Gazprom-Turkmenistan: A story about how the Russian gas holding found itself in the shoes of Naftogaz of Ukraine

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“Friends have been replaced by partners, enemies by suppliers,” this quote from the French movie “Death of a Corrupt Man” is the best characteristics of Gazprom’s relations with its foreign partners. A few days ago mass media reported that on June 8 Gazprom’s subsidiary, Gazprom Export, asked the Arbitration Institute of the Stockholm Chamber of Commerce to oblige Turkmengaz to revise the price of their contract.

The Arbitration Institute of the Stockholm Chamber of Commerce is an arbitral tribunal settling international commercial disputes. So, it means that Gazprom and Turkmengaz have stipulated such a point in their contract. 

Among the other popular arbitration courts are the London Court of International Arbitration, the Vienna International Arbitral Center, the Paris International Court of Arbitration.

The key peculiarities of the Stockholm court are that it considers cases very quickly and that its verdicts are final.

There are examples when such a suit was successful. In 2013 the Czech subsidiary of RWE, RWE Supply & Trading CZ, won its case against Gazprom Export in Vienna and was exempted from the take or pay rule. Gazprom Export was also obliged to harmonize its price with spot oil prices and to give back part of the money paid by the Czech company.

And even though Gazprom Export said that RWE’s suit was satisfied partially, the door for other companies was already open. As a result, Gazprom offered discounts to DEPA of Greece, ENI and Edison of Italy and E.ON and RWE of Germany in exchange for their promises not to file similar suits.

It turns out that in its commercial dispute with Turkmengaz Gazprom is acting not the way it did in its dispute with Naftogaz. In 2009, Naftogaz CEO Oleh Dubina and Gazprom CEO Alexey Miller signed a 10-year contract on gas supplies to Ukraine and on gas transit via Ukraine to the European Union. The contract is still in force and it also contains the take or pay formula. But what the current dispute has to do with this case? The contract between Gazprom and Turkmengaz concerns the selling and buying of Russian, Kazakh, Uzbek and Turkmen gases. That is, just like in the case of Ukraine and the EU, here Gazprom is an agent between exporters (Kazakhstan, Uzbekistan and Turkmenistan) and importers and transit countries.

The key difference of the Naftogaz-Gazprom is that its price is linked not with spot oil prices but with average spot price light and heavy oils. And, as you may know, oil products have higher prices.

Here Gazprom is facing the same situation some its consumers have faced before. Once Gazprom insisted that Naftogaz should pay for all 41.6bn c m even if it had failed to take the whole quantity. Today its subsidiary, Gazprom Export is facing the same situation. The contract with Turkmengaz was signed in 2010 and is linked with spot oil prices. So, today its price is $240 per 1,000 c m. But last year oil prices slumped and now Gazprom Export is selling its gas to the EU for just $230-250. Naturally, the $240 price will give the company no profit.

So, Gazprom Export’s suit seems to be just a proactive move. He Russia company hopes to gain time in case the “enemy-supplier” decides to use the successful experience of RWE and some other commercial “friend-partners.”

Sergey Slobodchuk, political advisor, specially for EADaily