11 Aug 2009 14:52

Naftogaz continues talks with Gazprom on reducing gas purchases in 2010 - source

KYIV. Aug 11 (Interfax) - Naftogaz Ukrainy has initiated the process of reducing the amount of gas it is contracted to buy from Gazprom in 2010, a source in the Ukrainian government told Interfax.

"The talks are proceeding. The latest round, in which Naftogaz Ukrainy's management participated, was held in Moscow late last week," the source said.

Under the terms of the gas contracts running to 2019 that were signed in January, each party has the right to initiate review of individual provisions, including prices and volumes of deliveries or transit. The proposals must be submitted in writing after which the two sides have 20 days to enter into talks on the matter, which can last up to three months.

In the case of delivery volumes, the proposal must be submitted before July 1 of the year preceding the year in which the change will apply, the source said, adding that Naftogaz had met that requirement.

Under the take-or-pay provisions in the contract on deliveries, Naftogaz must accept at least 80% of the contracted amount for the year. Naftogaz is contracted to receive 52 billion cubic meters (bcm) in 2010. Thus, it is obligated to purchase at least 41.6 bcm next year.

Commenting on press reports that Ukraine forecasts the price for Russian gas in 2010 at $275 per 1,000 cubic meters and the transit rate at $2.65 per 1,000 cubic meters per 100 kilometers, the source said the import of those figures should not be exaggerated. "The contract specifies the formula for determining the gas price and the transit rate based on oil product prices. Those figures were reckoned based on the forecast that there will no be substantial fluctuations in the price of oil," he said.

Ukraine has already announced it wants to reduce import volumes in 2009 to 33 bcm from the contracted 40 bcm. It wants to contract just 33-35 billion cubic meters for 2010 because demand is forecast to be depressed due to the crisis.

Naftogaz has violated the contract virtually every month this year, taking receipt of less gas than contracted. The contract called for delivering 5 bcm in the first quarter, 10 bcm in the second, 12.5 bcm in the third and 12 bcm in the fourth. Naftogaz actually imported 2.8 bcm in the first quarter, 2.3 bcm in April, 2.38 bcm in May and about 1 bcm in June.

The low level of imports in the first half - about 8.5 bcm - gives Gazprom grounds to seek penalty payments from Naftogaz, which Ukrainian President Viktor Yushchenko estimated at 40 billion hryvnia ($5.25 billion).

Gazprom and the Russian government have said they will not pursue penalty payments, and Naftogaz plans to meet its commitments under the take-or-pay provision by boosting full-year imports to 33 bcm, which would require purchasing 23.5-24.5 bcm in the second half or about 4 bcm each month.

Naftogaz took delivery on about 3 bcm of Russian gas in July. Analysts said Ukraine is shifting the bulk of imports to the second half in anticipation of lower prices. It paid $360 per 1,000 cubic meters for gas in the first quarter, $271 in the second and $198 in the third quarter. Prices are expected to be lower still in the fourth quarter.

The official exchange rate on August 11 was 7.71 hryvnia/$1.