“We don’t want to solve Ukraine’s economic problems”: Gazprom announced the termination of all contracts with Naftogaz

Gazprom unexpectedly announced its intention to terminate contracts with Naftogaz for the supply and transit of gas as part of the proceedings in the Stockholm arbitration. The company explains its decision by an unfair arbitration decision on a transit dispute. This step by Gazprom transforms the situation from a difficult one into a full-fledged gas crisis, although formally there is no talk of interrupting supplies yet.

Gazprom announced its decision to terminate both contracts with Naftogaz from 2009 - both for supply and for transit. “Gazprom is forced to immediately begin the procedure for terminating contracts with NJSC Naftogaz of Ukraine for the supply and transit of gas in the Stockholm Arbitration,” the company’s message quotes its head Alexey Miller.

He explains this decision by the fact that the Stockholm Arbitration, “guided by double standards, made an asymmetric decision on contracts for the supply and transit of gas with NJSC Naftogaz of Ukraine.” Gazprom notes that “the arbitrators justified their decision by the sharp deterioration in the state of the Ukrainian economy.”

“We are categorically against the idea that Ukraine’s economic problems will be solved at our expense. In such a situation, the continuation of contracts for Gazprom is economically inexpedient and unprofitable,” the company said in a statement.

The fact that the termination of contracts will take place through an arbitration procedure means that this will not be done immediately. But in fact, this means at a minimum that Gazprom is not going to start supplying gas to Naftogaz and, moreover, reserves the right to stop transit. This extremely risky and harsh decision potentially jeopardizes the fulfillment of Gazprom's contracts for gas supplies to Europe, which the company has always called its top priority.

Both Gazprom and Naftogaz contracts provide for a standard arbitration clause, according to which disputed issues, as well as issues of contract termination, are considered in Stockholm arbitration. The commencement of arbitration proceedings is possible no earlier than 30 days after the start of negotiations between the parties (if they did not lead to success). Naftogaz said that it has not yet received documents from Gazprom regarding the termination of contracts - if they arrive in the coming days, the procedure in Stockholm will be able to start in early April.

According to the lawyers interviewed by Kommersant, the period for consideration of this dispute will most likely be at least a year.

Moreover, Gazprom, as a party wishing to terminate contracts, will need to justify the reasons for termination to the arbitrators, for example, prove that Naftogaz committed significant violations of the terms of the contracts, says general secretary Russian Arbitration Association Roman Zykov. He notes that arbitrators are not required to take into account previous arbitration decisions on disputes between Gazprom and Naftogaz - although the parties can cite them as arguments in favor of their position, in the final decision the arbitrators cannot refer to the results of other arbitrations. Mr. Zykov notes that Gazprom, theoretically, may try to impose interim measures - ask the arbitrators to remove its obligations under the contracts until the dispute is resolved on the merits.

That is, Gazprom has the opportunity to avoid gas supplies to Naftogaz (which it is in principle obligated to provide under the arbitration decision under the gas supply contract), and also not to comply with the transit arbitration decision, which required the company to transit through the Ukrainian gas transportation system at least 110 billion cubic meters per year (in 2017, transit amounted to 93.5 billion cubic meters).

Director of the National Energy Security Fund Konstantin Simonov on Kommersant FM:

The Stockholm arbitration applies some rules to Ukraine, and others to Gazprom, while naming the amount of the fine for the Russian company, without even explaining on what basis it was calculated, because there were no initial figures for this mathematics in the contract. In this regard, Gazprom was really, in my opinion, offended by this story, and I think it did this - since you, in fact, began to act according to the rules, we will also play by them...

The recent decision of the Stockholm arbitration obliging Gazprom to pay $2.56 billion to Naftogaz was met with hostility by the Russian company, which promised to challenge it with everyone accessible ways. Already on March 1, it refused to supply gas to Ukraine, and on March 2, it announced the start of the procedure for terminating contracts with the Ukrainian side.

“The Stockholm arbitration, guided by double standards, made an asymmetric decision on contracts for the supply and transit of gas with NJSC Naftogaz of Ukraine. Thus, the arbitration decision significantly upset the balance of interests of the parties under these contracts,” said the head of the gas concern Alexey Miller.

