russian state television reported.

Gazprom will be able to compensate for a lower gas price by expanding supplies to as much as 40 billion cubic meters a year, making it unnecessary for Ukraine to seek other sources, such as shale gas, Medvedchuk said. Ukraine will buy 26 billion cubic meters of Russian gas this year, Prime Minister Mykola Azarov said Dec. 13. It imported 32.9 billion cubic meters last year, about three-fourths of which Naftogaz bought.

Above Expectations

“The $100-$140 discount is better than the $150 expected by the market, so there is a positive reaction in the stock,” Alexander Kornilov, an analyst at Alfa Bank, said by e-mail.

Gazprom shares rose as much as 2.4 percent and closed up 2.2 percent at 136.40 rubles in Moscow, the highest level since Nov. 14.

Ukraine owes Gazprom $2.02 billion for three months of gas supplies this year, Alexey Miller, the chief executive officer of the Russian company, said Dec. 4.

Putin’s spokesman, Dmitry Peskov, said a “substantial package” of agreements will be signed tomorrow, declining to comment on the contents. Gazprom, Ukraine’s state oil and gas company Naftogaz and Russia’s Energy Ministry each declined to comment on the possible gas deal.

Putin Ties

Medvedchuk, the head of the presidential administration under former Ukrainian leader Leonid Kuchma from 2002 to 2005, says Putin is his daughter’s godfather, and he has been seen with the Russian leader during informal events such as martial arts tournaments. His Ukrainian Choice movement is campaigning for the country’s integration into the Customs Union, a Moscow-led economic bloc.

Yanukovych walked away from the EU deal after Russia, which buys a quarter of its exports, threatened trade sanctions.

The Ukrainian president made a mistake by saying that closer EU relations have no alternative and was “slow to understand” the negative effects of a deal with the 28-nation bloc, according to Medvedchuk.

“I was promoting and I will continue to promote the Customs Union,” Medvedchuk said. “The opposition defends the IMF because, clearly, the worse it is for the country, the better it is for them. That’s unacceptable for Ukraine and its people.”

That stance has drawn criticism from leaders of the Ukrainian opposition, who accused him of being complicit in a crackdown on protesters. Medvedchuk called the allegations “absurd” and said that he has filed a lawsuit to counter them. While police attacking protesters in the early hours of Nov. 30 was illegal, demonstrators are violating the law by blockading the city center and seizing government buildings, Medvedchuk said.

“Yanukovych will not resign” before his current term ends in 2015, Medvedchuk said. He has “responsibility for everything” and must behave “like a president.”

To contact the reporters on this story: Ilya Arkhipov in Moscow at iarkhipov@bloomberg.net; Henry Meyer in Moscow at hmeyer4@bloomberg.net

To contact the editor responsible for this story: Balazs Penz at bpenz@bloomberg.net


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