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The proceedings between Gazprom and Naftogaz of Ukraine in the Stockholm Arbitration Court, which began back in 2014, have ended. Naftogaz declared itself the winner, although the Ukrainian company still owed Gazprom more than $2 billion for gas
What did the court decide?
The Stockholm Arbitration Court made a decision on the dispute between Gazprom and Naftogaz of Ukraine regarding the supply of Russian gas to Ukraine under a contract of 2009-2019. The decision itself (700 pages long) has not been published, and the parties' statements about its key points contradict each other.
The final results can only be summed up at the end of February 2018, when the fate of the second lawsuit regarding gas transit through Ukraine will be decided in Stockholm, Naftogaz points out.
According to Naftogaz, the Ukrainian company won arbitration against Gazprom in Stockholm. Her statement said the court rejected Gazprom's demands to pay for supplies on a take-or-pay basis. “The arbitration court completely rejected Gazprom’s claims under the take-or-pay clause in the amount of $56 billion for 2009-2017. Naftogaz has achieved a reduction in future mandatory annual volumes by more than ten times, in accordance with its actual gas import needs. The price of gas received by Naftogaz in the second quarter of 2014 was reduced by 27%, from $485 to $352 per 1 thousand cubic meters. m. Thanks to the revision of the contract price, Naftogaz saved $1.8 billion on gas purchased in 2014-2015,” the Ukrainian company said, adding that the overall positive effect of such a court decision is estimated at more than $75 billion. In fact, these deliveries were at a compromise price of $268 per 1 thousand cubic meters. m, which was then unilaterally appointed by Naftogaz. Thus, Ukraine will have to pay extra to its partner for previously supplied gas.
In November 2015, Ukraine stopped buying gas directly from Gazprom and switched to purchasing gas from European suppliers using a reverse system (supplies through transit pipelines in the opposite direction). Gazprom continued to supply gas to the unrecognized republics in eastern Ukraine (DPR and LPR). Later, the Ukrainian company notified through its Twitter, that according to the court decision, Naftogaz should not pay for the volumes of gas that were supplied to the “temporarily occupied territories of the Luhansk and Donetsk regions to any other person except Naftogaz.” Naftogaz's debt for Russian gas supplies to the DPR and LPR from January 2015 to the end of June 2017 with a supply volume of 5.46 billion cubic meters. m, said the chairman of the board of the company, Alexey Miller, during the final press conference of Gazprom on June 30.
Gazprom denies the victory of its opponent in court, citing the fact that Naftogaz, even after the revision of gas prices, remained in debt to the monopoly, as well as late interest (0.03% for each day since December 22 of this year). Naftogaz was also obliged to annually select and pay for 5 billion cubic meters. m of gas under the terms of the “take or pay” contract, which has not been cancelled, but only revised in terms of volumes, Gazprom said. The original terms of gas supplies, according to the 2009 contract, were 52 billion cubic meters. m of gas per year since 2010.
However, according to Deputy General Director of the National Energy Security Fund Alexey Grivach, the volume of gas under the “take or pay” contract base is up to 41.8 billion cubic meters. m - 80% of the contract base. According to him, even in the preliminary arbitration decision from the end of May 2017 it was stated that 5 billion cubic meters. m, which Ukraine is obliged to buy from Gazprom, are calculated based on its actual needs for imported gas (10 billion cubic meters per year, half of which can be supplied by Gazprom).
In its statement, Gazprom, referring to the preliminary decision of the Stockholm arbitration, which it has been simultaneously challenging since November of this year in a Swedish court, indicates that the court rejected the key demands of Naftogaz: it refused to revise the price of gas for its opponent in the period from May 2011 to April 2014 and in the recovery of overpayments for gas in the period from May 2011 to April 2014 in the amount of about $14 billion, and also noted that neither European nor Ukrainian antitrust laws should be applied to the contract. Gazprom kept silent about the fact that the court rejected Gazprom’s take-or-pay claims in the amount of $56 billion for 2009-2017. His statement only says that the “take or pay” gas selection principle will be retained until the end of the contract (until the end of 2019).
