Ukraine Pays World's Highest Price for Gas

KYIV, Ukraine, January 19, 2012 /PRNewswire/ --

Three years ago today Ukraine and Russia signed the infamous gas contracts. According to the agreement, arranged by the former Prime Minister Yulia Tymoshenko, Ukraine now pays USD 516 per thousand cubic meters of Russian gas - more than any other European country.

Ukrainian politicians keep making statements about the enormous strain the price is putting on the country's economy. Despite the notable discount Ukraine still overpays some USD 4 to 5 billion for gas annually. Member of Ukrainian parliament Inna Bohoslovska recently claimed Ukraine had lost around USD 12 billion in foregone earnings since signing the gas contract with Russia. Experts estimate that Ukraine could have built 44 hospitals with that money.

Comparably, the UK pays only USD 380 per thousand cubic meters. The Netherlands is charged USD 360, while the U.S. pays USD 99 for gas.

In 2010 Ukraine received a USD 100 discount for letting the Russian Black Sea Fleet stay in Crimea. This does not prevent the country from having to pay almost 27 percent of its estimated budget income in 2012 for Russian gas.

It's not just the high price - the take-or-pay system stipulated by the 2009 contract does now allow Ukraine to save money through buying less gas. Ukraine recently announced the plan to buy 27 billion cubic meters of gas instead of over 50 billion it acquired in 2011. Russia insisted that the unconsumed gas would have to be paid for nonetheless.

Given all of the above, it seems quite sensible that Ukrainian government seeks the reduction of gas price. But while Gazprom agreed to drop prices for Austria, France, Germany, Italy, and Slovakia, the Russian state-owned gas managing company won't give in to Ukrainian pleas for lowering the cost of imported gas. Ukraine has been negotiating over a new gas price for over 21 months now - and keeps paying the tab according to the existing contract.

Ukrainian officials were considering international courts as their last resort to establish fair price as overpaying does not seem like a viable option for Ukrainian economy at present. Even the EU expressed their desire to assist in Ukraine-Russia gas transit negotiations.