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Brussels, 17 April 2014
Letter from President Barroso to President Putin
Referring to your letter of 10th April to several Member States of the European Union and third countries, I have been mandated by the Council of the European Union, following consultations with the 28 Member States, to reply to this letter on behalf of the European Union and of all 28 Member States.
The European Union agrees on your proposal for consultations with the Russian Federation and Ukraine with regard to security of gas supply and transit. We believe that this approach allows for the most useful process with the Russian Federation and other third parties, as these matters concern Member States' matters as well as the operation of the European Union's single market and touch upon a shared competence of the European Union.
As you point out, the European Union and the Russian Federation are Ukraine 's main trading partners. Let me reiterate that the need to ensure the long-term political and economic stability of Ukraine is therefore a key interest of the European Union and of the Russian Federation as you stated in your letter. Therefore it is our common interest to quickly engage in talks which will include Ukraine.
However, we do not share your assessment of trade relations between Ukraine and the European Union that, to a large extent, the crisis in Ukraine 's economy has been precipitated by the unbalanced trade with the European Union Member States. In this regard an IMF-led programme of assistance will be vital in stabilising Ukraine's economy. The success of an IMF-led programme will depend both on Ukraine's commitment to international obligations and reform efforts and on cooperation from all their international partners. The European Union, together with its international partners under the framework of the planned IMF assistance package, is already providing significant support to Ukraine and its people through substantial macro- financial assistance, generous trade preferences and a variety of other aid measures agreed with the Ukrainian authorities.
As regards energy, relations must be based on reciprocity, transparency, fairness, non-discrimination, openness to competition and continued cooperation to ensure a level playing field for the safe and secure supply and transit of energy. In this context, we recognise that in the case of natural gas supply and transit the need for a structured and comprehensive dialogue is particularly urgent. In our view, issues relating to Ukraine 's gas debts and import prices should be considered alongside their external financing needs with the IMF and all other relevant international partners. Cooperation between the European Union and the Russian Federation in the energy field is based on common interests. Accordingly, I see two key elements to the current issue at hand:
First, the contractual reliability of the Russian Federation as a supplier of gas is at stake in this matter.
In your letter, you refer to the outstanding gas debt of "Naftogaz Ukrajiny" as a contractual cause for Gazprom to shift to a pre-payment regime, which could - in the absence of payment - eventually lead Gazprom to partially or completely cease the supply of gas into Ukraine. Such a development is cause of a serious concern as it carries the danger of an interruption of service into the European Union and other partner countries and affecting the storage of gas in Ukraine for supplies in the coming winter. As far as the gas supplies to Europe are concerned, I would like to recall that supply contracts are between European companies and Gazprom. It therefore continues to be Gazprom's responsibility to ensure the deliveries of the required volumes as agreed in the supply contracts. The European Union has repeatedly stated that we expect commercial operators on all sides to continue respecting their contractual obligations and commitments. Remaining a reliable supplier would appear to be clearly in the interest of the Russian Federation, in the light of international gas market developments.
As supplies to the European Union and supplies to Ukraine are closely related, we are willing to discuss with all parties concerned how these contractual obligations are to be met on the basis of market prices, rules and international law, as it is the case in the European Union, and how to ensure that transit through Ukraine, storage of gas in Ukraine and supply to Ukraine are done in a transparent and reliable manner.
Second, with a view to the supply of natural gas into Ukraine, the long-term solution toward a functioning European gas market can only be the satisfactory rearrangement of transit relations through Ukraine, and a market reform of the energy system of Ukraine both on the basis of a legally and economically sound and transparent regime. In the context of the current crisis, we consider that solutions to both the Russian claims regarding short term arrears and the long-term mechanisms, including on the gas price and conditions of gas supplies, are to be solved in dedicated negotiations and through available legal mechanisms. We reiterate that changes to contractual arrangements due to political circumstances run counter to the spirit of support and cooperation enshrined in your letter.
Still with regard to the reference in your letter to the last resort possibility to completely or partially cease gas deliveries in the event of further alleged violation of the conditions of payments by Ukraine, we would strongly urge you to refrain from such measures, which would create doubts about your willingness to be seen as a reliable supplier of gas to Europe. But let me also refer to the Early Warning Mechanism which was established between the European Union and the Russian Federation, following the gas crisis in 2009 and subsequently updated in 2011. It is important to recall that in case of an emergency situation, this Mechanism should be activated before taking any unilateral steps.
In addition to this mechanism we stand ready to host trilateral consultations with the Russian Federation and, subject to the agreement of the Ukrainian government, with Ukraine as we have proposed already in the past. The proposed consultations should help to avoid an extreme scenario and safeguard security of supply and transit while at the same time creating the necessary conditions for a structured cooperation including notably the modernisation of Ukraine's gas transit system. In this respect, we are deeply concerned by the unilateral decision taken by the Russian Federation not to apply the 2010 Kharkov agreement. Such consultations should not exonerate economic operators from fulfilling their contractual responsibilities and thus should be conducted without prejudice of commercial negotiations.
The Commissioner for Energy, Mr Günter Oettinger, stands ready to address these issues with his Russian and Ukrainian counterparts immediately, in close contact with the Member States, and will therefore contact his counterparts to organise a first meeting.
I am convinced that, by discussing constructively common solutions and actions, we can find the solution to the current crisis.
José Manuel BARROSO"