By Yulia Sobko, Head of Financial Communications and Investor Relations, The PBN Company, Kyiv

A Russo-Ukrainian gas dispute has, since 2005, been a recurring winter event that threatens serious repercussions for EU gas supplies. This year, however, the annual disagreement has been worse than ever, rearing its head each month and even dragging on into the summer. This situation has not only caused irrevocable damage to both Ukraine and Russia’s international image, but also has serious economic consequences that have been exacerbated by the recession.

Ukraine, which continues to be fully reliant on Russian gas, has been hard hit by the credit crunch and has severe budgetary problems. A revised supply deal signed in January gave Gazprom more favorable terms, and Ukraine is already in arrears on its gas payments.

In early June, Naftogaz, the Ukrainian gas supply company, said it will struggle to pay future bills and that it needs to raise a whopping $4.2 billion. Given that Russia supplies 25% of EU gas, and 80% of those supplies flow to Europe through Ukraine’s pipeline network, Ukraine was hoping for European funding to meet its obligations. It also put forward an alternative supply proposal in which the European gas companies supplied via Ukraine would pay Russia directly and then ‘store’ their gas in Ukraine, eliminating Naftogaz as the financial middleman. German utility RWE expressed interest in the idea and said it has put proposals on the table. However, Germany’s biggest gas company, E.ON Ruhrgas, has ruled out the idea. European industrial group Eurogas said it was still consulting its members and could not yet gauge their response.

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