All roads lead to… Stockholm

Gazprom’s extremely high (300 percent) penalty against Ukraine ($7 billion for failure to buy the contracted gas) does not seem to have worried much the political class of this country. The opposition keeps totally mum on this, perhaps unwilling to increase its responsibility for the contracts Yulia Tymoshenko signed in 2009, while governmental officials are playing pat-a-cake as if they were small children.

Foreign Minister Leonid Kozhara says the Cabinet did not discuss this matter before last Wednesday. Yet the No.1 diplomat seems to know the Ukrainian leadership’s mood and thinks that this problem can be solved “in the spirit of friendly relations with Russia.” “I think friends should, first of all, resort to out-of-court procedures,” he adds. In his words, Ukraine is prepared “to discuss with the Russian Federation the question of debt rescheduling.” And it is not a children’s peace and love game but an instance of having to respond to the command “Haende hoch!” (“Hands up!”).

Eduard Stavytsky, Minister for Energy and Coal, joined the “penalty debate” last Wednesday. He is also pinning hopes on “reaching an understanding with our Russian partners,” as lawyers are now studying the legal side of the matter. The minister sounds so peaceful that he does not even link Gazprom’s sanctions with the signing of an agreement between Ukraine and Shell on shale gas production. According to Stavytsky, Gazprom slapped Ukraine with the penalty before the agreement was signed. “So let us not overemphasize this point,” the minister cautioned the press.

Minister of Justice Oleksandr Lavrynovych looks more resolute. He hopes the two sides “will manage to avoid legal action.” Yet he does not forget to recall that “there are other provisions in this contract, which can be used to reject the demands being made on Ukraine.” (By all accounts, it is about Russia’s failure to transport the contracted quantity of gas across the territory of Ukraine.)

Last Wednesday a TV space bridge allowed experts of the two countries to join the debate on whether the gas penalty is justifiable. Leonid Grigoryev, a professor at the Higher School of Economics, and an analyst at the Energy and Finances Institute, who represented Russia, naturally, insisted that penalties were envisaged by the contract and contractual obligations must be fulfilled, so justice or injustice have nothing to do with this. They are more worried with the problems of Gazprom and all the gas entities of Europe, which are losing profits, following the US gas revolution, as a result of which the released American coal begins to oust natural and liquefied gas from the market. According to the Russian experts, Moscow is now preoccupied not so much with the amount of the penalty slapped on Ukraine (“you have a contract, so either execute it or go to court”) as with the shortage of parking places, which causes immense transport problems.

At the same time, Grigoryev in fact considers Gazprom contracts as untouchable “holy cows.” In his view, Gazprom cannot call their reliability into question – if it has revised this, why can’t it revise that?

But Mykhailo Honchar, energy program manager at the Nomos center, reminds us that Gazprom’s “contract innocence” was repeatedly injured both in and out of court. He cites concrete instances to show that Ukraine also has good prospects for defending its interests in European courts. For example, a court ruled that attempts to exact considerable amounts of money from consumers, including RWE’s Swedish subsidiary, for failure to buy all the contracted gas were unlawful. “Ukraine cannot and must not easily surrender in the penalty question,” the expert told The Day, commenting on Kozhara’s standpoint.

In Honchar’s view, the $7-billion penalty is in fact “a bubble, a trial balloon of sorts sent up into the information space.” The expert says this should not be regarded as “payment charged.” For, at first, the case must go to an arbitration court – “otherwise, this should be only viewed as some claims based on Gazprom’s interpretation of some clauses of the contract.” According to Honchar, the very fact of underbuying the gas has not yet been proved in legal terms. Besides, Gazprom has not expressed its position officially. “So the case will sooner or later go to Stockholm,” the expert concludes.

It is very unlikely that one of the sides will resort to this procedure, the expert points out. He is convinced that the problem is not so much in the underbought gas as in pipelines and the gas transportation system (GTS). “The value of these claims is in principle commensurate with the estimated value of Ukraine’s GTS (which has not been made public),” he says. This reminds us again of the Belarusian scenario. It will be noted that the rating agency Standard & Poor’s also takes this view of Gazprom’s intentions.

“Russia’s ‘forcing into peace’ policy and desire to gain access to the Ukrainian GTS and underground reservoirs are absolutely easy to grasp,” says energy expert Valentyn Zemliansky, another Ukrainian debater. “In their absence, the Nord Stream and South Stream are unable to meet the peak demand of European consumers. I have a feeling that Russia urgently wants to formalize the existing order of things so that Mostransgaz could really, not only technologically, manage the Ukrainian GTS, drawing dividends from this.” The expert called this a hypothesis and suggested that the Russian side express its own vision of penalties against Ukraine.

In response to this suggestion, Grigoryev set forth his own version which seems to have a share of the truth. Reminding the debaters of the visit of an IMF mission to Ukraine, he foresaw that the IMF would use the amount of the Gazprom penalty as grounds for toughening the conditions for issuing the loan that Ukraine needs so much. “Why did Gazprom do so?” the professor asked and answered: “This can be read very easily…” The only question is whether the gas monopolist was really the initiator of this anti-Ukrainian action. In all probability, it was just the executor of political will.