Amidst political chaos in Ukraine, Russian President Vladimir Putin and Ukrainian Prime Minister Viktor Yanukovych announced an agreement on Tuesday that will slash the price Ukraine pays Russia for natural gas supplies, along with a $15 billion loan that the two asserted comes with no strings attached.
Previously, Putin had sought to bring Ukraine into its trade union of former Soviet republics, but the Russian president said that was not part of Tuesdays deal. “I want to draw your attention to the fact that this is not tied to any conditions,” Putin said at a press conference in Moscow. “I want to calm you down — we did not discuss the issue of Ukraine’s accession to the customs union at all today.”
Putin said Russia would reduce Ukraine’s gas price by 30 percent to $268.5 per 1,000 cubic metres, along with investing $15 billion in Ukraine’s government bonds in an attempt to stave off a financial crisis. “Putin said it was a temporary move but did not elaborate,” Reuters reported.
Ukraine has been rocked by weeks of protests centered in the capital city of Kyiv, with thousands of people remaining in Maidan Nezalezhnosti (Independence Square), despite the sub-zero temperatures. Their protests were set off by Yanukovych backing out of trade and economic agreements with the European Union that had been in the works for years. Polls showed that a strong majority of Ukrainians, even in the traditionally pro-Russian east, supported the accords.
Stunned by Yanukovych’s sudden reversal and undeterred by a violent police crackdown on peaceful protesters, they’ve remained steadfast in their demand that the current government, including Yanukovych, must go.
Prior to the Prime Minister’s decision, Moscow put significant pressure on Yanukovych to abandon talks with the EU, imposing painful trade sanctions against Ukraine in August and threatening gas bills. Natural gas has long been a source of tension between Russia and Ukraine. Ukraine relies on its neighbor for approximately two-thirds of its natural gas supplies and has dealt with Russia raising the prices or even shutting off gas supplies entirely on multiple occasions.
It’s easy to see why a deal involving cheaper gas and financial assistance was so enticing to Yanukovych. Ukraine’s economy is in dire straits, with more than $60 billion of debt repayments in the public and private sector coming due next year — equivalent to one third of the country’s gross domestic product.
In December, the CEO of Russia’s state-owned Gazprom said Ukraine owed over $2 billion for gas deliveries this year and an agreement to pay back the debt had not been reached. “Ukraine needs an estimated $10 billion in loans to keep its economy afloat and meet payment obligations. The most Brussels has so far offered Ukraine is 610 million euros ($838 million),” Radio Free Europe reported.
Earlier this year, Ukrainian Prime Minister Mykola Azarov said Ukraine routinely overpays for the gas it receives from Russia, to the tune of $20 billion over three years. But previous attempts to work out a more equitable agreement were ignored by Russia. According to the Kyiv Post, “Ukraine tried to negotiate a new long-term gas supply deal with Russia for nearly four years, with no success.”
While its unclear what Yanukovych offered in return or how Ukraine’s thousands of protesters will react to the announcement, EU officials say they’re still prepared to sign the accords with Ukraine, whenever Yanukovych is ready.