Debt deadline

Ukraine must repay $729 million by evening

Today the repayment period for Ukraine's debt for Central Asian gas supplied in the summer expires. A month ago, the emergence of information about the newly accumulated debt once again heated up the situation between Kiev and Moscow and required the intervention of the Ukrainian authorities in negotiations between corporations involved in supplies. However, the parties again reached the deadline. If $729 million is not transferred by tomorrow, Gazprom, as promised, must reduce gas supplies to Ukraine. True, due to the complex payment scheme, these funds should not be received by the Russian gas monopolist, but by the Swiss trader RosUkrEnergo, through which supplies are supplied to the Ukrainian market. It is assumed that Gazprom should not have problems with the return of funds from RUE, since the concern owns 50% of the trader’s shares and, through the head of its legal department, Konstantin Chuychenko, controls the operational activities of the intermediary.

Gazprom buys Turkmen and Uzbek gas and resells it to RUE for supplies to Ukraine. The second half of the intermediary’s shares belongs to the company Centragas, controlled 90% by businessman Dmitry Firtash. RUE supplies gas destined for the Ukrainian market at the Russian-Ukrainian border. The exclusive importer is the specially created joint venture Ukrgazenergo (50% of the shares are owned by RUE, 50% by the state company Naftogaz of Ukraine). Next, the joint venture sells gas to industrial enterprises, and also sells about 20 billion cubic meters per year to Naftogaz structures for the needs of the gas transportation system and supplies to housing and communal services enterprises. A significant part of the debt accumulated due to non-payments on the part of Naftogaz, which did not transfer more than $700 million to Ukrgazenergo. Ukrgazenergo itself was late in payments by $1.029 billion, owing an additional $300 million on its own initiative.

After Gazprom threatened shutdowns at the end of September, the Ukrainian Ministry of Fuel and Energy took upon itself to solve the problem. The head of the department, Yuri Boyko, traveled to Moscow several times, and in the end a simple repayment scheme was approved. Ukrgazenergo independently finds and transfers $300 million by October 22. Then Gazprom gives Naftogaz an advance for gas transit in the fourth quarter of 2007 in the amount of about $500 million. The Ukrainian concern takes out a loan for another $200 million and closes its debt to Ukrgazenergo.

The first phase of the settlement was successful: RUE received $300 million in several tranches. And last Monday, Mr. Boyko announced at a press conference that the planned settlement schedule would be fulfilled, and promised that an advance payment from Gazprom would be made on October 30 for transit: “We will return it as payment for gas and this will probably be the end of all payment for the gas that is in our storage facilities.”

However, yesterday it was not possible to find confirmation that Gazprom transferred the money. The concern did not comment on this topic. The fate of another $229 million that Naftogaz was supposed to raise from outside remains unclear. A Vremya Novostey source close to the company reported that Naftogaz did not take out loans to pay off the debt. The Ministry of Fuel and Energy claims that the issue will be closed, as Mr. Boyko promised. But they refuse to disclose details.

Naftogaz of Ukraine really has little chance of getting money on the market. The company missed the deadline for reporting according to international standards to holders of $500 million bonds issued in 2004, and now must think about how not to urgently have to pay off these securities. At the same time, the company will have to immediately return incoming payments for transit until the end of the year as debt. Against this background, Mr. Boyko’s words about improving the financial position of Naftogaz are not very convincing.

It is possible that the honor of repaying $229 million to RUE will fall to Ukrgazenergo, whose financial position is much better. The company practices 100 percent prepayment for gas and has the ability to borrow such a small amount for its turnover (about $8 billion per year) on the market. Representatives of Ukrgazenergo were unavailable for comment yesterday.

Alexey GRIVACHS