EU Plans to Issue Detailed Guidance on Russia’s Rubles-for-Gas Demand

(Bloomberg) -- The European Union will provide more detailed guidance in the coming days on what companies can and can't do under EU sanctions rules to address Russia's demands to pay for gas in rubles as governments fear the economic risk of Moscow halting supplies.

EU energy commissioner Kadri Simson said Monday that the bloc needs to give companies clarity that the Kremlin's mechanism -- which would require European companies to open euro and ruble accounts at Gazprombank -- “is a violation of the sanctions and cannot be accepted.”

EU energy ministers met Monday in Brussels to discuss response to Russia's demand after Moscow cut off gas supplies to Poland and Bulgaria last week for refusing to comply with its new order. Simson called the decision “an unjustified breach of existing contracts” and said it should be seen as “a warning that any member state could be next.”

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The Russian decree states that companies need to open two accounts with Gazprombank-- one in a foreign currency and one in rubles -- and that the debt is only settled once the payment is converted into rubles and deposited into the second account. The EU has said that such a mechanism would breach sanctions, but firms could continue paying in euros if Moscow allows them to end the transaction once the foreign currency is deposited. Several companies and governments have said the EU's existing guidelines are too vague.

“It's very important that the EU Commission gives a clear legal opinion if payment in rubles is a violation of sanctions,” Italian Prime Minister Mario Draghi said at a press conference on Monday.

Barbara Pompili, France's minister for ecological transition, said that all member states indicated they will stick to EU guidelines on payment for gas. But Hungary, which is highly dependent on Russian energy, has previously suggested it is open to paying in rubles to ensure continued deliveries.

Polish Climate Minister Anna Moskwa told Bloomberg News in an interview that remarks by ministers at the meeting indicated the EU was still short of unity. While many countries -- including Poland, Lithuania, Latvia, Estonia, Denmark and Finland -- endorsed the prohibition to pay in euros, some opted not to comment on the issue. Others, such as Italy and Austria, stressed their concerns over the risk of potential gas supply disruptions on the economy, she said.

“The commission said it will clarify any remaining doubts,” Moskwa said in an interview. “We didn't have any even for a moment and we bore the consequences. Russia wanted to intimidate the EU, to show that those who won't comply will be cut off. But I hope that those goals won't be reached and that after today's meeting countries that have some doubts will reflect on that, even if they started some talks with Gazprom.”

European gas prices eased on Tuesday as traders weighed up the chances that companies will find workarounds.