Naftogaz wins international arbitration vs. Gazprom on 2009 gas deal

The international arbitration court in Stockholm issued a separate award rejecting Gazprom’s “take-or-pay” claim against Naftogaz, the Ukrainian gas giant reported on May 31. The court also “satisfied Naftogaz claim to make the contract price market-reflective,” and ruled to lift the ban on the re-export of Russian gas by Ukraine, according to Naftogaz.

The separate award contains no resolution on the amount of compensations payable by Gazrpom or Naftogaz, a representative of Russian gas monopoly commented, adding that final award should be expected not earlier than at the end of June.

Ukrainian president Petro Poroshenko commented that the award grants a right for Naftogaz to demand a decrease of the natural gas price under a contract with Gazprom in accordance to the market. “The price of gas will be determined exclusively by a transparent and free market, not Gazprom,” he said.

A ten-year contract between Naftogaz and Gazprom was signed in January 2009 under severe pressure from the Russian and EU side, and included a take-or pay clause with an annual payment for at least 41.6 bcm of imported gas, a ban on the re-export of such gas and a special price formula. Based on the contract, Gazprom demanded from Naftogaz USD 42.8 bln in compensation for under-imported gas under the take-or-pay clause by the end of 2016 (and this claim might have increased significantly by the end of 2019), as well as USD 2.9 bln in compensation for the price difference for natural gas supplied in 4Q13 – 2Q14. In turn, Naftogaz demands from Gazprom USD 17.9 bln in compensation for “over-priced” natural gas, as compared to the market.

Alexander Paraschiy: This is an important victory for the Ukrainian gas giant – at least it means that Naftogaz won’t be forced to pay multi-billion-dollar bills for breaching the “take-or-pay” clause. We should wait until the announcement of the final ruling from the Stockholm-based court to understand whether Naftogaz can count on any compensation from Gazprom. The award also decreases sovereign risks and “contingent liabilities” of Ukraine as a whole, adding more stability to Ukraine’s currency.