Naftogaz of Ukraine has won the arbitration against the Russian Gazprom gas supply contract on all contentious issues. About it reported in a press-service NAK.

The company reported that the arbitration court completely rejected the demands of Gazprom’s position of “take or pay” in the amount of $56 billion over the 2009-2017

In addition, Naftogaz has made the reduction of future required annual volume of more than 10 times in accordance with its actual requirements for the import of gas.

The price of gas, Naftogaz received in the second quarter of 2014, decreased 27% from $485 to $352 per 1 thousand cubic meters.

It is also reported that due to the revision of the contract price Naftogaz saved $1.8 billion on gas purchased in 2014-2015.

“The arbitration court nullified the onerous provisions of the contract, bringing it to a market-oriented European standards”, – noted in the company

Naftogaz estimates the total positive effect of arbitral awards in more than $75 billion for the entire term of the contract for the supply of gas.

Naftogaz requires to $16 billion in arbitration on transit contract – a decision is expected on 28 February 2018.

Recall that between Naftogaz and Gazprom, there are two contract for the supply of gas and for its transit via the territory of Ukraine. In 2014, in Stockholm was initiated two proceedings for each of these contracts.

The position of “take or pay”

The contract provides for the obligation of Naftogaz to pay for 41.6 billion cubic meters of gas per year, regardless of whether the company selects these volumes or not. In Naftogaz said that with the 2017 requirements of Gazprom under this provision of the contract at the end of the current year amounted to more than $56 billion (including interest). In a separate decision dated may 31, 2017, the court refused Gazprom in meeting these requirements.

“Despite the public rhetoric of Gazprom and some commentators, who called a separate decision “preliminary”, the fact of filing an appeal against this decision on the part of Gazprom should indicate that it is final on certain issues, and that these decisions obviously unhappy with Gazprom. Given the volume 2017 Naftogaz managed to get rid of the obligation to pay Gazprom $56 billion for gas, which Naftogaz was unnecessary and that he had not received”, – said the chief commercial Director of the group Naftogaz Yuriy Vitrenko.

In 2018-2019, before the termination of the contract, Naftogaz requires to bring this provision into line with European legislation on the protection of competition, resulting in the contract volumes of gas will be drastically reduced from 52 billion cubic meters per year to a level where they will not exceed 50% of the actual needs of Naftogaz imported gas, the company said. Thus, Naftogaz will be able to avoid having to pay about $28 billion in 2018-2019 expected difference between the real needs of Naftogaz and the cost of gas that was stipulated in the contract.

The price of gas

Arbitration Naftogaz demands to revise the contract price.

Already made separate awards, the revision of prices covers the period from the specified date in the second quarter of 2014. Given the proportion in the relevant volumes of imported gas, the most significant revision of the price is exactly the second quarter of 2014, when the contract price was $485 per thousand cubic meters, said the Naftogaz.

Positions of the parties in proceedings on the contract for gas transit

In contrast to arbitration proceedings under the contract for the supply of gas, where the position of Naftogaz is primarily defensive, in proceedings on the contract for the transit of Naftogaz is an offensive position.

Naftogaz may receive up to $16 billion (including interest) in the 2009-2017 years, and the expected additional transit revenues to $7.9 billion in 2018-2019 if the arbitration will apply to the contract Ukrainian energy legislation.

“This requires that the court agreed with the position of Naftogaz that this legislation is required in relation to the contract, in line with European energy legislation and therefore should be applied to this contract, despite the fact that the contract provides for the application of the law of Sweden. Also this requires that the arbitration did not agree with the position of the opposite side that Ukraine was not able properly to implement the Third energy package of the EU on the Ukrainian natural gas market”, – explained in the company.

It is also noted that the separation of the operator of the Ukrainian GTS (unbundling) also depends on the use of arbitration Ukrainian law, as under the transit contract directly with Naftogaz Gazprom provides services to the transit, and its rights and obligations under this contract may not be transferred to the unified gas transportation operator.

Naftogaz has won a lawsuit against Gazprom in Stockholm: details 22.12.2017

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