Photo: Ekaterina Kuzmina / RBC
Neither Gazprom nor Naftogaz of Ukraine specified at RBC's request whether they would challenge the final arbitration decision. A high-ranking RBC source in Gazprom called Naftogaz’s statement about victory in the Stockholm arbitration “a good face against a bad game.”
Consequences for Gazprom
The greatest risk for Gazprom is that this is the first precedent-setting decision of the European court, which in one way or another concerns the revision of a number of provisions of the existing gas supply contract, says Alexey Belogoriev, deputy director of the Institute of Energy and Finance. “In fact, the very principle of “take or pay,” although not formally abolished, has been called into question in terms of the volume of gas supplies. Guided by this precedent, many Gazprom gas consumers in European countries may want to reconsider their existing contracts,” he said. According to Belogoriev’s calculations, if Ukraine, as part of the execution of the court decision, purchases at least 5 billion cubic meters from Gazprom. m of gas per year in 2018-2019, it will spend $1.9-2.4 billion ($190-240 per 1 thousand cubic meters) on this.
Artur Zurabyan, head of international litigation and arbitration practice at Art de Lex, believes that at this stage of the legal dispute, Gazprom won financially. “As for the financial side of the dispute, Gazprom remained in the black due to the recognition of part of the debts of Naftogaz of Ukraine, including supplies from the second quarter of 2014. For Naftogaz, this is a serious amount, equal to the amount of income for the year from the transit of Russian gas to Europe, and the company will have difficulty paying it,” Zurabyan believes. However, he recalled that there is still a trial on the transit dispute ahead, and mutual settlements could negate financial payments from both sides. “In addition, if we are guided by this court decision, companies do not have the right to make claims for subsequent periods of gas supplies, except for those for which prices and supply volumes have been revised. As for the ban on gas re-export, this decision is no longer so important for Gazprom, since as part of compliance with the requirements of the compromise on the anti-monopoly dispute, Gazprom itself promised to abandon the ban on gas re-export for European partners,” the lawyer noted.
The arbitration decision, which denied Ukraine the application of Ukrainian antimonopoly legislation to the gas supply agreement, could play into the hands of Gazprom, since Ukraine is at the expense of the property of the Russian company located on Ukrainian territory, the lawyer noted. “As far as it follows from the available information, the arbitration proceeded precisely from the priorities of contractual provisions and the principles of European contract law and legal order in regulating the rights and obligations of the parties under the contract,” Zurabyan said.
“The decision of the Stockholm arbitration can be challenged in the Swedish court of appeal for the Svea district on very narrow procedural grounds, including the illegality of the appointment of the arbitrator and procedural violations. In this case, it is impossible to reconsider the case on its merits, but on the grounds stated above, the decision can be reversed. This will take at least several months,” said Oleg Kolotilov, partner at the law firm Kulkov, Kolotilov and Partners.
MOSCOW, March 1. /TASS/. Gazprom did not agree with the decision of the Stockholm arbitration in the transit case with Naftogaz, in which it is obliged to pay the Ukrainian company $2.56 billion, and will defend its rights. This is stated in a statement by the Russian gas holding.
Gazprom disagrees with this arbitration decision. Previously, these same arbitrators agreed with Naftogaz’s arguments about the sharp deterioration in the state of the Ukrainian economy, which resulted in a decrease in demand for gas and Naftogaz’s failure to fulfill its obligations to take gas. However, with regard to Gazprom, which cited a decrease in purchases by the company’s European clients as the main reason for the decrease in transit through Ukraine, this argument was not taken into account,” the statement says.
Gazprom notes that it will protect its rights by all means available to it in accordance with applicable law.
At the same time, Gazprom reports that the Stockholm Arbitration Court rejected Naftogaz’s demands to increase the tariff for gas transit and to change the contract in accordance with Ukrainian legislation.
