You're reading: Officials waffle on Gazprom $7 billion bill

Ukrainian officials seem unclear on how to proceed with the $7 billion gas bill from Russia’s Gazprom.

As the nation’s economy remains crippled by high gas prices, experts advise going to court over the payment and challenging an unfavorable 2009 contract while they’re at it.

At a conference organized by the European Business Association on Jan. 29 in Kyiv, Foreign Minister Leonid Kozhara told attendees that the government has yet to act on the bill and was considering all of its options, including a plan to combine debt restructuring with a reduction in the price for Russian gas.

The following day Kozhara reversed his position, claiming Ukraine had not officially recognized the bill. This position was seconded by Energy Minister Eduard Stavytsky, who emphasized that state gas company Naftogaz had paid all bills from Gazprom ahead of deadlines and in full, and had repeatedly warned the Russian company it would reduce its purchases of gas in 2012

The $7 billion bill is based on a take-or-pay clause in the agreement signed in 2009, following a gas feud in which Russia cut supplies in mid-winter. Under the contract, Ukraine has to import a minimum of 42 billion cubic meters, far above the 33 billion imported last year.

The unfavorable agreement also introduced a payment model that led Ukraine to pay one of the highest gas prices in Europe.

“Under no circumstances should Ukraine consider (paying) this bill,” said Valentyn Zemlyansky, an independent energy expert and former Naftogaz spokesperson. Ukraine has fulfilled all its obligations toward Russia’s Gazprom, he argued, and can now follow one of two scenarios – annulling the bill itself or go for arbitration in Stockholm.

Asked what Russia’s motives were, Zemlyansky said there was a combination of ill will and reaction to a contract on shale gas exploration potentially worth $10 billion, signed between Ukraine and Royal Dutch Shell on Jan. 24.

Mostly, however, it is to ensure future negotiations will be conducted from a position of strength, he added.

Nonetheless, Ukraine’s Justice Minister Oleksandr Lavrynovych expressed hopes the two gas companies could avoid going to court and settle the dispute through negotiations.

Others believe that Ukraine should take the offensive. This would help show the arbitration court that Ukraine is confident in its position, argued Roman Marchenko, senior partner at law firm Ilyashev & Partners.

He added that Ukraine should use recent cases won by energy companies as precedents to renegotiate their own deal with Gazprom. In particular, Marchenko pointed to the case of the Czech branch of German energy firm RWE, which in October 2012 won a landmark case against Gazprom after a court ruled for the first time that a company did not have to pay fines under a take-or-pay clause.

Several other European companies renegotiated their deals with Gazprom last year, spurred on by a European Commission probe into gas price-fixing by the Russian monopoly, which Moscow has denied.

“Given the decisions in favor of European companies, Ukraine would have a good chance to win this argument,” Marchenko said.

Kyiv Post editor Jakub Parusinski and staff writer Christopher Miller can be reached at [email protected] and [email protected]