Following seven rounds of gas negotiations moderated by Günther H. Oettinger, Vice-President of the European Commission, Russia and Ukraine have reached an agreement on a 4.6 billion dollar winter package that will secure gas for Ukraine and ultimately for Europe, the European Commission said in a statement.

“With our strong support, Ukraine and Russia have today found agreement on their outstanding energy debt issues, and on an interim solution that enables supplies to continue this winter. I am glad that political responsibility, the logic of cooperation and simple economic sense have prevailed,” said José Manuel Barroso, the outgoing President of the European Commission.

“This is an important step for our shared energy security on the European continent. There is now no reason for people in Europe to stay cold this winter. I expect all parties, both suppliers and transit countries, to fully abide by the rules they have now agreed together and act as reliable partners. It is obvious that no one would stand to gain from a potential disruption. Fruitful energy relations are a two-way street,” he said.

“I am also hopeful that this agreement can contribute to increase trust between Russia and Ukraine, which is so fundamental for a full implementation of the Minsk agreements,” Barroso said, adding that “this must now be the priority.”

Günther H. Oettinger, Vice-President of the European Commission, said that the deal ” will not only make sure that Ukraine will have sufficient heating in the dead of the winter. It is also a contribution to the de-escalation between Russia and Ukraine.”

The winter package consists of two documents:

  1. A binding protocol, signed by the European Commission (Vice-President Oettinger), the Russian Federation (Energy Minister Alexander Novak) and Ukraine (Energy Minister Yuri Prodan);
  2. An addendum to the existing gas supply contract, signed by Gazprom of Russia (CEO Alexey Miller) and Naftogaz of Ukraine (CEO Andriy Kobolyev);

The package covers the period from now until the end of March 2015 and includes the following main points:

  1.  Debts: Ukraine would settle its debts based on a preliminary price of $268,5/ 1000m3 by making payments in two tranches: 1,45 billion dollar without delay, and 1,65 billion dollar by the end of the year 2014. This adds in total up to 3,1 billon dollar of debt payment. The final price and thus the final sum of debt will be determined through the pending arbitration by the Arbitration Institute of the Stockholm Chamber of Commerce between Gazprom and Naftogaz.
  2. New gas: Russia will deliver gas following advanced, monthly payments by Ukraine. The price is below $385/ 1000m3 and calculated according to a formula in the present contract and a price reduction through a discount in export duties by the Russian Federation. Ukraine is free to order as much gas as it needs and is not subject to take-or-pay obligations foreseen in the current contract. Ukraine foresees to purchase 4 bcm until the end of the year 2014, meaning 1,5 billion dollar.

In the last weeks, the European Commission has been working intensively with the International Financial Institutions (IFI) and Ukraine to help Ukraine prepay for deliveries of gas in the coming winter.

Unprecedented levels of EU aid will be disbursed in a timely manner, and the International Monetary Fund (IMF) has reassured Ukraine that it can use all financial means at its disposal to pay for gas. Further work with the IFIs on financial assistance to Ukraine, also in relation to gas supplies, will still continue, but all three sides are reassured that Ukraine will have the necessary financial means.

Watch the signing ceremony and press conference as recorded on Europe by Satellite (EbS)