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Russian President Vladimir Putin says his country is providing generous discounts on the gas it supplies to Ukraine not because it is required to do so but because it understands that its neighbor’s economy is struggling and needs help.
“We understand that Ukraine’s economy today cannot support the prices of Russian gas that are stated in the contract,” Putin said in Moscow during his annual question-and-answer television program. “In principle, we’re not required [to give discounts], but we think this is reasonable and we’re meeting them halfway. This also goes for electrical energy, coal, and so on.”
In fact, the Russian leader said, it is in his own country’s interest that Ukraine’s economy regains its strength “because they are our neighbors, our partners and we are interested in stability and order on our borders, as well as in having an opportunity to have and develop economic ties with a prosperous partner.”
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Putin added, “Currently, Russia doesn’t expect anything from the Kiev government except one thing – to treat us as equal partners in all areas of cooperation.”
Relations between Ukraine and Russia have been extremely strained over the past two years. In February 2014, Ukrainian President Viktor Yanukovich, who favored close relations with Russia, was confronted by a popular uprising of citizens demanding closer ties with the European Union.
Yanukovich fled to Moscow, and Putin responded by annexing Ukraine’s Crimean peninsula.
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Russia is also suspected of providing weapons and even manpower to a heavily armed pro-Russian separatist movement in eastern Ukraine. In response, the EU, the United States and Canada have imposed strict economic sanctions on Russia.
The trouble has also deeply wounded Ukraine’s economy to the point where the country’s inflation rate for 2014 was 25 percent, according to an estimate made in January by the office of State Statistics in Kiev. Ukraine also has borrowed heavily from the West, increasing its debt burden to 150 percent of the country’s gross domestic product, according to the International Monetary Fund.
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For years Russia’s state-owned energy giant Gazprom has shipped gas to Ukraine via a pipeline that also serves Russia’s customers in Western Europe. The cost was high, however, and Kiev fell $5 billion behind in its payments. In mid-2014 Gazprom insisted that Ukraine pay for its gas in advance.
In October 2014, though, Russia agreed to a lower price during negotiations with Ukraine mediated by the European Commission. That ensured a $100 discount per 1,000 cubic meters of gas through March 2015 for Ukraine’s state-owned gas company, Naftogaz. Russia has now extended that discount through June 30.
But Russian Energy Minister Alexander Novak says Naftogaz still owes $2.4 billion to Gazprom to cover arrears and penalties for non-payment.
By Andy Tully Of Oilprice.com
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Andy Tully is a veteran news reporter who is now the news editor for Oilprice.com