“As a result of the proceedings, the arbitration rejected Naftogaz’s demands to increase the tariff for gas transit and to change the contract in accordance with Ukrainian legislation. The arbitration found that the provisions of neither European nor Ukrainian antimonopoly legislation are subject to application to the contract,” the report notes.
Gazprom believes that, taking into account the results of the two proceedings, a significant imbalance has arisen in the relations between Gazprom and Naftogaz regarding supplies and transit, violating the basic principles of Swedish law, which governs the contract.
The court's decision
Of the monetary claims of $17 billion declared by Naftogaz, the arbitrators satisfied claims in the amount of $4.673 billion in connection with the supply of gas for transit to European consumers in a smaller volume than was provided for in the contract. Taking into account the amount previously awarded in favor of Gazprom under the supply contract, the arbitrators offset counterclaims, as a result of which Gazprom is obliged to pay Naftogaz $2.56 billion.
At the end of December 2017, the Stockholm arbitration court, which considered the dispute between Gazprom and Naftogaz over a contract for the supply of gas to Ukraine, ordered Naftogaz to pay Gazprom $2 billion for gas already supplied in 2014-2015 and reduced the annual the volume of purchases under the contract is 52 billion cubic meters. m up to 5 billion cubic meters. m. The court retained the “take or pay” condition for 80% of this volume, that is, at least 4 billion cubic meters. m per year until the contract expires at the end of 2019. Ukraine stopped buying gas from Russia in November 2015 and switched to supplies from Europe.
As the head of Naftogaz, Andrei Kobolev, said in January of this year, the company is ready to purchase gas from Gazprom and considers its price attractive. It is planned to resume procurement in the first quarter of 2018.
Dispute between Gazprom and Naftogaz
The current contract for gas supplies to Ukraine was signed by Gazprom and Naftogaz in January 2009 and is valid until December 31, 2019. According to the agreement, the supply volume was to be 40 billion cubic meters. m of gas in 2009, and starting from 2010 - 52 billion cubic meters. m annually. However, since 2012, Naftogaz has ceased to fully select the contracted volume, and since November 2015, Kyiv has not purchased Russian gas at all, replacing it with reverse gas from Europe.
In 2014, Gazprom and Naftogaz filed claims against each other in the Stockholm Arbitration Court. Ukraine wanted, among other things, a retroactive price change, the collection of overpayments for gas and the abolition of the “take or pay” condition. Gazprom demanded payment of the debt for gas already supplied, compensation for the volume not selected since 2012, and penalties for late payment. Gazprom's claims to Naftogaz amounted to more than $37 billion.
The Stockholm arbitration court satisfied the companies' demands only partially. Thus, the court ordered Naftogaz to pay Gazprom $2 billion for supplies, but reduced the annual contract volume of purchases to 5 billion cubic meters. m. At the same time, the “take or pay” condition remained for 80% of this volume. This condition will only come into effect in 2018.
The court also rejected most of Naftogaz's claims against Gazprom regarding overpayment for gas - only the price for gas received by the Ukrainian company in the second quarter of 2014 was reduced (from $485 to $352 per 1 thousand cubic meters). Although Naftogaz was counting on a retroactive price change starting in May 2011.
The Ukrainian side stated that settlements with Gazprom would be carried out after the arbitration decision on transit.
The final decision of the proceedings on gas contracts between Russia and Ukraine in the Stockholm Arbitration has become known
Naftogaz of Ukraine stated that the Stockholm Arbitration ordered Gazprom to pay the Ukrainian company compensation in the amount of $4.63 billion for the short supply of gas volumes agreed for transit through the country; as a result of two proceedings in court, Gazprom must pay Naftogaz 2. 56 billion dollars.
“According to the decision of the Stockholm Arbitration, Naftogaz achieved compensation in the amount of 4.63 billion US dollars for Gazprom’s failure to supply the agreed volumes of gas for transit. According to the results of two arbitration proceedings in Stockholm, Gazprom must pay $2.56 billion to Naftogaz,” RIA Novosti quotes the company’s message on the social network Twitter.
