Days after Ukrainian state oil and gas company Naftogaz of Ukraine won a stunning victory against Russia’s Gazprom in a Stockholm arbitration court, the Kremlin’s giant gas company is threatening to break off all gas contracts with Ukraine.
A Naftogaz official, speaking on March 5, said breaking off the contracts would be impractical and would provoke years of litigation, but added that Ukraine was preparing for the worst-case scenario by seeking new gas suppliers in Europe. Naftogaz is also filing a counter-claim in the court, and bringing the European Commission into the negotiations.
Russian state gas monopolist Gazprom was unhappy with a ruling by the Stockholm artibtration court, issued on Feb. 28, which ordered it to pay Naftogaz $2.56 billion in compensation for underdelivering transit gas. But the end of that four-year long legal battle has only escalated the conflict.
In what looked like retaliation for the legal defeat, on March 1 Russia refused to start the slated delivery of 18 million cubic meters of gas per day to Ukraine. The Stockholm court ruled Naftogaz has to buy 5 billion cubic meters of gas annually until the existing contract ends in 2019. Gazprom returned Ukraine’s pre-payment for the gas, and Ukraine was forced to cut gas consumption amid a sub-zero cold snap, and urgently sign a deal with Polish gas company PGNiG at a higher price.
Gazprom then sent Naftogaz an official notice that it would terminate its contracts for gas supply and transit with Ukraine through the Stockholm court, Gazprom CEO Alexey Miller told journalists on March 5.
The commercial director of Naftogaz of Ukraine Yuriy Vitrenko said at a media briefing on March 5 that Naftogaz had received Gazprom’s notice, but the contract gives the parties 30 days to reach an agreement before the dispute can be taken to the court.
“The litigation will take years. The gas transit contract ends on Dec. 31, 2019, and it’s senseless to expect that the trial will have finished until then,” Vitrenko said. “In my opinion, from practical standpoint, the contracts won’t be broken off.”
Naftogaz is determined to take Gazprom to court again to demand compensation for losses caused by a last minute cancellation of gas supplies. After five days Gazprom owes Naftogaz $2.5 million, Vitrenko said.
But Ukraine doesn’t want to lose its transit contract – Russia currently supplies Europe with 15 percent of the gas it consumes, and half of those Russia gas exports go through Ukraine.
“We’re not raising the issue of terminating the gas contract. But we will go to court to have its terms reconsidered in compliance with Ukrainian and European legislation,” Vitrenko said. “We’re ready for a constructive dialogue with Gazprom.”
