Naftogaz, Gazprom sign 5Y gas transit agreement

Naftogaz of Ukraine (NAFTO) and Gazprom (GAZP RX)
signed an agreement on Dec. 30 for organizing the transit of Russian natural
gas through Ukraine for the next five years, the companies reported the same
day. As a part of the deal, Gazprom also paid a USD 2.92 bln arbitration award
to Naftogaz on Dec. 27, and both sides recalled all their court claims related
to the 10-year contract signed in 2009.

As agreed a week before between the companies, the
transit contract will involve the transit of gas in the minimum guaranteed
amounts of 65 bcm in 2020 and 40 bcm p.a. in 2021-2024. Total payment from
Gazprom for such transit will amount to USD 7.2 bln, Naftogaz CEO Andriy
Kobolyev told journalists on Dec. 31. Naftogaz will order the respective gas
transit capacity from the Operator of Gas Transit System of Ukraine (the
company that was spun off from Naftogaz). The difference between Naftogaz
revenue received from Gazprom and Naftogaz costs of purchasing transit
capacities will be less than 6%, Kobolyev expects.

Kobolyev also expects that actual amount of Russian
gas transit will reach 75 bcm in 2020, stating that any transit beyond the
minimum will be paid based on a higher rate (paid by Gazprom).

Recall, the basic principles of a new gas deal package
were agreed upon between the Ukrainian and Russian sides, with EU mediation, in
a protocol signed in Minsk on Dec. 20.
Based on the agreements, Ukraine’s Energy Minister Oleksiy Orzhel revealed his expectations that Ukraine would receive USD 3 bln annually
from the transit of Russian gas in 2020-2024.

Alexander Paraschiy: The good
news is that Naftogaz finally received its USD 2.9 bln Stockholm court award
from Gazprom and that Ukraine was able to secure another five years of Russian
gas transit. Such a scenario looked too optimistic just two weeks ago. At the
same time, Naftogaz’s guaranteed profit from the final deal does not look so
encouraging, considering Orzhel’s comments on expected Naftogaz revenue of USD
15 bln in five years.

In any way, the deal will be supportive for
Ukraine’s GDP and its gas transit sector, and it looks like a solid achievement
of Ukrainian negotiators. Definitely, the support of the EU side (which
pressured Gazprom), coupled with the U.S. sanctions imposed this month on Nord
Stream 2 contractors, made a positive deal a reality.