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Gas Talks: Ukraine Can't Pay, and Russia Won't Send Gas Until They Do

Its a very simple concept, familiar to anyone who regularly pays a utility bill.

This post first appeared on Russia Insider

It is high noon again in the Russia/Ukraine gas talks with another meeting fixed for today amidst more threats of cut-offs and talk of compromises. 

Most people think this subject is very difficult.  Actually it is very simple.  It can be summed up in three words: Ukraine can’t pay.

<figcaption>A novel concept for Kiev, pay for your gas or we shut if off...</figcaption>
A novel concept for Kiev, pay for your gas or we shut if off...

A lot of people miss the point because they think (as the Ukrainians want them to think) that the argument is about price.  It is not.  The Russians offered a discounted price of $385/1,000 in June and after first rejecting it the Ukrainians have now accepted it. 

The argument has never been about price.  The problem is that the Ukrainians don’t pay whatever the price.  At the start of the year the Russians lowered the price to $269/1,000 and loaned Ukraine $3 billion to clear its gas debts.  But Kiev spent the money on other things, and didn't pay a penny of its debt, which is why the Russians raised the price and cut the gas off and say they will now only provide gas if Ukraine pays for it on delivery

If you don’t pay, your gas company cuts you off and refuses you credit.  That is the situation Ukraine is now in.

Ukraine can’t pay for the gas because it doesn’t have the money.  Ukraine’s gas debt is $5.5 billion.  The Russians have offered to reduce it to $4.5 billion.  Ukraine currently only has $3 billion.  It cannot pay the whole debt and if it uses all the $3 billion to pay some of the debt it won’t have the money to pay for future gas.

The way out of this is for someone to give Ukraine the money or more credit.  The Russians say they won’t because Ukraine already owes them $11 billion including the $5.5 billion gas debt and doesn’t pay its debts.  The Russians say the EU should give Ukraine the money.  So far the EU has said no.

That is where things now stand.  The talks are to see if there is a way round.  If not Ukraine’s gas will remain cut off. 

Ukraine currently has enough gas in store to see it through till January.  At that point the gas starts to run out.  

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