Tags: gas | Crimea | Putin | Ukraine

Russia Calls In $2 Billion Gas Debt as Ukraine Digs In on Crimea

Friday, 07 Mar 2014 11:30 AM

 

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Russia said Ukraine must pay off almost $2 billion it owes it for natural gas by today and signaled it may cut supplies, ratcheting up the pressure on its cash-strapped neighbor as the two nations scrap over the future of the Black Sea Crimea region.

Ukraine hasn’t made its February fuel payment and owes Russia $1.89 billion, according to gas export monopoly OAO Gazprom, which halted supplies to Ukraine five years ago amid a pricing dispute, curbing flows to Europe. Earlier, lawmakers in Moscow said they’d accept the results of a March 16 referendum on Crimea joining Russia as Ukrainian Prime Minister Arseniy Yatsenyuk reiterated that his cabinet deems the vote illegal, saying the region can’t secede.

“We can’t supply gas for free,” Gazprom Chief Executive Officer Alexei Miller said in the statement. “Either Ukraine pays off its debt and pays for current deliveries or there’s a risk of a return to the situation we saw in 2009.”

Already racing to seal a bailout, Ukraine is struggling to keep hold of Crimea after pro-Russian forces seized control of it in the wake of Moscow-backed Viktor Yanukovych’s ouster as president. The standoff over the peninsula, once part of Russia and home to its Black Sea Fleet, prompted Western governments to hit President Vladimir Putin with sanctions as the crisis rekindles memories of the Cold War and rattles markets.

‘Urgent’ Aid

Ukraine is a key transit nation for Russian gas to Europe, whose passage was halted for about two weeks in 2009 amid a dispute over prices and transit between the neighboring nations.

Ukrainian Energy Minister Yuriy Prodan said March 1 that Russia was supposed to lend it $2 billion to repay its gas debt. “Since Russia hasn’t provide the funds, we can’t say when we’ll be able to pay.”

As Gazprom released its statement, Yatsenyuk was meeting in Kiev with an International Monetary Fund mission over a bailout. The country needs “urgent” financial aid, he said on the government’s website.

The Washington-based lender is prepared to support Ukraine’s program for economic change and is impressed by the government’s commitment, European department director Reza Moghadam said in a statement.

Ukraine’s international bonds due in June fell 1.3 percent to 91 cents on the dollar, increasing the yield 6.5 percentage points to 49.633 percent. The hryvnia rose 1 percent to 9.11 per dollar, data compiled by Bloomberg showed.

Economic Pain

Ukraine’s economy is suffering after three months of street protests toppled Yanukovych, killing at least 100 demonstrators and policemen along the way. While Russia halted disbursement of a $15 billion rescue package after Yanukovych fled to Moscow, Europe and the U.S have pledged financial aid.

The European Commission, the European Union’s executive arm, this week outlined an 11 billion-euro ($15 billion) package of loans and grants for the coming years tied to the government in Kiev agreeing on an IMF loan. The U.S. House of Representatives approved a bill to allow $1 billion in loan guarantees for Ukraine sought by the Obama administration.

Ukraine’s political crisis was sparked when Yanukovych rejected an EU integration pact in November in favor of a $15 billion bailout from Russia, which opposed the deal. The focus has now shifted to the separatist mood in Crimea.

‘Kalashnikov’ Pressure

Former Ukrainian Premier Yulia Tymoshenko, who was jailed under Yanukovych’s rule, said any referendum on the region would have to include all Ukrainians and can’t be conducted in the presence of Russian forces. The vote offers a choice between continued autonomy within Ukraine and joining Russia.

“Today there are well-armed Russian troops,” she said at a conference in Dublin before going to Berlin for medical treatment. “I would like to ask whether one can have an open referendum under the Kalashnikov.”

Yatsenyuk told reporters in Kiev today that the international community won’t recognize the referendum. “I want to be very clear: Crimea was, is and will be an integral part of Ukraine. No concessions. Full stop.”

Russia’s parliament will discuss a bill that would pave the way for the switch this month. Both houses said today they’d back the move, which has drawn rebukes from the West as Putin heads to the Black Sea resort of Sochi to open the 2014 Paralympic Games.

Russia’s Role

The EU and the U.S. accuse Russia of being behind the separatist unrest in Crimea, a claim Putin’s spokesman, Dmitry Peskov, denied again today. The West has urged Russia to pull back, and began yesterday to impose sanctions.

The U.S. banned visas for Russian officials and others it said were complicit in violating the sovereignty of the ex-Soviet republic of 45 million. U.S. President Barack Obama signed an order authorizing financial sanctions, while EU leaders halted trade and visa talks with Russia and threatened punitive economic measures.

If Russia doesn’t back down, it risks “serious consequences from Europe,” French Foreign Minister Laurent Fabius said today on France Info radio. The U.S. and allies including Japan this week halted preparations for the Group of Eight summit planned for June in Sochi.

Putin and Obama hold differing views on the crisis, though U.S.-Russia relations shouldn’t be sacrificed, the Kremlin said in an e-mailed statement on the leaders’ conversation. Russia says the armed men who’ve seized critical infrastructure in Crimea are acting independently amid perceived threats to Russian speakers following the change of power in Kiev.

President Deposed

Yanukovych fled for Russia days after signing an EU- brokered peace accord to stem three months of anti-government protests that left at least 100 demonstrators and police dead. He says he was forced to leave amid threats to his life and claims to still be Ukraine’s true leader, a view Russia shares.

Lawmakers in Crimea voted yesterday in a non-binding measure to become part of Russia if voters agree in the referendum. They also asked Putin to begin drafting procedures for making the province a part of the Russian Federation, the state-run Crimean Information Agency reported. The move would reverse the 1954 transfer of Crimea to the Ukrainian Soviet Socialist Republic by Soviet leader Nikita Khrushchev.

People who identify themselves as ethnic Russians comprise 59 percent of Crimea’s population of about 2 million, with 24 percent Ukrainian and 12 percent Tatar, 2001 census data show.

Russia has 16,000 troops in Crimea, according to the Russian ambassador to the UN, Vitaly Churkin. Ukrainian border guards put the number at 30,000, the Interfax news service said today. Refat Chubarov, leader of the executive body of Crimea’s Tatar population, called yesterday for a United Nations peacekeeping mission to ease tensions.

The U.S. sent six F-15 fighter jets to Lithuania and will dispatch 12 additional F-16s to Poland, the two countries’ defense ministries said yesterday. The U.S. Navy sent the guided-missile destroyer USS Truxtun into the Black Sea in what it called a routine visit unrelated to events in Ukraine.

© Copyright 2014 Bloomberg News. All rights reserved.

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