He noted that the arbitrators justified their decision by the sharp deterioration in the state of the Ukrainian economy. “We are categorically against the idea that Ukraine’s economic problems will be solved at our expense,” Miller emphasized.

“In such a situation, the continuation of contracts for Gazprom is economically inexpedient and unprofitable. “Gazprom is forced to immediately begin the procedure for terminating contracts with NJSC Naftogaz of Ukraine for the supply and transit of gas in the Stockholm Arbitration,” said the chairman of the board of Gazprom.

Earlier, Deputy Chairman of the Holding Board Alexander Medvedev said that Gazprom would not supply gas to Ukraine, and had already returned the prepayment received.

He justified this step by the fact that an additional agreement to the existing contract with Naftogaz, necessary for the start of supplies, had not been agreed upon.

“Therefore, in this situation, we, acting in good faith, returned in full the amount received from Naftogaz of Ukraine. It is obvious that gas supplies to NJSC Naftogaz of Ukraine will not be carried out from March 1,” said the deputy head of Gazprom.

Gas supplies were to be carried out in accordance with the December decision of the same Stockholm arbitration. Then the court ordered Naftogaz to buy from the Russian side on a take-or-pay basis at least 4 billion cubic meters per year under the existing contract and to pay just over $2 billion. But the latest decision of the arbitrators stipulates that Gazprom must pay Naftogaz. $4.673 billion under the transit agreement, which made the Russian concern a debtor.

Since the weather is currently cold in Russia, Ukraine and Europe, gas consumption is at its maximum. The lack of Russian gas forced the Ukrainian authorities to introduce a national energy action plan to limit consumption by March 7 natural gas in the country. Some institutions were closed.

President of Ukraine Petro Poroshenko announced on his Facebook that he is joining the initiative of NJSC Naftogaz of Ukraine under the slogan “Turn it up” and promised to reduce gas consumption in his home.

“As I personally join this initiative, I also encourage everyone government agencies Reduce room temperature as much as possible. I also ask citizens to turn down the heating by only one degree for a few days, or to avoid heat loss in their homes as much as possible,” Poroshenko wrote.

Ukrtransgaz warned the European Union about possible problems with gas transportation. The Ukrainian state-owned company wrote about this on its Twitter.

Ukrtransgaz, as the operator of the gas transportation system, urgently reported to the monitoring mission of the European Commission that Gazprom’s irresponsible actions in last days create significant risks for ensuring uninterrupted gas transportation for both European and domestic consumers,” the statement says.

The European Commission, in turn, has already stated that it “has been informed by the Ukrainian authorities of their concerns regarding the possible emergency in the Ukrainian gas transportation system (GTS)."

“Lack of direct supplies from Gazprom to Naftogaz”: it seems that Naftogaz and Gazprom failed to agree on the terms of import of natural gas, despite the decision of the Stockholm arbitration, which led to the refusal of gas supplies even for those prepaid by Naftogaz volumes,” European officials note.

They also report that the increase in reverse flows from the EU “to as soon as possible is problematic at present due to the tense situation in spot markets ( low temperatures throughout the EU) and difficulties in the technical redistribution of flows within the GTS."

“The European Commission calls on all parties concerned, companies and relevant ministries of Ukraine and Russia, to find an immediate solution in accordance with the decision of the Stockholm Arbitration,” the EC summarizes.

Experts believe that it will not be possible to reach a compromise between the parties to the conflict without EU mediation. At the same time, if contracts are broken, Gazprom is unlikely to be able to avoid paying a penalty or fine.

The decision to terminate the contract with the Ukrainian Naftogaz could lead to problems for Gazprom, believes Denis Frolov, head of the commercial practice of the law firm BMS Law Firm.

Firstly, it is often very difficult to terminate a contract unilaterally. Contracts usually specify the grounds that give this right. If there are no such grounds in this case, then such termination will be regarded as a refusal to fulfill obligations, and in court it is possible to achieve forced fulfillment of one’s obligations to which the party has signed up.

