28 February 2018, Kyiv – The Stockholm Arbitral Tribunal today found in favour of Naftogaz on most major issues in the dispute with Gazprom. The Tribunal found that Gazprom had defaulted on its obligations regarding volumes to be transited and awarded damages of USD 4.63 billion. The award means that Gazprom will have to make payments to Naftogaz in the order of USD 2.56 billion after residual payments for gas delivered in 2014 and 2015 have been settled. “We are pleased that we won the arbitration case on major accounts. This is an important day for the people of Ukraine and for the future of European gas markets”, says Naftogaz CEO Andriy Kobolyev.
Naftogaz submitted a monetary claim of USD 15 billion for under-deliveries and underpayments in the present case plus interest while Gazprom submitted a counterclaim for USD 0.05 billion based on the reduced contract price for gas awarded by the same Tribunal in May and December 2017 in the Gas Sales Arbitration. In the latter, the Tribunal rejected Gazprom's claim for more than USD 56 billion based on take-or-pay provisions which the Tribunal invalidated. For 2018 and 2019, Naftogaz’s minimum annual offtake obligation was reduced from 41.6 bcm to 4 bcm, saving Naftogaz USD 21.2 billion.
The tribunal in the gas sales arbitration also allowed Naftogaz to pay USD 1.8 billion less for gas supplied at provisional prices in 2014 and 2015, compared to the amount based on the initial contract prices. Naftogaz estimates that based on current prices, the price revision will reduce gas supply costs for 2018 and 2019 by more than USD 0.5 billion.
The value of the total claims in these two arbitrations makes the dispute the biggest commercial arbitration in history, and consists all together of USD 125 billion when the total claims and counterclaims are summarised.
“The money should be spent on increasing gas production inside Ukraine and on investment in improved energy efficiency at the level of consumers in Ukraine. This will improve security of supply and give Ukrainians affordable energy,” says Kobolyev.
“The decision is in accordance with our expectations. This means that Naftogaz can move on with the development of the company, for the benefit of the people of Ukraine,” says Yuri Vitrenko, chief commercial officer of Naftogaz.
The Award confirms that Gazprom's delivery obligations under the Transit Contract are legally binding and therefore strengthens Naftogaz's position for the future. The transit contract was established in January 2009 and runs until and inclusive of 2019. The agreed volume to be transited covers a significant share of European gas demand. The Contract is consequently of great importance to European buyers and consumers. Naftogaz expects that transit to Europe will continue as before.
The Tribunal did not grant Naftogaz's claim for revision of the transit tariff, because Naftogaz’s 2009 request for revision did not fulfill the procedural requirements. The Tribunal also did not accept Naftogaz's claims for revision of the Transit Contract based on European and Ukrainian energy and competition law, noting that the implementation of regulatory reform on Ukrainian territory is a task for the Ukrainian authorities, going beyond the Tribunal's powers in this case.
“The Transit Contract will now need to be revised, taking into account the Award and the requirements of European and Ukrainian law. Naftogaz intends to suggest negotiations with Gazprom to this effect shortly. Following the Award, Naftogaz expects related gas market reform in Ukraine to continue at an accelerated speed”, says Naftogaz CEO Andriy Kobolyev.
“Naftogaz will do its utmost to implement the decisions by the Tribunal in good faith. Ukraine is and will remain a reliable energy partner for Europe”, says Naftogaz CEO Andriy Kobolyev.
Naftogaz will shortly provide a more detailed analysis of the Award and more information about the next steps to be taken.