“The arbitration court rejected Gazprom’s demands for fines for the volumes of transit gas allegedly illegally taken by Naftogaz,” Naftogaz also reported.
President of Ukraine Petro Poroshenko congratulated the Ukrainians on the victory of Naftogaz in a dispute with Gazprom over a claim over a gas transit contract.
“Congratulations to the Ukrainians on this convincing historical victory!” — Poroshenko wrote on Twitter.
Gazprom confirmed the statements of the Ukrainian side, also noting that as a result of two court proceedings, the Russian company must pay Naftogaz $2.56 billion.
“Of the monetary claims of $17 billion declared by Naftogaz, the arbitrators satisfied claims in the amount of $4.673 billion in connection with the supply of gas for transit to European consumers in a smaller volume than was provided for in the contract. Taking into account the amount previously awarded in favor of Gazprom under the supply contract, the arbitrators offset the counterclaims, as a result of which Gazprom is obliged to pay Naftogaz $2.56 billion,” the Gazprom press service said in a statement.
The Russian company does not agree with the Stockholm arbitration decision regarding Naftogaz’s claim under the gas transit contract and will defend its rights by all legal means.
“Gazprom disagrees with this arbitration decision. Previously, these same arbitrators agreed with Naftogaz’s arguments about the sharp deterioration in the state of the Ukrainian economy, which resulted in a decrease in demand for gas and Naftogaz’s failure to fulfill its obligations to take gas. However, with regard to Gazprom, which cited a decrease in purchases by the company’s European clients as the main reason for the decrease in transit through Ukraine, this argument was not taken into account,” Gazprom emphasized.
“Taking into account the results of the two proceedings, a significant imbalance has arisen in the relations between Gazprom and Naftogaz regarding supplies and transit, violating the basic principles of Swedish law that govern the contract,” Gazprom’s statement also says.
At the same time, the Russian corporation noted that the arbitration in Stockholm rejected Naftogaz’s demands to increase the tariff for gas transit from Russia and to change the gas transit contract in accordance with Ukrainian legislation.
“As a result of the proceedings, the arbitration court rejected Naftogaz’s demands to increase the gas transit tariff and to change the contract in accordance with Ukrainian legislation. The arbitration found that the contract is not subject to the provisions of either European or Ukrainian antimonopoly legislation,” the statement says.
In December, the Stockholm arbitration court issued a verdict on the dispute between Gazprom and Naftogaz regarding a contract for the supply of Russian gas to Ukraine. The court ordered Naftogaz to pay Gazprom about $2 billion for gas already supplied, and also reduced the annual contract volume of purchases to 5 billion cubic meters of gas, but left the “take or pay” condition for 80% of this volume, that is, 4 billion cubic meters . Pricing was changed from a petroleum product formula to a link to the price of the German NCG hub. Kyiv is obliged to purchase gas in these volumes starting in 2018.
In June 2014, Gazprom and NJSC Naftogaz of Ukraine filed counterclaims against each other at the Arbitration Institute of the Stockholm Chamber of Commerce.
Gazprom reported that the decision to file a claim against Naftogaz in a Stockholm court was made due to the chronic non-payments of the Ukrainian state-owned company. Its overdue debt for Russian gas supplied at that time amounted to $4.458 billion: $1.451 billion for November-December 2013 and $3.007 billion for April-May 2014. The bulk of Gazprom’s claims against Naftogaz in this case relate to fines for gas shortages under the “take or pay” contract rule.
Naftogaz demanded a price change for the previous period, compensation for overpayments for unrevised gas prices and transit rates, and the lifting of the ban on gas resale.
In October 2014, Naftogaz also initiated proceedings to review the gas transit contract at the Arbitration Institute of the Stockholm Chamber of Commerce and submitted detailed claims in April 2015. Naftogaz believed that its rights and obligations regarding transit should be transferred to Ukrtransgaz as the operator of the gas transportation system. In addition, the methodology for calculating the transit tariff had to be changed in accordance with European standards.