“Secondly, breaking the contract will lead to losses for Gazprom - there is little chance that the company will be able to avoid compensating Naftogaz for the costs that will be caused by such a decision. The contract may also stipulate penalties for unilateral refusal to fulfill obligations,” says the lawyer.

What is happening is more reminiscent of a very lively bargaining with the use of instruments of pressure on the opponent, available only to the largest gas exporter in Europe, says Maxim Kharitonov, general director of the investment company Kharitonov Capital.

It can be assumed that Gazprom, having assessed the inevitable financial losses from breaking the contract, came to the conclusion that they are the lesser of two evils, and supplies taking into account the arbitration decision will simply be unprofitable for the company. Or we are talking about acceptable pressure on the counterparty, with the aim of inducing the latter to reconsider the terms of supply in order to restore the balance of interests, the violation of which after a court decision was made Russian company declares, Kharitonov argues.

The Russian company will likely argue its position on revising agreements with Naftogaz by the fact that the current conditions are fundamentally different from those that emerged when signing contracts for gas supply and transit in 2009, believes leading expert of the National Energy Security Fund Igor Yushkov .

The problem with this conflict situation is that it will not be possible to replace Ukrainian transit by increasing the volume of supplies to Europe in other directions. More than 90 billion cubic meters are pumped through Ukraine every year, which is about half of Gazprom’s total export supplies, the expert notes.

In his opinion, at the moment the old contract is broken, it is necessary to conclude a new one. Gazprom will try to decouple transit from the agreement on gas supplies to Ukraine and sign a contract for a year or two in order to hold out until the Nord Stream 2 gas pipeline is put into operation. The EU will most likely participate in the negotiations as a third party.

The head of the Ministry of Energy, Alexander Novak, told reporters that in the near future he intends to discuss with the European Commissioner for Energy Maros Sefcovic the situation surrounding Gazprom’s contracts with Naftogaz of Ukraine.

“I just returned from a business trip and learned from the news that Mr. Sefcovic should call me. We will discuss all issues with him over the phone. In general, we agreed with him at the last meeting that we would meet periodically, and after the final decision of the arbitration court was made, we would meet and discuss all the details,” Novak told reporters.

“We proceed from the fact that contracts must be fulfilled,” the minister added.

Moscow, March 2 - "Vesti.Ekonomika". Gazprom is forced to immediately begin the procedure in the Stockholm arbitration for terminating contracts with NJSC Naftogaz of Ukraine for the supply and transit of gas, said the head of the company, Alexey Miller. The European Commission expressed its readiness to organize trilateral negotiations to ensure the transit of gas from the Russian Federation to the EU through Ukraine.

“The Stockholm arbitration, guided by double standards, made an asymmetrical decision on contracts for the supply and transit of gas with NJSC Naftogaz of Ukraine. Thus, the arbitration decision significantly upset the balance of interests of the parties under these contracts,” Miller said.

“The arbitrators justified their decision by the sharp deterioration in the state of the Ukrainian economy. We are categorically against the idea that Ukraine’s economic problems will be solved at our expense. In such a situation, the continuation of contracts for Gazprom is economically inexpedient and unprofitable,” the head of Gazprom emphasized.

Gazprom supplies gas to the EU in record volumes in other directions.

The European Commission (EC) expresses concerns about the transit of gas from the Russian Federation to the European Union through Ukraine, said EC Vice President for the Energy Union Maros Sefcovic.

“In the opinion of the European Commission, the dispute between the Russian Federation and Ukraine raises concerns about the transit of gas to the European Union and about direct gas supplies to Ukraine from the Russian Federation,” Sefcovic said.

The EC announced its readiness to organize trilateral negotiations with the participation of the EC, the Russian Federation and Ukraine, as in previous years in controversial situations.

“The European Commission is ready to organize a tripartite process, which has proven its effectiveness in controversial situations in the past,” noted the head of the EC.

At the end of February 2018, the Stockholm Arbitration Court satisfied the claims of the Ukrainian Naftogaz against the Russian Gazprom in a dispute over gas transit in the amount of $4.673 billion.

