Gazprom vs Naftogaz: Ukraine Won a Moral Victory Over Russia… But Will Pay Moscow Billions

Translated by Ollie Richardson & Angelina Siard


The Stockholm arbitration court made a final decision, which concludes a four-year process between Ukrainian Naftogaz and Russian Gazprom. The verdict of the arbitration was in itself more than expected.

Everything about this case was clear in May, when an “intermediate decision” was made.

We won’t debate which side was victorious. There is the opinion of the international ratings agency Fitch, whose love for Russia wasn’t noticed. This agency evaluates the conclusion of the Stockholm court in general as neutral for Gazprom and moderately negative for “Naftogaz”.

We will attentively analyse it later, but something else is more interesting. Namely, the media’s reaction, because it tells us the most important thing: about the tasks that were set out by the parties of this process.

In Ukraine, naturally, it was a “peremogi” [victory – ed].

Naftogaz informed all interested parties that it had completely won arbitration against Gazprom “on all disputable issues”, that the arbitration allegedly fully rejected the demands of Gazprom on the point “take or pay” concerning the sum of $56 billion for 2009-2017, and that, in addition, they managed to reduce the contract price of gas received in the second quarter of 2014 from $485 to $352 per 1000 cubic meters.

What can be said here.

Firstly, despite the statement of Naftogaz, the condition of take-or-pay in itself was upheld by the arbitration, however the take-or-pay level was lowered in such a way that Naftogaz has no obligations for payment of money to Gazprom, which, in general, is quite reasonable: yes, according to the letter of the law, “Gazprom” had the grounds to receive $35 billion on this condition. But in the former, “pre-revolutionary” years “Gazprom”, frankly speaking, also didn’t calculate take-or-pay for Ukrainians. So this demand could in general be put in the category of “political”, which the arbitration actually did.

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As for the contractual price of gas received in the second quarter of 2014, then yes, ours acted defiantly. For Ukraine, in the second quarter of 2014 the price of $485 had indeed been established, and it was higher than the market price. This happened due to the fact that Crimea reunited with Russia because of the referendum in March. As a result, Russian gas workers also decided to repeal the so-called Kharkov contract, under which in exchange for leasing out the Black Sea Fleet Russia gave Ukraine a $100 discount for gas per 1000 cubic meters. Without this discount the price would rise, which, according to the terms of the contract, is established quarterly.

At the same time, the Ukrainian media diligently doesn’t pay attention to one simple fact: recognition by the Stockholm court of the price of Russian gas for Ukraine in 2011-2014 is much more significant than the recognition of the inflated price in one quarter.

And now we come to the most interesting thing: why, despite the obvious, seemingly “moral victory” does Fitch consider the decision of the Stockholm arbitration to be neutral for Gazprom and moderately negative for Naftogaz?

The agency points, firstly, to the differences in the stability of the financial position of the companies. And secondly, according to the court’s decision, Gazprom shouldn’t pay any money to Naftogaz — but Naftogaz has to pay Russian gas producers. And although these are not those tens of billions, but “only” the payment of debt for the supply of gas totalling $2.019 billion dollars, but here the decision is already final, and for each day of delay 0.03% will be charged to the Ukrainian side.

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And this, excuse me, although it looks to be frivolous, but it is much more than $600,000 a day (!).

By the way, Naftogaz can’t pay this two billion to the Russians right now, and not because it doesn’t want to, but because it can’t: as recently as December 20th the court in Slovakia, in pursuance of a decision of the same Stockholm arbitration court, although concerning a different matter – the claim of the Italian company IUGas – arrested the supply of gas from Slovakia to “Naftogaz” Ukraine.

… In general: on the one hand, guys, you, of course, “morally won”. And it wasn’t succeeded to force Kiev to pay for gas, delivered by Gazprom to Donbass. It is a pity, of course, but here, like with the Kharkov agreements: to be fair, no one expected it: it was just courage.

But it’s you who will be obliged to pay money, and quickly.

And here we arrive at the most important thing: those “tasks” that the participants of the process initially put before themselves. And here, judging by the frantic “victory” of the Ukrainian side and the relaxed-satisfied comments of Gazprom, everyone received what they initially fought for.

Ukraine received a “moral victory”. And Naftogaz came one step closer to bankruptcy. Gazprom received money and visually showed to West European partners why it is necessary to accelerate the construction of “Nord Stream-2”.

Everyone got theirs.

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