On eve of Stockholm decision: What can be considered victory for Ukraine in dispute with Gazprom?

Author : Olena Zerkal

Source :

Gas as an instrument of foreign policy influence and corruption factor has been used by Russia in relations with Ukraine for decades, until 2014, when after the Maidan we stood against that interpretation of contracts for the supply and transportation of gas imposed by Gazprom
20:34, 30 May 2017

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The Hague, London, Geneva and Stockholm are the cities that this spring have become grounds for legal confrontation or even a battle between Ukraine and Russia.

In fact, we have two paradigms in the legal proceedings between Ukraine and Russia.

The first block is the lawsuits against Russia related to the violation of the fundamental norms of international law (European Court of Human Rights, International Court of Justice). Even trade disputes in the WTO are an echo of the Russian aggression.

Another set of lawsuits is an echo of the economic vassalage imposed by Russia on Ukraine, the legal registration of which in the gas sphere occurred through the conclusion of the Kharkiv agreements in 2010. Their goal is to either force Ukraine to cooperate on the old terms (those that have always been based on "personal agreements" and "kickbacks"), or cause as much financial damage as possible in case of disobedience. The lawsuit regarding “3 billions of Yanukovych” and the lawsuit of Russian Gazprom against Ukrainian Naftogaz are also from this block.

In the next two days, Ukraine will see a court decision on the "gas" dispute.

We already realize that Russian aggression has different manifestations.

But the use of energy as a coercive factor has always been one of the most used and powerful means of influence and pressure of the Russian Federation on Ukraine. Especially brazenly and rudely Russia behaves regarding the issue of gas supplies.

Gas as an instrument of foreign policy influence and corruption factor has been used by Russia in relations with Ukraine for decades, until 2014, when after the Maidan we stood against that interpretation of contracts for the supply and transportation of gas imposed by Gazprom.

It was then, in 2014, Gazprom stopped gas supplies, frightening us by multibillion-dollar lawsuit against the Naftogaz.

The situation was really complicated, if not critical, and required the rapid decision-making in response to Gazprom's blackmail, given the country's complete dependence on gas supplies from the Russian Federation. That time we had to solve a lot of difficult questions, including preparing a lawsuit and a counterclaim against Gazprom.

Then, we built interconnectors to the Slovak gas transmission network, which embodied the idea of reverse gas supply and allowed to pass the winter period 2014-2015 without stopping the Ukrainian economy.

Thanks to this, in 2015, Ukraine was able to stop gas deliveries from Russia, which actually removed us from the Russian “gas needle". For more than 500 days we have been buying gas not from Gazprom, but in the European gas market, according to its real, not politically motivated price.

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Ukraine's gas dependence, according to Gazprom, was strengthened by the contract of 2009.

We remember the conditions under which this contract was concluded – the stopped supply of gas to Ukraine and the EU countries, the frosty winter and the unstable political situation in Ukraine. More precisely, it was an open confrontation between the president and the prime minister, as well as the opposition.

This contract was later criticized by everyone, and especially by those who don’t know its provisions and the specifics of the dialogue with the Russian Federation.

I had to go through a certain number of negotiations with the Russians and participate in the signing of the "winter" packages 2014-2015 and 2015-2016, with their style and methods of negotiating, where disdain and outright rudeness borders on blackmail and mockery. Therefore, I believe that I can adequately assess the contract concluded.

The gas contract became a symbiosis of unsuccessful political agreements at the highest level and managerial skill, and therefore contains many "gray zones" that Gazprom constantly used to impose its interests, in particular, on the interpretation of the contract price formula, price revision and, more importantly, the "take or pay" requirement.

Based on the interpretation of Gazprom, we would have to buy, that is, pay for 52 billion cubic meters of gas, regardless of the volume actually delivered (in 2016, Naftogaz purchased 11 billion cubic meters from European suppliers, and in Russia, I recall, 0 cubic meters ). Based on this, Gazprom requires Naftogaz to pay an additional almost $ 50 billion for a product that was not actually delivered.

Recently, some Ukrainian politicians started to use kefir (fermented milk drink) as an example to explain complex economic processes.

Therefore, to clearly explain the "take or pay" requirement we use this very kefir.

Let's imagine that in a certain region one company is the only supplier of kefir and, using a monopoly position, offers to sign contracts only on condition of fixed daily delivery of prepaid product.

If you agreed to the "take or pay" terms (in the interpretation of Gazprom) for 10 bottles of kefir a day, because you have a large family and a special diet, then at first you would be happy - you always have kefir. And then the relatives left, the diet changed or you just stopped drinking so much kefir. But you cannot resell it (this is another prohibition in the contract).

Of course, in this case, each consumer will try to revise the terms of the contract, because the contract - just like our contract with Gazprom - provides the possibility of reducing the volume of mandatory purchase by 20%. But here again the trouble is - the contract does not determine exactly how and with what frequency such a review should occur.

But that's not all. The contract provides an opportunity to review the price of the goods in the event of a significant change in market conditions. For 8 years, the conditions have changed, and more than once, but Gazprom has never agreed to a revision, even in the days of Yanukovych.

All this is the "gray zone" of the contract, which Gazprom constantly tried to interpret exclusively in its favor.

But at the same time, gas contracts have a significant positive element.

Fortunately, the contract stipulates that it is regulated by Swedish law, and disputes would be considered at the Arbitration Institute of the Stockholm Chamber of Commerce. It is this arbitration that by May 31 should decide on the case, explain the provisions of the contract and determine a further formula for calculating Ukraine's payment for gas.

We are not the first to require Gazprom to review the contractual terms.

The Czech division of the German RWE company, for example, won a case against Gazprom in arbitration about the illegality of applying the "take or pay" claim.

There are other examples of arbitration decisions concerning this provision. In several cases, the buyer's obligation to pay for certain volumes of gas was acknowledged, but the supplier must supply gas for this, and not just demand money.

Of course, in each case, the arbitrators make decisions both on the basis of the provisions of the contract, and taking into account the skill of proving positions of the parties by their lawyers.

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Gazprom, obviously, just does not want to let us go. The goal is simple - to force us to fulfill the contract in a format that provides for the largest financial payments. And this quite coincides with the line of the Russian Federation, which tries to cause as many losses and hassle to Ukraine as possible.

The ideal option for us would be the recognition of the illegal Gazprom’s interpretation of "take or pay" requirement, as well as the recalculation of prices for past and future periods, if as a result of such recalculation, Naftogaz owes Gazprom less than Gazprom to Naftogaz .

But, in fact, any decision that will give final legal determination of the "gray zones" and will allow eliminating the pressure and blackmail factors and finally withdrawing from Ukraine the yoke of gas dependence on the Russian Federation will be positive for us.

The case between Naftogaz and Gazprom, as well as the circumstances in the case of Yanukovych's "3 billion", is in fact part of a broader story of how they sell us economic pressure under the guise of "fraternal" help.

We know very well the price of such a "brotherhood", so we expect that the decision of the Stockholm Arbitration will contribute to the final exit from the Russian paradigm of relations, where everything is built on the principle of "divide and rule," and corruption and blackmail are the main factors in the introduction of geopolitical interests.

It is impossible to predict what exactly will be the decision of Stockholm Arbitration (as well as of other international courts).

But, as Winston Churchill said: “Sure I am this day we are masters of our fate, that the task which has been set before us is not above our strength; that its pangs and toils are not beyond our endurance. As long as we have faith in our own cause and an unconquerable will to win, victory will not be denied us.”

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