The court ruled that the Russian company must pay the Ukrainian side $2.56 billion.

“Of the monetary claims of $17 billion declared by Naftogaz, the arbitrators satisfied claims in the amount of $4.673 billion in connection with the supply of gas for transit to European consumers in a smaller volume than was provided for in the contract. Taking into account the amount previously awarded in favor of Gazprom the supply contract, the arbitrators offset counterclaims, as a result of which Gazprom is obliged to pay Naftogaz $2.56 billion,” Gazprom said in a statement.

The Russian company has already expressed disagreement with the Stockholm arbitration decision regarding Naftogaz’s claim under the gas transit contract.

Ukraine is forced to switch to fuel oil - this is the action plan adopted by the government. And Naftogaz launched a promotion with a telling name"Screw it on." All Ukrainians whose homes are heated by gas boilers were urged to lower the temperature and reduce gas consumption.

“Previously, these same arbitrators agreed with Naftogaz’s arguments about the sharp deterioration in the state of the Ukrainian economy, which resulted in a decrease in demand for gas and Naftogaz’s failure to fulfill obligations to take gas. However, in relation to Gazprom, which referred to the decrease in purchases by the company’s European clients as main reason reduction of transit through Ukraine, this argument was not taken into account,” the report notes.

Gazprom will protect its rights in the ways available to it in accordance with applicable law.

Gazprom also noted the imbalance in relations with Naftogaz regarding gas supplies and transit, which arose taking into account the results of two proceedings in the Stockholm arbitration.

“Taking into account the results of the two proceedings, a significant imbalance has arisen in the relations between Gazprom and Naftogaz regarding supplies and transit, disturbing basic principles Swedish law, which governs the contract," Gazprom said.

Gazprom was forced to break the existing agreements with Ukraine by the verdict of the arbitrators on transit contract, Miller made clear. “The Stockholm arbitration, guided by double standards, made an asymmetric decision on contracts for the supply and transit of gas,” said the chairman of the Gazprom board. This significantly upset the balance of interests, Miller said, and makes the continuation of the contracts “economically impractical and unprofitable.”

The Stockholm arbitration actually obliged Gazprom to pump 110 billion cubic meters annually through Ukraine. m of gas. It was this volume that appeared in the contract, but there were no penalties for violation.

At the same time, the arbitrators reduced by 10 times the volume of gas that Naftogaz, in turn, was obliged to buy on a take-or-pay basis - from 40 billion to 4 billion cubic meters. m per year.

As a result, Gazprom must pay Naftogaz $2.56 billion for pumping less gas in 2009–2017. And in the next two years, before the contracts expire, Gazprom will have to pay another $2.35 billion for transit, regardless of how much it actually pumps.

Can't do without each other

“An attempt to terminate gas contracts unilaterally could make the situation unmanageable and lead to aggravation of relations between Kiev and Moscow,” says Marinchenko. “It is obvious that Moscow is hurt by the decision of the Stockholm arbitration, and further actions may be emotional,” the expert continues. Negotiations in a calm mode are now hardly possible, but there is no alternative to them, Marinchenko believes: Gazprom continues to depend on Ukraine as a transit country, and for Ukraine $2 billion in foreign exchange earnings is a fairly significant amount.”

It will be very difficult for Gazprom to completely abandon transit through Ukraine. Last year, the company set a record for gas supplies to Europe - 194.4 billion cubic meters. m. But the existing gas pipelines - Nord Stream, Yamal - Europe and Blue Stream - are loaded above their designed capacity. Taking into account the possible increase in demand for Russian gas that Gazprom expects, the two pipelines under construction – Nord Stream 2 and Turkish Stream – may not be enough to cover consumption peaks. From this point of view, Gazprom needs Ukrainian transit, but the Russian company does not specify whether it now plans to negotiate on its preservation after 2019.

Europe is still silent

A new round of conflict between Gazprom and Naftogaz is causing concern among European regulators. On Saturday, Energy Minister Alexander Novak met with the Deputy Chairman of the European Commission for Energy Union issues, Maros Sefcovic. “Novak assured [Šefčović] that gas transit from Russia to Europe<...>remains as reliable as in the past,” a ministry spokesman said. “Until the contract between Gazprom and Naftogaz is terminated in court, nothing threatens the transit of gas through Ukraine.”

