Naftohaz vs. Gazprom

On June 28 Ukraine may sue Gazprom, the Russian gas monopoly, at the Stockholm Arbitration Court, Prime Minister Arsenii Yatseniuk said earlier last week.

The government and the national joint stock company Naftohaz Ukrainy have already begun the lawsuit procedure. According to Yatseniuk, the Ukrainian side sent a pre-arbitration note to the Russian monopolist the Monday before last.

The No.1 question in this note is price. The government of Ukraine insists that the price set for Ukraine in 2014 is market-based and is thus to be maintained.

Secondly, Ukraine demands that the contract with Gazprom be immediately revised.

Thirdly, the government of Ukraine suggests to Gazprom that they meet on a neutral territory to discuss the Ukrainian side’s pre-arbitration complaints.

And, fourthly, an ultimatum. “Should no agreements be reached within 30 days, this will mean that, after a failed attempt to make a pre-arbitration settlement, we are referring the dispute with the Russian gas monopoly Gazprom to a court of law,” Yatseniuk said.

COMMENTARIES

“WE CAN DEFEND THE GAS PRICE OF $268”

Stanislav BATRYN, director, Lions Litigate law firm:

“Civilized relationships do not know such thing as gas contract price discount. They know such thing as changing contract terms and conditions. If the Russian side agreed to reduce the contractual price to 268 dollars, this means that, following a Naftohaz statement, Gazprom agreed that it was a market-based price. The price market situation has not changed since the beginning of the year, which provides no grounds for Ukraine to opt for other prices which Russia dictates.

“Gazprom insists now that Naftohaz failed to meet its commitments and, therefore, the ‘discount’ cannot be extended. At the same time, the gas price of 268 dollars will still hold good for Ukraine until it is proved that the Ukrainian side is to blame for failure to meet commitments.

“Instead, since the beginning of the year, the Russian Federation (owner of Gazprom’s controlling shares) has been taking actions aimed at undermining the national sovereignty and economic security of Ukraine, particularly, in the oil and gas sector. It will be recalled in this situation that Russia is an interested party and the owner of Gazprom’s controlling shares, while gas is used as an instrument of economic blackmail.

“Therefore, Ukraine is not obliged today to meet the demands that follow from a policy based on the price of 450, not 268, dollars or the prices that were imposed as part of military and economic pressure on Ukraine.”

“THERE IS A ‘KNOW-HOW’ THAT CASTS DOUBT ON OUR VICTORY”

Yurii KOROLCHUK, member, Supervisory Board, Institute of Energy Strategies:

“Ukraine has made, at last, a right decision to refer the gas contract revision matter to court. But it is historically belated and will not, unfortunately, let Ukraine have the gas price changed in the short term.

“The evidence gathered by the previous government will not be admissible now, for Naftohaz has ceased to pay the current accounts for the consumed Russian gas. By doing so, Naftohaz has ceased to carry out and breached the contract, which gives Gazprom a trump card in the future judicial litigations.

“I wish Prime Minister Yatseniuk had been told that European companies were uninterruptedly paying for gas during legal actions against Gazprom. This applies to Poland’s PGNiG, Germany’s RWE, and ten something other EU companies. But Ukraine stopped paying for gas and this ‘know-how’ casts doubt on Ukraine’s victory at the Stockholm Arbitration Court. For this reason, failure to pay for gas can be called as nothing but a destructive position.

“Yatseniuk should have also been told that he is launching a judicial war with Gazprom, which will last at least until the winter of 2015-16, while Russia plans to cut off gas for Ukraine as soon as May 2014.

“And when the gas is cut off, the European Union will surely not be on Ukraine’s side, for it will remain without gas. Grinding its teeth, the European Commission will have to admit that Ukraine has breached the contract with Russia. After all, as soon as in May Ukraine, Russia, and EU will negotiate the problem of Ukraine’s gas debt.

“Ukraine must file two lawsuits against Gazprom. While the first should deal with the revision of gas contract conditions, the second should be exclusively about the current gas price. For the very denunciation of the Kharkiv Accords brought the Russian gas price up by another 100 dollars from 385 to 485 per 1,000 cubic meters.

“And if Ukraine thinks the reverse gas flow will save her, we are in for a deep disappointment. Firstly, the EU will be unable to sell Ukraine more than 3-4 billion cu. m. of gas. They have no extra capacities. The proof of this is the refusal of Rumania to supply gas in a reverse mode. Secondly, no matter how bitter it sounds, the EU and Russia are cheating Ukraine together. For where will the EU take gas to supply it to Ukraine in a reverse mode? Of course, from Gazprom.

“And, thirdly, Ukraine will have to pay an average 370-380 dollars for the reverse flow gas. The EU will also buy gas from Russia at a price of 350-360 dollars. As a result, both Russia and the EU will reap a benefit, whereas Ukraine, instead of making a deal with Gazprom, will overpay for gas again – this time to European companies. A part of EU loans will have to be spent for this purpose.”

“AN 80-PERCENT CHANCE THAT GAZPROM CONTRACTS WILL BE REVISED”

Mykhailo HONCHAR, energy programs manager, Nomos Center:

“Only systemic and persistent work will produce a positive result, for ‘there’s many a slip’ between the intention to file a suit to the Stockholm Arbitration Court and the verdict. Naftohaz seems to be standing a good chance of success. But this does not yet mean an automatic victory. If, for some reason, things go as they did when RosUkrEnergo was suing Naftohaz, there will be a similar result, i.e., a loss. But if Naftohaz lawyers and guest consultants work systemically and consistently, it is quite possible that the dispute will be settled out of court, as was the case with European companies’ arbitration suits, because Gazprom itself may propose an amicable deal. This argument allows us to hope for success and a positive result. Another argument in favor of Ukraine is current gas prices. While the spot market price in Europe is 270 dollars per 1,000 cubic meters and the average export price under long-term Gazprom-EU contracts is 370 dollars, it is 485 dollars for Ukraine. Obviously, these figures have nothing to do with a real market. So I think Ukraine has an 80-percent chance that Gazprom contracts will be revised.”