Gazprom Warns of Switch to Prepayment System for Ukraine Gas

By Dow Jones Business News, 
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MOSCOW--Russia won't postpone again switching to a prepayment system for natural gas deliveries to Ukraine, which has to pay off its outstanding debt by Monday, Gazprom's chief executive said on Thursday.

Talks in Brussels between Moscow and Kiev on Wednesday ended in failure, with both sides appeared to dig in their heels, setting out their own demands on future gas prices and debts. Ukraine threatened to refer the issue to an international court of arbitration if Moscow made good on its threat to cut off gas supplies.

Alexei Miller, CEO of gas monopoly Gazprom, said his company will switch to the prepayment system if it doesn't find $ 1.951 billion from Ukraine on its accounts by 1000 Moscow time (0600 GMT) on June 16, Interfax news agency reported.

Gazprom has repeatedly threatened to switch off gas supplies to crisis-hit Ukraine but postponed the deadline for debt repayment several times.

Mr. Miller said that the debt that Gazprom claims includes $1.451 billion for gas deliveries in November and December. By an extra payment of $500 million, Ukraine should show its commitment to redeem debts for April and May supplies, he said.

Ukraine insists that a Russian offer to lower its proposed price of gas by $100 per 1,000 cubic meters to $385 was a political move aimed at further destabilizing Ukraine's economy. Kiev officials have demanded a further discount, given that the latest offer remains 44% higher than the subsidized price Ukraine was paying before energy giant Gazprom raised the country's rates in April.

Earlier this month, Moscow received $786 million in a partial debt repayment, the amount Ukraine owed for gas supplies in February and March.

Mr. Miller said that in the case of switching to the prepayment system, Gazprom will continue supplying gas to Europe on the Russia-Ukraine border in a full amount.

Apart from the financial crisis and the gas dispute, Ukraine is also living through a deadly conflict with separatists in the eastern regions of Luhansk and Donetsk.

Petro Poroshenko, a new Ukrainian president, had a "substantial and continuous phone conversation" with Russia's President Vladimir Putin on Kiev's plan to resolve the situation in the east of Ukraine on Thursday. The sides also discussed steps needed to be taken toward a cease-fire and resolve the situation peacefully, Mr. Poroshenko's press office said.

Mr. Poroshenko also had a phone conversation with German Chancellor Angela Merkel. According to the president's website, Ms. Merkel said she supports the Mr. Poroshenko's initiatives and "expressed full readiness to contribute to the process of normalization" in eastern Ukraine.

Write to Andrey Ostroukh at Andrey Ostroukh@wsj.com


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