The European Union’s executive is to summon international lenders to Brussels this week to discuss if they can help Ukraine pay for Russian gas destined for the EU, European Commission President Jose Manuel Barroso said on June 19.
The Brussels-based body “intends to host a meeting next (this) week with representatives of the international financial institutions, European gas companies and EU member states to look at whether a short-term package of ‘stop-gap’ funding can be put together,” Barroso said at the end of an EU summit in Brussels. “In the medium term, we have to continue to probe for a sustainable solution which delivers gas reliably via this route,” Deutsche Presse-Agentur (dpa) quoted him as saying. “We must not sleep-walk into another crisis. There is a risk of another crisis in weeks, not months,” he warned.
Ukraine usually buys natural gas from Russian in the summer, stores it underground and sells it on to EU customers in the winter. But under the impact of the current financial crisis, Ukrainian officials say they will need a loan of some USD 4.2 billion to buy that gas - otherwise Europe will go cold this winter. “The amount being requested does not exist in the EU budget,” Barroso stressed.
In January, a row between Russia and Ukraine over allegedly unpaid bills led to two weeks of gas cut-offs across a swathe of Central and Eastern Europe. The warning that another crisis could come as soon as early July has alarmed EU members.
The summit on June 19 stressed that the EU “is convinced that all parties will honour their commitments,” the leaders of the bloc’s 27 member states said in a joint declaration. But the EU is already pushing for the construction of new gas pipelines across Turkey to Azerbaijan and the Middle East, in a bid to reduce its reliance on Russian gas. A quarter of the gas burned in the EU currently comes from Russia. Eighty percent of it flows through Ukrainian pipelines.
German Foreign Minister Frank-Walter Steinmeier on June 17 warned of a new flare-up in the Russian-Ukrainian gas conflict, and possible reductions in energy supplies to Europe.
Berlin’s top diplomat, visiting the Ukrainian capital Kiev with Polish Foreign Minister Radoslaw Sikorski, called for renewed efforts to head off an impending impasse. “We are together here in Ukraine, in order to at least make the attempt, to prevent another gas supply crisis. Whether that will be successful or not, we both can’t yet say,” Steinmeier said to reporters in Kiev, alongside Sikorski. “There are pressing interests to prevent  another gas supply conflict,” Steinmeier added. Ukrainian Prime Minister Yulia Tymoshenko and President Viktor Yushchenko should work “at the very least towards cooperation,” in order to meet terms for further international financial aid needed to head off another (gas) conflict,” Steinmeier said.
Germany and Poland in April began an EU programme to assist Ukraine with its financial difficulties, to prevent a second Russian cut-off of gas supplies to Ukraine. Polish, German, and Ukrainian officials were discussing a possible four billion dollar loan to Ukraine to be made available by the end of June, officials from Tymoshenko’s office said.
Steinmeier and Sidorski on June 17 also met with Yushchenko as well as former Prime Minister Viktor Yanukovich, the leader of Ukraine’s opposition Regions Ukraine political party. “I am sure that Ukraine will provide Europe stable deliveries of fuel and energy resources; the gas and oil will keep going to Europe,” Yanukovich said.
Steinmeier and Sidorski promised to work hard on obtaining for Ukraine further financial assistance, but during meetings with reporters in Kiev both said Ukraine must meet “political conditions.”
Meanwhile, Tymoshenko on June 19 said Ukraine will top off its natural gas reserves during the summer with increased purchases from Russia.  The former Soviet republic will spend USD 250 million on increased imports in July, and as much as a USD one billion in August and September combined, so that underground reservoirs are near maximum capacity before the onset of cold weather, Tymoshenko said, according to Interfax.
Tymoshenko spokesmen on June 15 predicted Ukraine’s state-owned natural gas transport company Naftogaz Ukrainy, the firm responsible for Ukraine’s gas pipeline system, could go bankrupt in a matter of weeks, without approximately USD 600 million in emergency loans to cover a mounting debt to Russia.
Large-scale gas purchases were best made immediately, Tymoshenko said, as the price of natural gas sold to Ukraine from Russia is pegged to the price of crude oil, which has been rising steadily.
Interfax quoted a government official as saying on June 18 that a critically-needed tranche of an International Monetary Fund (IMF) loan for Ukraine to pay its gas bill to Russia is “in jeopardy.” The Ukrainian government of Tymoshenko has failed to provide the IMF with updated budget deficit and GDP data, making any more credit from the fund impossible, an unnamed senior administration official told the Ukrainian news agency.
An IMF internal memo obtained by Interfax says the Tymoshenko government was in particular dragging its feet on providing the IMF detailed information on the finances of Naftogaz. The lack of recent Ukrainian macroeconomic data to the IMF “placed in jeopardy” further tranches of an emergency 16.5 billion loan programme initiated by the Fund in November, with half of the credits yet to be paid out. A June 24 visit by IMF staff to Ukraine will not take place and thus prevent the fund from issuing any more money if Ukraine’s government were to continue its tardiness on economic information, according to the report.
According to Urkainian media reports, Naftogaz’s finances are already are a approximately USD half billion in arrears due to mismanagement and a Tymoshenko government policy of price caps on domestic gas prices.