Naftogaz also demanded compensation for shortfalls in transit gas volumes. Thus, according to the contract between the Ukrainian company and Gazprom for the transit of gas through the territory of Ukraine to European countries dated 2009, the minimum volume of gas that Gazprom must transport through the territory of Ukraine is 110 billion cubic meters of gas per year, but the annual transit volume is 2009-2013 averaged 94 billion cubic meters.
The court allowed Kyiv not to pay for gas supplied to Donbass, but recognized the mandatory application of the “take-or-pay” provisions
Moscow. December 22. website - The Arbitration Institute of the Stockholm Chamber of Commerce proved itself on Friday to be the most humane court in the world. He did not wait until December 30 and spoil the New Year for gas workers and journalists in Russia and Ukraine; ahead of schedule, a week before the deadline, he made his decision on Gazprom’s lawsuit against Naftogaz of Ukraine regarding the debt for gas supplies.
The main news is the very fact that the 1,285-day litigation between two neighboring gas companies has ended and at least some resumption of Russian gas supplies to Ukraine.
As usual, at the time the final arbitration decision was made, both parties declared themselves winners. Naftogaz made its statement 1 hour and 5 minutes earlier than Gazprom, which ensured maximum primary audience attention.
What is
The bottom line is that there is a debt confirmed by the court for gas supplies in 2013-2014, which Naftogaz is obliged to repay. Gazprom demanded to recover $3.4 billion, and the arbitrators awarded $2.018 billion.
In what direction should this court decision be interpreted?
The Ukrainian side gives a hint: “the price of gas received by Naftogaz in the second quarter of 2014 was reduced by 27% - from $485 to $352/thousand cubic meters.” Still, this price was significantly higher than the spot price in Europe at that time. At the hub closest to Ukraine in Baumgarten, the gas price in that quarter fluctuated in the range of $248-328, and the average value for the quarter was $290.
In the future, the price of Gazprom gas for Naftogaz will be equal to the price at one of the European gas hubs, said Andrey Kobolev, head of the board of NAC.
The court found that take-or-pay clauses must be applied until the end of the contract. But he reduced the future mandatory annual volumes of gas purchases from Gazprom by more than 10 times - to 5 billion cubic meters. m of gas (minimum annual volumes will be 4 billion cubic meters of gas). Taking into account current gas prices in Europe, this could bring Gazprom $1 billion in revenue in 2018 and 2019 (based on a minimum volume of 4 billion cubic meters).
Physically, Ukraine still imports Russian gas. Just not from the east, but from the west. And transferring the purchase of part of the gas to the east will relieve it of the need to transport these volumes from the east to the west of the country, and then internally to consumers (most of whom are located in the east anyway).
What is not
Beyond the amount of the principal debt, the parties' claims can only be called "take more, throw further." All of them were rejected by the court: $56 billion of Gazprom’s demand to pay under the “take or pay” clause for 2009-2017 and $14 billion of the return of “overpayment” for gas from May 2011 to April 2014.
The court ruled that Naftogaz for the volumes of gas that were supplied to the Lugansk and Donetsk regions to any other person other than Naftogaz.
The arbitrators also invalidated the provision banning the re-export of gas outside Ukraine.
The clock is ticking
The Ukrainian side stated that settlements with Gazprom will be carried out in February 2018 after the transit arbitration decision. According to it, Naftogaz demands $16 billion from Gazprom. Ukraine is trying to recover another 189.125 billion hryvnia ($6.76 billion) from Gazprom in an antimonopoly case, and enforcement proceedings to collect this amount have already been launched in Ukraine.
In addition to the court-confirmed amount of $2 billion, Naftogaz will have to pay interest to Gazprom for each day of delay in the amount of 0.03% from December 22. This amounts to $606 thousand per day. By the end of February, more than $41 million in interest will be accrued on the debt.
