While the 2009 gas deal with Russia does include a take-or-pay clause – the basis of the bill – Ukraine has ample legal grounds to challenge it in the arbitration court in Stockholm. The deal was signed under pressure, after Russia cut supplies in the middle of winter, and Ukraine’s legislation has changed considerably since. Naftogaz is no longer a monopoly importer – billionaire Dmytro Firtash’s OstChem imported eight out of the 33 billion cubic meters of gas bought from Russia last year But the $7 billion demand suggests Russia is counting the entire shortfall.
More importantly, the take-or-pay clause has limited legal validity, particularly since Germany’s RWE just won a landmark case in Stockholm after the court ruled the clause did not hold.
Unfortunately, if Ukraine fails to use this opportunity it would not mark a break with its recent trend of failed negotiations with Russia. While states throughout Europe have over the past year sued Gazprom or renegotiated their deals, Ukraine has blundered time and again.
One argument is that Ukraine has not been offered the backing that should come with its European Energy Community membership. While there is some truth to this, the government’s often passive attitude and murky dealings in the country’s gas sector suggest fouler play.
For one, the government’s resistance to hiking gas tariffs for households – a key demand to get International Monetary Fund lending back – does not seem justifiable. While the political costs are certainly significant, the costs of a deteriorating investment climate and looming financial crisis are much bigger. Moreover, it has long been suggested, by IMF economists no less, that targeted subsidies could prevent placing too much burden on the poor. And yet the current system persists.
Some believe that Ukraine’s population consumes less than the supposed 20 billion cubic meters annually, and that rent-seeking groups are benefiting from the margins. Other reasons posited why Ukraine doesn’t take legal action is that Gazprom has unsavory information on Ukraine’s past and current leadership that both sides wouldn’t want to become public record.
Right now, however, the most important thing is not to place another burden on a nation already staggering under the weight of poor decisions. Don’t pay the bill.