“Both Ukraine and Russia confirmed their readiness to maintain close contacts with the commission,” says a representative of the European Commission. “We will continue to do so and will closely monitor the situation to ensure that the transit of Russian gas through Ukraine to the EU – as it remains our priority – will always be maintained.”

“The termination of the contract will increase Europe’s distrust in the reliability of gas supplies from Russia,” says Mikhail Korchemkin, director of East European Gas Analysis. The current situation may negatively affect the image of Gazprom, agrees Marinchenko: “In Europe, the memories of interruptions in gas supplies in 2006 and 2009 are still alive.”

Gazprom’s reaction is, in principle, understandable - Stockholm’s decision does not look symmetrical, says Tatyana Mitrova, director of the energy center at the Skolkovo business school: “However, the form of the response regarding the termination of the contract seems very harsh, especially given the lack of preliminary consultations with European partners” . It is quite possible that this is indeed a way to start negotiations with an extremely harsh statement in order to force counterparties to a more constructive dialogue with a subsequent softening of the position and the inclusion of additional conditions in the package agreement - both regarding transit through Ukraine and in relation to Nord Stream 2 ", says Mitrova.

Gazprom has begun the procedure for terminating contracts for the supply and transit of gas through Ukraine. This was stated by the head of the company Alexey Miller. Naftogaz has not been supplied with fuel since March 1. Because of this, Ukraine threatened the Russian corporation with losses of hundreds of millions of dollars. At the same time, Kyiv introduced restrictions on gas consumption in the country, and residents were asked to lower the temperature in their homes. The Ukrainian company concluded fixed-term contract on the purchase of fuel from the Polish PGNiG. Read about the ongoing gas dispute in RT's material.

Gazprom building in Moscow
RIA Novosti
Vitaly Belousov

The head of Gazprom, Alexey Miller, announced the beginning of the termination of contracts for the supply and transit of gas through Ukraine, as well as the bias of the court’s decision.

In addition, he noted that Gazprom is against Ukraine’s economic problems being solved at its expense.

Previously, Gazprom stopped supplies to Naftogaz on March 1. At the same time, the head of the Ukrainian company Andrei Kobolev said that this step would cost the Russian corporation hundreds of millions of dollars and would also create many problems.

“These actions of Gazprom, which are contrary to the contract, which are contrary to the decision of the tribunal, which are contrary to the spirit of the client-supplier relationship and which, I think, will cost Gazprom many political problems in Europe,” he said.

According to his assessment, the Russian company Gazprom, having refused to supply gas to Ukraine, lost the right to fulfill the take or pay clause of the contract this year. Kobolev also believes that Naftogaz is no longer obliged to buy 4 billion cubic meters. m of gas in Russia.

Head of Naftogaz Andrey Kobolev
RIA Novosti
Alexander Maksimenko

“From what they did today, and they did two things: they did not fulfill their obligations under the contract, which was revised by the previous arbitration. And this automatically means that they will no longer be able to demand take or pay from us this year... Now Gazprom has lost the opportunity to demand even this figure from us (4 billion cubic meters per year. - RT),” concluded the head of Naftogaz.

Court and termination of supplies

On Wednesday, February 28, the Stockholm Arbitration Court ruled in favor of the Ukrainian company on the dispute that arose between Gazprom and Naftogaz regarding the fuel transit contract and ruled that Gazprom must pay Kyiv $4.6 billion as compensation for shortfalls in delivery. gas But taking into account the decisions on payments previously made in favor of the Russian side, a recalculation was made. As a result, Gazprom's Ukrainian campaign amounted to $2.56 billion.

Gazprom did not agree with this decision and stated that from March 1, fuel will be supplied to Ukraine. At the same time Russian side returned to Naftogaz the funds previously received for services in March, explaining that the reason was an uncoordinated additional agreement to the contract. Deputy Chairman of the Board of Gazprom Alexander Medvedev said that the campaign, acting in a “conscientious manner,” returned the received amount in full.

