Ukraine Liveblog Day 255: Russian Gas Deal In Doubt

October 30, 2014

Yesterday’s liveblog can be found here. An archive of our liveblogs can be found here. For an overview and analysis of this developing story see our latest podcast.

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For links to individual updates click on the timestamps.

For the latest summary of evidence surrounding the shooting down of flight MH17 see our separate article: Evidence Review: Who Shot Down MH17?

Below we will be making regular updates so check back often.

Gas Deal Reached, But Some Details Disputed

RFE/RL is also reporting that a gas deal has been reached, but they are reporting a totally different price than what ITAR-TASS reported earlier:

On October 30, ahead of a second day of negotiations in Brussels, Prime Minister Arseniy Yatsenyuk said payment for previous gas deliveries worth $1.45 billion will be paid soon after the protocol is signed.

He said the remaining $1.65 billion debt would be paid by year end.

Yatsenyuk said the price for up front payments would be lowered from $385 per 1,000 cubic meters to $378 this year and $365 next year.

As we reported a little while ago, TASS is reporting that Yatsenyuk only agreed to pay $268 per 1,000 cubic meters of gas, far less than the figures reported by RFE/RL, but still less than the $485 Gazprom wanted to charge back in April.

Ukraine’s Economy Shrinks Less Than Some Predicted

Ukraine’s economy was in tough shape before the revolution in February, which is one of the drivers of the Euromaidan protests in the first place. Since then Ukraine has had to deal with political instability, war, and great uncertainty about their supply of natural gas.

But Kyiv Post is running an analysis right now which suggests that losses in the third quarter of this year have been less severe than some analysts predicted:

Figures released by the State Statistics Service on Oct. 30 reveal that the 45-million nation’s economic decline in the third quarter was 5.1 percent in year-on-year terms, compared to 4.6 percent in the second quarter, amid war with Russia in the easternmost oblasts of Donetsk and Luhansk.

Taking the third quarter separately, it experienced a 2.1 percent contraction over the second quarter. Performance of the Crimean economy is no longer in the statistics since Kyiv lost the peninsula to the Russian Federation in March.

The International Monetary Fund in Washington D.C. expects Ukraine’s gross domestic product to drop by 6.5 percent this year and to grow 1 percent in 2015, while the National Bank of Ukraine foresees 2014 contraction to be at 8.3 percent.

Analyst Timothy Ash of South Africa’s Standard Bank said the forecasts might be reviewed as third quarter figures are better than expected. He called the 5.1 percent drop in GDP the “equivalent to growth in the Ukrainian context” in an e-mailed statement to investors.

Read the entire analysis here.

‘Apparently We Have a Deal’

Reuters is now optimistic that a Ukrainian/Russian has deal has been reached:

European Commission President Jose Manuel Barroso, in a passing comment during formal remarks ahead of his departure from office on Friday, said: “Apparently we have a deal.”

Andriy Kobolev, head of Ukraine’s state-run gas company Naftogaz, said: “Today there is a chance of an ‘interim winter package’ being signed in trilateral format. A high probability.”

A source familiar with the Russian negotiators’ movements told Reuters that Energy Minister Alexander Novak and Alexei Miller, the head of state gas firm Gazprom, were flying back.

Russia’s Itar-Tass news agency quoted a source saying their return “allows us to hope that an agreement will be concluded”.

Arseniy Yatsenyuk, Ukraine’s Prime Minister, announced at a meeting today that Ukraine will pay $268 per 1,000 cubic meters of gas which has already been supplied, significantly cheaper than the $485 Gazprom wanted to charge Ukraine back in April. ITAR-TASS reports:

“We are ready to pay the price of $268 for the already supplied gas,” he said, adding that Kiev had funds for that in the amount of $3.1 billion.

“We will pay $1.450 billion right after the signing of the trilateral protocol between Ukraine, Russia and the EU, and $1.650 billion more by the end of the year,” the prime minister concluded.

Simon Ostrovsky Reports On Elections Near The War’s Frontline

Reporter Simon Ostrovsky has made this report about the elections from one of the towns closest to the fighting:

On October 26, parliamentary elections were held in much of Ukraine — including long-embattled areas in the east. Wary of interference from separatists, armed guards manned polling stations and escorted completed ballots to ensure their safety. Turnout in the region was low, however, as residents appeared reluctant to vote. And in the rebel-held Donetsk People’s Republic, elections weren’t held at all — on November 2, pro-Russia separatists there will hold their own elections in hopes of legitimizing their self-proclaimed republic.

VICE News correspondent Simon Ostrovsky spent Election Day visiting candidates, polling stations, and an electoral commission to find out how the political process was progressing amid the heightened levels of tension.

Fighting, Shelling, Casualties, And Tensions All On The Rise

If you closely follow The Interpreter you should by now note a trend — for several weeks things were getting less tense and there was less fighting, less shelling, fewer casualties, and decreased tensions between Moscow and Kiev as a result. No, the conflict has never been truly frozen, and the ceasefire has never been fully implemented, but all signs indicated that things were at least getting better ahead of Ukraine’s elections.

Since Sunday’s election that trend is now over, and each day brings more alarming headlines. Below are the tweets from the Ukrainian National Security and Defense Council, the summary of their morning press conference:

7 dead and 11 wounded? This represents a significant escalation in casualties in less than one week.
As we reported below, the self-appointed Prime Minister of the self-declared ‘People’s Republic of Donetsk’ has announced his intentions to retake Mariupol from the Ukrainian military.

Earlier today we also verified the location of a video which claims to show Grad rockets belonging to Russian-backed separatists.

