Soon after Naftogaz wins, Russia quickly retaliates
Ukraine and Russia are on the brink of a new gas dispute.
A day after the Stockholm arbitration court ruled Russia’s Gazprom to pay Ukraine’s state-owned oil and gas monopoly Naftogaz $2.56 billion in compensation in the final stage of a four-year legal battle, Gazprom decided not to restart gas supplies to Ukraine forcing the country to cut usage in sub-freezing temperatures.
Late on Feb. 28, Naftogaz reported that it had won a $4.63 billion claim against Gazprom for its failure to deliver agreed transit gas volumes between 2009 and 2017.
Since the same court earlier ordered Naftogaz to pay Gazprom over $2 billion for gas supply, the net payment Gazprom will have to make to Ukraine is $2.56 billion. In addition, Naftogaz received a $500,000 price reduction for 2018 and 2019.
“We’re happy that we won in arbitration on the key issues. It’s an important day for the Ukrainian people and the future of the European markets,” Naftogaz CEO Andriy Kobolev wrote on Twitter.
Naftogaz and Gazprom filed multi-billion dollar claims against each other in June 2014 as relations between two countries worsened following Russia’s launch of a war in eastern Ukraine and the start of its military occupation the Crimean peninsula.
Naftogaz demanded compensation for losses caused by the disadvantageous terms of the 2009 gas contract, which left Ukraine overpaying for gas supplies and being underpaid for transit services. In 2015, Naftogaz stopped buying Russian gas. Then in 2017, Gazprom began construction of two pipelines to Germany and Turkey that bypass Ukraine and may leave it without at least $2 billion in transit fees.
In previous rulings, the Stockholm court ruled in favor of Naftogaz and rejected Gazprom’s claim to apply a “take-or-pay” clause, which stipulated buyers had to pay for gas supplies in full, no matter whether they were physically delivered or not.
At the same time, the court obliged Naftogaz to pay Gazprom over $2 billion in debts and to buy 5 billion cubic meters of gas a year until the contract expires.
The court, the Arbitration Institute of the Stockholm Chamber of Commerce, does not publish its rulings, allowing the disputing sides disclose the decision.
No change of terms
The Stockholm court didn’t satisfy other demands of Naftogaz. One of them was to reconsider the terms of the gas transit contract in accordance with European and Ukrainian energy laws. The court noted that “the start of regulatory reform in Ukraine is the matter of Ukrainian authorities and is out of the court’s purview.”
At the moment, Naftogaz is going through an unbundling process, i.e. transferring its gas transmission system to an independent operator in order to comply with the European Union’s energy laws — so-called the Third Energy Package.
Nor did court satisfy Naftogaz’s request to apply for a new pricing scheme for transit services. The existing contract has a fixed fee, which Gazprom claims is too high and uses as an argument against transporting its gas through Ukraine. Currently, European importers and domestic producers are charged at entry and exit points.
“Now it is necessary to revise the transit contract, taking into account the tribunal’s ruling and European and Ukrainian legislations,” CEO Kobolev said in a statement. “Naftogaz intends to propose Gazprom to start negotiations in the near future.”
Naftogaz wants to keep Russian gas transit through Ukrainian territory after the current contract ends in 2019 — the same year the construction of the Nord Stream 2 and TurkStream bypass pipelines are expected to be completed.
Workers stand near a gas installation in Boyarka near Kyiv on April 22, 2015.