The Stockholm Arbitration Court made a decision on the gas transit dispute on February 28. Naftogaz, in particular, demanded:
- compensation for the fact that transit gas was not pumped in full. The contract stipulated that the Ukrainian gas transportation system would pump 110 billion cubic meters of Russian gas annually, but supplies have been significantly lower since 2009;
- increasing the transit tariff, since since 2009 the price at $1.7 per thousand cubic meters has not been revised, although the tariff has increased.
Together with other requirements, the upper limit of requests to Gazprom was $15 billion.
The Tribunal made a decision on the transit volume claim, but did not support the tariff review. Gazprom must pay compensation in the amount of $4.63 billion. If we exclude the debt under the first decision on gas supplies, then Gazprom must pay $2.56 billion.
"Ukraine wanted to revise the price of natural gas and abandon the “take or pay” principle. Plus, I wanted to increase the cost of transit. Gazprom wanted to maintain the current contract and transit price and force Ukraine to buy the volumes of gas prescribed by the agreement, explains Alexey Kushch. - In principle, Gazprom has partially achieved its goals. The price of natural gas was reduced, but not from the date that Ukraine wanted, so Naftogaz must pay extra. Gazprom also achieved that international arbitration indirectly recognized that Ukrainian antimonopoly decisions do not apply to gas supplies and transit. That is Gazprom escaped the blows of our antimonopoly authorities, who imposed multibillion-dollar fines on it. Gazprom also ensured that the price for transit was not increased. And Ukraine has achieved that the “take or pay” principle has been reduced(up to 4-5 billion cubic meters per year - ed.). In this case, international arbitration followed precedents - there have already been cases when European countries won this principle from Gazprom to economically justified reasonable volumes."
Gazprom's reaction
Russian media quoted Gazprom's statement following the decision. It has three key messages. The first - the Russian monopolist confirmed that, according to the arbitrators' decision, it must pay $2.56 billion. The second - Gazprom believes that the Stockholm arbitration did not take into account its arguments about the reasons why transit volumes through the territory of Ukraine were reduced. They say this happened because European companies reduced their purchase volumes. Third, Gazprom will protect its interests by all legal means.
“The procedure by which you can challenge the decision of the Stockholm arbitration court is to file an appeal with the Supreme Swedish Court,” says energy market expert Valentin Zemlyansky. “The problem is that the decision of this court, unlike the arbitration court, can no longer be challenged. As I understand it, Gazprom "The very principle of decision-making will be challenged."
Alexey Kushch reminds that Russia does not like to settle obligations under decisions of international courts. As an example, the expert cites the case of YUKOS shareholders. The International Arbitration Court in The Hague ruled that Russia had to pay $50 billion for their claims, which it never did - the claims went to the courts of appeal. In the case of the Stockholm Arbitration decision, the problem may repeat itself, and the appeal will delay the payment of the amount.
How should Ukraine act?
Ukraine must be firm on the issue of paying $2.56 billion, and it’s not just about the amount, although it is significant for our country. We are talking about our situation in connection with the construction of Nord Stream 2 - a gas pipeline from Russia to Germany, which is planned to be put into operation in 2019, which neutralizes the role of the Ukrainian gas transportation system.
So far, Europe has predominantly supported its construction, but after the decision of the Stockholm Arbitration, Ukraine has leverage over Russia and the opportunity to defend its interests.
Gazprom needed the trial as a smokescreen for the launch of Nord Stream 2. He needed to show that he was working in the international legal field, to take time to launch the main processes,” says Alexey Kushch. - Regarding transit, Naftogaz received a good decision from the Stockholm arbitration and it is very important how aggressively it will now act to protect its interests. If passive, then Gazprom can stretch out consultations and negotiations into 2018, pay nothing in 2019, and Nord Stream 2 will already be launched there. Naftogaz must link the win in arbitration and the fact that Nord Stream 2 is unprofitable for us. If Gazprom does not pay, then seize property, block international projects - that is, use this amount as a tool of pressure."
Anna Goncharenko
