Gazprom decides to appeal Stockholm court rulings

Russian natural gas monopoly Gazprom (GAZP RX) has
submitted an appeal to the Dec. 22 ruling of the Stockholm
arbitration court, deputy CEO Alexander Medvedev told
journalists on March 6. That ruling on the gas supply contract between Gazprom
and Naftogaz stated that Gazprom should receive USD 2.02 bln from Naftogaz.
Also, the company is going to appeal the court’s Feb. 28 decision on their gas transit contract,
which ordered Gazprom to pay USD 4.6 bln to Naftogaz.  In his comments on
Jan. 15,  Medvedev had said that Gazprom sees no reason to appeal the
December ruling.

Commenting on these decisions, the press service of
Naftogaz told Interfax-Ukraine that the appeal does not freeze the ruling,
meaning that Gazprom continues to owe Naftogaz USD 2.56 bln and this debt is
increasing by about USD 0.5 mln each day.

Alexander Paraschiy: What annoys
Gazprom most is that the Stockholm court obliged the Russian company to fully
obey the “ship-or-pay” clause of the gas transit contract (shipping at least
110 bcm through Ukraine annually, to the benefit of Naftogaz), while it earlier
declared as inadequate the “take-or-pay” clause of their gas supply contract (obliging
Ukraine to purchase no less than 42 bcm annually). By doing this, the court has
likely taken into account that Ukraine does not need to import 42 bcm of
natural gas from Russia (with a prohibition on re-exporting it) as total
consumption in Ukraine was 32 bcm in 2017. Lawyers for Ukraine reportedly
referred to adverse economic conditions that led to a significant drop in
domestic gas demand in Ukraine, and the court ruled to reduce the minimum
amount of gas imported from Russia to 4 bcm annually.

However, Russia’s lawyers could not effectively
argue by citing a tough economy to ask for relaxation of the “ship-or-pay”
clause (Gazprom was shipping over 140 bcm of gas to Europe each year starting
2009). For that reason, we see low chances for Gazprom to question the
reasoning behind the Stockholm court ruling. Moreover, according to comments by
Naftogaz, Gazprom can only question some procedural aspects of the court’s
hearing, not the argumentation of the ruling. Therefore, we believe that by
submitting the appeal Gazprom will be only able to postpone its payment to
Naftogaz. And such postponement may be costly for the Russian holding, as
Naftogaz is asserting.