The bottom line: The ceasefire in Ukraine has always been strained and frequently broken, but now, even though it’s not making headlines internationally, the ceasefire could be in danger of completely shattering.

Ukraine And Russia Close To a Gas Deal?
We opened today’s liveblog with a report from Reuters which suggested that a gas deal between Russia and Ukraine was falling apart (read our update for background on the standoff). Financial Times is now reporting that a deal may be happening:

FT reports:

Officials said after all-night talks that broke up at 4am Thursday morning, three separate texts were sent back to Kiev and Moscow — including a new bilateral treaty between the two countries and a commercial agreement between Russian gas monopoly Gazprom and its Ukrainian counterpart, Naftogaz — for a final review before signatures are affixed.

EU officials said they believed the deal was all but completed after the most complicated issue — how to convince Kiev it would actually receive the prices Moscow was promising — was resolved.

“Apparently we have an agreement that the Commission mediated between Russia and Ukraine,” said José Manuel Barroso , the outgoing European Commission president.

Talks intended to finalise the deal are due to restart in Brussels at 9pm.

Leader Of ‘Donetsk People’s Republic’ Announces Plans To Attack Mariupol

The Interpreter has translated a report from Gazeta.Ru in which the self-appointed Prime Minister of the self-declared ‘People’s Republic of Donetsk’ announces his intentions to attack and retake Mariupol, a port on the Sea of Azov:

Aleksandr Zakharchenko, the prime minister of the self-proclaimed Donetsk People’s Republic, announced that his forces plan to take over the city of Mariupol, reported, citing RIA Novosti.

At an election campaign meeting today October 30, Zakharchenko told supporters, “We are negotiating with Mariupol, they don’t want peace. If it doesn’t work out peaceful, we’ll take it by force,” he said. Earlier, commanders at DPR headquarters announced their intentions to take Slavyansk and Kramatorsk along with Mariupol.

Geolocated Video Shows Russian-Backed Militants Rolling Grad Rockets Toward Donetsk

This video, uploaded today, reportedly shows a series of Grad rocket
systems in Makeyevka, east of Donetsk on the road through Torez and
ultimately on to Russia (found on LiveUAMap).

UPDATE: This video was removed from YouTube by the original uploader, so we have substituted a copy.

We have definitively geolocated this video, thanks in part to a sign for the clothing store Odezhka iz Tamozhki (map).


This means that the vehicles are well within territory controlled by Russian-backed militants, and are moving west toward Donetsk — the front lines.

The location is verified, but we cannot confirm the date that the video was uploaded, but we have been unable to find another instance of this video uploaded before today.

Gas Deal With Russia May Not Be Reached

It could be a cold winter for Ukraine. Easily forgotten in all of the talk about war and revolution is that Ukraine’s economy is weak and Ukraine owes Russia a lot of money for natural gas in a dispute that has roots far deeper than this current crisis. As the current crisis deepened, Russia increased the price of natural gas and threatened to cut off gas supplies to Ukraine if Ukraine did not pre-pay for it. The European Union has been attempting to settle this dispute through negotiations in Brussels. Wall Street Journal reports:

A deal would hinge largely on whether Kiev is able to pay upfront for Russian supplies. Under terms tentatively agreed to Oct. 21, Ukraine would need to pay $1.6 billion in advance for November and December deliveries—money that it still needs to raise.

Kiev said it would be able to pay $3.1 billion of its past debts to Russian gas monopoly OAO Gazprom by the end of the year.

In return, Kiev has demanded guarantees that the terms of the deal would remain fixed and not be subject to political changes in Moscow.

The issue, as they say, is now very much in doubt. And hope is fading. Yesterday, at 5:14 PM EDT, this was the Reuters headline on a gas deal:”Gas deal still eludes Ukraine and Russia at EU talks.”

Now it’s changed to “Ukraine gas supplies in doubt as Russia seeks EU payment deal.” Reuters reports:

Ukraine’s efforts to unblock deliveries of Russian gas as winter sets in were deadlocked on Thursday as Moscow’s negotiators were quoted demanding firmer commitments from the European Union to cover Kiev’s pre-payments for energy.

EU-hosted talks were adjourned after running late into the night, Energy Minister Alexander Novak and the head of Russian gas firm Gazprom (GAZP.MM) told Russian news agencies. They would resume later in the day if Ukraine and the EU had a firm financing deal in place, Gazprom head Alexei Miller said…

There has already been agreement on the price Kiev will pay for gas over the winter, the amount to be supplied and the repayment of some $3.1 billion in unpaid Ukrainian bills but Moscow, which cut off vital pipelines in June as the conflict with Ukraine and the West deepened, wants more legal assurances that Kiev can pay some $1.6 billion for new gas up front.

It’s hard to argue that this is purely an economic dispute. As Paul Goble explained earlier this week, Russia is reeling from the recent elections in Ukraine wherein there were few election irregularities or disruptions, radicals were heavily defeated, and President Petro Poroshenko’s party had strong support. Goble predicted that “Putin’s next moves in Ukraine won’t be pretty,” and there’s already ample evidence that he might be right. The Ukrainian government, after more than a week of reporting deescalation in eastern Ukraine, is now reporting about a significant uptick in fighting and Russian activity. On Tuesday and Wednesday alone, NATO had scrambled to intercept nearly as many Russian jets as they did in all of 2013.

Russia is saber rattling. We’ve seen this before. The question is whether Russia will do as it sometimes does and settle for a deal, or whether Russia is once again serious about escalating the conflict between Kiev and Moscow, NATO and Russia, and the EU and the Russian-alternative Customs Union.

Time will tell, but winter is rapidly approaching in Ukraine.