Putin warns Europe about Ukraine’s mounting gas debt

April 10, 2014 | Eastern Europe & Russia, LNG & LPG, Politics & Social Unrest

Russian President Vladimir Putin

Russian President Vladimir Putin

Moscow, Russia | – Dragging much of Europe into his fight with Ukraine, Russian Federation President Vladimir Putin urged European leaders Thursday to quickly help Ukraine settle its gas debt to Russia to prevent an imminent shutdown of Russian natural gas supplies to the continent.

Putin’s letter to 18 leaders, released Thursday by the Kremlin, is part of Russia’s efforts to retain control over its struggling neighbour, which is teetering on the verge of financial ruin and is facing a pro-Russian separatist mutiny in the east.

Putin’s move raises the specter of a new gas dispute between Russia and Ukraine that could affect much of Europe. In 2009, Moscow turned off supplies to Kiev, leading to the shutdown of Russian gas moving across Ukrainian pipelines to other European countries.

The amount that Putin claims Ukraine owes is growing by billions every day. In the letter, Putin said Ukraine owes Russia $17 billion in gas discounts and potentially another $18.4 billion incurred by Ukraine as a minimal take-or-pay fine under their 2009 gas contract.

He added, on top of that $35.4 billion, Russia also holds $3 billion in Ukrainian government bonds.

The amount is far greater than the estimated $14 billion bailout that the International Monetary Fund is considering for Ukraine.

Putin has been tightening the economic screws on the cash-strapped Kiev government since it came to power in February.

Starting this month, Russia state energy giant Gazprom scrapped all discounts on gas to Ukraine, meaning a 70 percent price hike that will add to the debt figure.

Russia argues that a gas discount was tied to a lease for Russia’s Black Sea Fleet base in Crimea, a Ukrainian region that Russia annexed last month. And Ukraine has promised the IMF that it will cut energy subsidies to residents in exchange for the bailout. That means gas prices were set to rise 50 percent on May 1 even before the latest salvo from Putin.