A working meeting took place today between Russian Prime Minister Dmitry Medvedev and Gazprom Management Committee Chairman Alexey Miller.

Alexey Miller reported to Dmitry Medvedev that Ukraine was still in debt to Gazprom for the natural gas supplied to the country last year and had an outstanding debt to repay for current supplies. Given that Ukraine is not fulfilling its obligations reached when signing the contractual addendum providing a gas discount, Gazprom resolved to remove the discount starting from this April.

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Abstract from verbatim transcript of meeting

Dmitry Medvedev:What is the situation with Ukraine? Do we have any new issues or everything stands where it was?

Alexey Miller:Ukraine hasn't settled the gas debt of the last year and today the country's outstanding debt for current gas supplies is increasing.

Gazprom hasn't received any payments for the gas supplied in January, and our Ukrainian partners informed us yesterday that they would not be able to pay in full for the gas supplied in February.

At the end of the last year it was agreed that Gazprom would give Ukraine a discount price for gas, provided that Ukraine would ultimately clear the debts accumulated over the last year and would pay in full for current gas supplies. Unfortunately, I have to state that Ukraine hasn't paid off for the gas supplied last year.

Dmitry Medvedev:How much in total have they managed to repay?

Alexey Miller:Speaking of the last year's indebtedness, they have repaid USD 1.300 billion.

Dmitry Medvedev:Which means 50 per cent of the debt?

Alexey Miller:A little less than 50 per cent. The total gas indebtedness of Ukraine makes up USD 1.529 billion now. Given that Ukraine is not fulfilling its obligations or complying with the agreements reached when signing the contractual addendum providing a gas discount, Gazprom resolved to remove the discount starting from this April.

Dmitry Medvedev:I see. The one who fails to pay for the supplied goods should be aware that it is fraught with adverse consequences, including those related to the revocation of previously reached agreements on beneficial terms of supplies. Nevertheless, what is your opinion of the measures that should be taken to have this debt repaid?

Alexey Miller:Of course, the amount of Ukraine's debt to Gazprom is considerable. The last year's debt was reflected in Gazprom's budget for this year, and this amount is included into our investment program. Indeed, it is a big sum of money. Therefore, the easiest and efficient way for Gazprom would be to provide Ukraine with a loan in the amount of USD 2 or 3 billion so that it could settle its indebtedness accrued from the last year and pay for current gas supplies.

Dmitry Medvedev:It's no secret that those 50 per cent they paid came from the sovereign loan we had given them. Of course, this is a possible way of resolving this problem. I will entrust the Ministry of Finance to consider all the current possibilities and obstacles as well as all the contradictions related to the extremely low credit rating of Ukraine now, in addition to other aspects of the Russian-Ukrainian cooperation in this area. Firstly, Gazprom anyway should insist on the full coverage of the debt owed by the Ukrainian partner. Secondly, your decision to terminate the beneficial terms of supplies looks completely justified.