Here We Go Again: Ukraine Asks For a Russia Gas Discount

Ukraine's request confirms its lack of money and suggests it has given up on its court case against Russia. Russia however may not be willing to grant another discount if Ukraine defaults.

Mon, May 25, 2015
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He'll switch it off if told

Latest reports confirm Ukraine has asked Russia to extend the discount it granted Ukraine last year for the gas Russia supplies Ukraine.

That Ukraine should make such a request proves several things.

First, it shows what everyone knows: Ukraine is desperately short of money.  

It struggled to get through the winter even with the gas discount from Russia.  In the event, it just about made it, helped by an unusually warm winter, and the collapse of production by Ukrainian industry, which will have caused energy consumption to fall.

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Nonetheless many power cuts took place, in part because Ukraine ran out of coal as Ukraine’s key coal producing regions now lie inside the Donetsk and Lugansk People’s Republics with which Ukraine is in a state of war.  

Attempts to import coal from places like South Africa were a fiasco, and Ukraine was forced to turn to Russia again for help, this time for coal. Though the fact is being hidden from the Ukrainian and Western publics, it was coal and electricity from Russia --- supplied without prepayment --- that enabled Ukraine to pull through the winter.

Since then Ukraine’s payments for Russian gas have come in dribs and drabs, in small amounts, right on the eve of delivery, emphasising the extent to which Ukraine now lives from hand to mouth.

The second point about Ukraine’s request for an extension of the gas discount is that it suggests Ukraine has given up hope of winning its case in the Stockholm Tribunal either this year or perhaps at all.

Whether the Russians will be willing to extend the gas discount is another matter. The offer of the discount last year came amidst the negotiations that led to the Minsk Protocol in September. It was also made in the context of Ukraine’s negotiations with the IMF to stabilise its economy.

As of now, Ukraine is not carrying out the commitments it made under the peace deal that was agreed in Minsk in February. The IMF plan announced last year has failed. Ukraine has just passed a law that prepares the ground for default.

If Ukraine does indeed default --- or defaults selectively on the debts it owes Russia --- then it is difficult to see Russia granting a discount for the gas it supplies Ukraine, given that a discount is in a sense a form of credit.

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