Ukraine, Russia to sign five-year gas transit deal, Gazprom to pay USD 3 bln award

Ukraine’s Cabinet of Ministers published on Dec. 21 a
protocol signed by ministers of Ukraine, Russia and the EU outlining parts of
an agreement on signing a deal to transit Russian gas through Ukraine as of
after Jan. 1, 2020. As a part of the agreement, Gazprom has committed to pay
Naftogaz about USD 2.9 bln net compensation awarded by the Stockholm
Arbitration Court in 2017-2018, while Naftogaz will recall all its other legal
claims against Gazprom. Ukraine will also stop demanding compensation of a
penalty imposed against Gazprom by the Anti-Monopoly Committee (UAH 172 bln).

The contract for gas transit will foresee transit of
Russian gas in the minimum amount of 65 bcm in 2020 and 40 bcm p.a. in
2021-2024, Ukraine’s Energy Minister Oleksiy Orzhel commented in a Dec. 21
press briefing. The deal could be prolonged for another five or ten years.

The rate on transit should be “competitive” and should
correspond to the those applied by gas transit operators in Western and Central
Europe, according to the protocol.

Alexander Paraschiy: From the
protocol, we can only conclude that Gazprom has committed to pay its USD 2.9
bln award to Naftogaz by Dec. 29, in exchange for the Ukrainian sides’ refusal
from the other legal claims related to the contract signed in 2009, as well as
the remowal of the Antimonopoly Committee’s penalty.

Meantime, the protocol’s items on the gas transit deal
do not look clear or transparent. In particular, the document specifies that a
gas transit deal will be signed between Gazprom and Naftogaz. (This looks strange,
as we expected that the deal would be signed between Gazprom and Ukraine’s GTS
operator, which was recently spun off from Naftogaz).

In turn, it will be Naftogaz (not Gazprom) who will
order gas transit services from the GTS operator, will pay the transit rate and
will order transit capacities (40 to 65 bcm p.a.)

All in all, the signed protocol does not answer the
question of whether Ukraine will be able to benefit from the future transit of
Russian gas. But at least it significantly raises the chance that transit will
continue for at least the next five years.

More conclusions on the future gas deal could be made
after the Russian and Ukrainian sides sign a contract, which is expected by the
end of 2019.