Naftogaz wins ruling against take-or-pay clause in Gazprom contract

Ukraine’s natural gas giant Naftogaz reported on Dec.
22 that the Stockholm international arbitration court cancelled retroactively
the take-or-pay clause foreseen in the 2009 contract with Russia’s Gazprom. The
court ruled that Naftogaz should not pay USD 56 bln, as demanded by Gazprom,
for breaching the take-or pay clause in 2009-2017. The court ruled to reduce
the minimum amount to be purchased on take-or-pay rules to 4 bcm since 2018,
from 41.6 bln as stipulated by the contract signed in 2009.

On top of that, the court canceled the moratorium on
the re-export of Gazprom’s gas to be purchased by Naftogaz under the contract.
Also, the court ruled to set a price for natural gas that Naftogaz purchased in
2Q14 at USD 352/tcm, or 27% less that Gazprom demanded (USD 485/tcm). At the
same time, this price is 31% more than Naftogaz claimed (USD 269/tcm). The
price of natural gas to be purchased by Naftogaz will be equal to the price at
one of the European gas hubs, Naftogaz claimed.

Also, the court ruled that Naftogaz should not pay for
natural gas that Gazprom supplied to the occupied territories of Donbas
(Gazprom claimed it supplied there gas worth USD 1.3 bln as of December 2017).

In its turn, Gazprom claimed that the court had ruled
that Naftogaz pay it USD 2.02 bln (for gas it underpaid in 2013-2014). The bill
is payable on Dec. 22, and each day of delay will cost 0.03%, according to
Gazprom. Also, the court refused to recalculate retroactively the price of
natural gas purchased by Naftogaz in 2011-2014, based on which Naftogaz claimed
it overpaid Gazprom USD 14.1 bln.

Naftogaz also expects the court’s final ruling on its
gas transit contract with Gazprom in late February 2018, declaring a total
claim to Gazprom in this case at USD 16 bln. After this ruling, Naftogaz
expects to make final settlements with Gazprom.

Alexander Paraschiy: While the
rulings of the Stockholm court were not made public, it’s clear from the
statements of Naftogaz and Gazprom that the sum of the decisions favor
Naftogaz. In particular, Naftogaz managed to avoid Gazprom’s major claim (USD
56 bln for take-or-pay, or almost 60% of Ukraine’s GDP). However, the Ukrainian
company owes Gazprom USD 2.02 bln (which is also a huge amount for the
company).

Naftogaz’s main hope of avoiding this payment is
based on a favorable decision of the court on its transit contract, expected in
February. In our view, it would be too optimistic to count on a total USD 16
bln Naftogaz victory on the transit contract, but it would be a positive event
if this ruling covers USD 2 bln in payables of Naftogaz to Gazprom.