Kyiv, for its part, accused Gazprom of failure to comply with the Stockholm arbitration decision and stated that it intended to demand compensation for losses.

“Hold on until the cold passes”

Due to the interruption of supplies, the Minister of Energy and coal industry Ukraine Igor Nasalik announced the introduction in the country of a national action plan to limit natural gas consumption. The plan will be valid until March 6 inclusive. "An action plan that starts with today, provides for the transfer of generating companies from gas to fuel oil, which will give us the opportunity to save about 15-20 million cubic meters. m of gas per day,” noted the Ukrainian minister.

At the same time, the Naftogaz company turned to Ukrainian citizens with a request to lower the temperature in the batteries in order to save gas in order to “hold out” for several days until the frost subsides.

“We only need to hold out for three or four days until the cold weather passes. Who has gas boilers, reduce the room temperature by one degree during the day and by two degrees at night. This will reduce the need for gas by 8-9%,” says a message on the Ukrainian company’s Facebook page. Weather maps are attached to the publication, on which you can see that in the central regions of the country the temperature now reaches -20 °C.

On Friday, March 2, it became known that Naftogaz signed with
Polish PGNiG fixed-term contract for gas supplies. The press service of the Polish company reported that the agreement is valid until the end of March 2018. “The volume of the contract is more than 60 million cubic meters. m. Delivery began today at 6:00 via the Germanowice junction, which connects
Polish and Ukrainian gas transportation systems,” notes
PGNiG.

"A Vague Solution"

According to the director of the National Energy Security Fund, Konstantin Simonov, Ukraine interpreted the decision of the Stockholm court rather loosely.

“Kobolev’s statement is strange. Where did he read in the Stockholm Arbitration decision that Gazprom lost the right to the take or pay principle? Apparently, now Kobolev will interpret the arbitration decisions, and not his representatives,” the expert noted in an interview with RT.

At the same time, he emphasized that the court itself allowed numerous interpretations, since it did not explain its decision. Thus, Ukraine has a loophole.

“I personally see no reason to say that Gazprom has lost the right to take or pay. This does not follow from anything... But, unfortunately, the decisions of the Stockholm Arbitration Court remained vague. This is a very bad situation where there is a solution, but it is not explained at all. And the satisfied side, Naftogaz, begins to interpret everything in favor of the Stockholm arbitration,” concluded Simonov.

"At the level of delirium"

Gazprom, demanding to renew the contract with the Ukrainian side, acts exclusively within the framework of the law. This logically follows from the decision of the Stockholm court, explained Sergei Pravosudov, director of the Institute of National Energy, in a conversation with RT.

“A contract was concluded that is valid until the end of 2019. It specified the volumes of supplies. But the arbitration revised both the supply volumes, reducing them tenfold, and the price formula. Now it should be tied not to the price of oil, but to European exchange platforms,” the expert explained.

And it was at this moment that Ukraine sent an advance payment demanding that gas supplies begin. But in fact, the terms of delivery are now not specified.

“In fact, the contract needs to be completely rewritten. It is necessary to sign additional agreements that will spell out new norms. None of this was done. Money was sent “to grandfather’s village,” and they thought that we would supply them with gas,” Pravosudov said.

Thus, according to the expert, Russia rightfully declared the need to prescribe new norms. However, Ukraine accused Gazprom of failure to fulfill the contract and began threatening additional fines. According to the director of the Institute of National Energy, such requirements contradict logic.

“This is all just at the level of nonsense. That's not how things are done. You cannot supply gas without a contract. This is simply impossible,” he emphasized.

Let us remind you that legal disputes between Gazprom and Naftogaz have been ongoing since 2014. Last December, a Stockholm court ordered Gazprom to pay $2 billion for fuel already supplied.

The arbitration also decided to reduce the annual contract volume of purchases to 5 billion cubic meters. m of gas, but left the “take or pay” condition for 80% of this volume. At the same time, pricing was changed from a petroleum product formula to a link to the price of the German NCG hub. Kyiv is obliged to purchase gas in these volumes starting in 2018.