Finish line: How will dispute between Gazprom and Naftogaz end?

Author : Yaroslav Konoshchuk

Source :

The legal battle between Gazprom and Naftogaz Ukraine in the Stockholm Arbitration goes to the finish line. The parties' debate has been completed, and in November it is planned that the court will put the final point in the three-year dispute between the Ukrainian and Russian energy monopolists. found out what to expect from the decision of Stockholm Arbitration
21:38, 25 October 2017

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Waiting for the gas billions

We recall that Gazprom and Naftogaz have been sued in Stockholm arbitration since 2014 because of contracts for the supply of natural gas from Russia to Ukraine and gas transit through Ukraine, which were signed in 2009.

As of April 2017, Naftogaz's claims against Gazprom amounted to $ 12 billion. In its statement of claim, the Ukrainian company demands "a review of the transit tariff with retroactive effect, compensation for the shortfall and other changes to the contract on gas transit."

On April 27, Gazprom increased the requirements for NJSC Naftogaz of Ukraine from 31.7 billion to 37 billion.

On May 31, Naftogaz Ukraine said that the Stockholm Arbitration Court satisfied the key demands of the Ukrainian company in a dispute with Gazprom: the "take or pay" condition was abolished; the ban on re-export has been canceled, the gas price formula has been revised since 2014. Naftogaz hopes that the price for gas in the spot market will be included in the price formula for Russian gas. In turn, the Russian monopoly said that in accordance with this decision, the Ukrainian company must pay about $ 2 billion. This is a debt for the gas supplied by the Russian company, but unpaid.

In turn, on October 11, the commercial director of Naftogaz Ukraine Yuri Vitrenko said that he expects that on the basis of the results of the trial, the Russian Gazprom will pay billions of dollars to the Ukrainian oil and gas monopolist. As explained to sources in NJSC Naftogaz Ukraine, familiar with the process, the Ukrainian company believes that Gazprom will pay between $ 6 and $ 12 billion.

The sources added that it is a question of compensation for the fact that Gazprom has reduced the pressure at the entrance to the Ukrainian gas transportation system, which is why the Ukrainian company was forced to spend additional volumes of "blue fuel" for pumping gas to the EU, as well as for supplying Gazprom’s gas to Ukraine with a lower calorie content than provided for by the current contract.

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"Gazprom did not react in any way to the letters of Naftogaz regarding insufficient pressure of gas and caloric content, or sent standard replies ... Corresponding letters were provided to arbitrators by the Ukrainian company," the interlocutors note.

In addition, the Ukrainian side expects compensation for the contract regarding the Russian gas transit.

"We have raised the price of Russian gas transit in accordance with the contract and due to the increase in the cost of" blue fuel. Gazprom refused to accept this price, and now a debt has been created for more than two years, plus penalties," the sources said, adding that , despite the abolition of the "take or pay" principle for Ukraine, Naftogaz Ukraine expects compensation in connection with a sharp decrease in the volume of gas transit by the Russian gas monopoly. It should be recalled that in 2013 NKRECU increased the cost of gas transportation through the territory of Ukraine. Later, the tariff for the transit of Russian "blue fuel" through the territory of our country was increased by 50% in accordance with the decision of the regulator.

In addition, the Ukrainian company expects to receive an additional profit from the revision of the gas price in the period until 2014. As explained to sources in the Ukrainian delegation, familiar with the course of the process, the Ukrainian side is trying to convince the arbitrators that the cost of gas until 2014 was incorrectly calculated.

"According to our initial estimates, it turned out to be 2-3 billion dollars (Gazprom's obligations to Naftogaz of Ukraine, - Ed.) Now we expect at least 6 billion, but without taking into account the calculation of the debt for Russian gas, which was raised before the start of the proceedings in the Stockholm court (previously slightly more than $ 2 billion).The court's decision could potentially allow the it to pay off loans, "the interlocutors note, assessing the likelihood of such an outcome of the case at 70%.

In turn, Gazprom CEO Alexey Miller said that according to a preliminary assessment, taking into account all the claims of Naftogaz Ukraine and Gazprom, the Ukrainian monopolist must pay to Gazprom $ 1.7 billion, which is less than the initial amount. However, in any case, the pre-trial settlement of the dispute is extremely unlikely to take place, since the time for the relevant procedures has expired.

Trial with a taste of gas

So, already in November, Stockholm Arbitration can put an end to the more than three-year gas dispute between Gazprom and NJSC Naftogaz of Ukraine, and we will find out whether tens of thousands of euros have been wasted for the arbitrators' fees.

According to sources in the Cabinet of Ministers, in the case of a positive decision for Ukraine, the option of using some of these funds for payments under the "Yanukovych loan" is being considered, and the situation of Naftogaz itself will also improve substantially. We recall that the Russian Federation in 2013 provided Ukraine with a 3-billion loan, and in connection with the refusal of the authorities to repay it filed a lawsuit in the London Court. The latter, although postponing the final decision on it, has so far rejected all the arguments of the Ukrainian side. However, the final decision on this case is planned to be made in 2018, although sources in the government recognize that the chances for a positive decision for the Ukrainian side are minimal. True, remembering Russia's refusal to pay by the decision of the Hague court on the suit of YUKOS shareholders, we understand that in this case long legal procedures are ahead.

Otherwise, as the commercial director of Naftogaz Ukrayine Yuri Vitrenko announced in the spring of 2017, the Ukrainian company will become bankrupt, but the GTS (gas transport system) and special permits for gas production will be preserved.

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