Gas war with Russia: Will Kiev pay twice?

Naftogaz of Ukraine continues overpaying European agents for Russian gas and has been urged by Gazprom to buy its gas directly under the contract.

According to Ukraine’s Economic Development Ministry, in Dec 2016, Ukraine bought gas from Europe for $230 per 1,000 c m. “In Dec 2016, the average customs value of imported natural gas was 6,006.65 UAH or $230 per 1,000 c m,” says the Ministry. In Q4 2016, Gazprom offered its gas for $180. Thus, in Dec 2016, Naftogaz of Ukraine paid $50 more for each 1,000 c m. During that period, the country imported 50mn c m a day or a total amount of 1.5bn c m and overpaid for it $75mn.

EADaily reported earlier that the greater part of the gas Ukraine is importing is Russian gas re-exported by European suppliers. According to Business Development Director of Naftogaz of Ukraine Yuri Vitrenko, the gas is sent back once it reaches Slovakia. “The reason why the Slovaks are giving us back part of the gas pumped out of Ukraine is not that we have chosen this scheme but the contract you signed with Putin in 2009, a contract that prevents us from re-importing the gas virtually – that is, from replacing the gas we buy from Europe with the gas coming from Europe to Ukraine,” Vitrenko said on Facebook, in response to former Prime Minister Yulia Tymoshenko’s corruption charges.

Last year, Slovakia pumped to Ukraine as much as 9bn c m – 81% of all reverse gas imported by Ukraine or almost 1.3 of all gas consumed by that country. The rest was supplied from Poland and Hungary.

A few days ago, Naftogaz received a bill from Gazprom, where the Russian company claims $5.3bn for the gas the Ukrainians failed to take last year.

According to Dmitry Marunich, Co-Chair of the Ukrainian Energy Strategies Foundation, Gazprom has acted in line with the take or pay rule. “It says that Ukraine is obliged to buy 52bn c m from Gazprom annually. It has two chances to reduce the amount by 20% and even to avoid the rule if both parties agree on this – exactly as they did last winter,” Marunich says.

Spokesman of Gazprom Sergey Kupriyanov has told RBC that in Q1 2016, Naftogaz enjoyed a “winter package” and the bill covers only the following period.

Naftogaz is not going to pay the bill.

“We are not going to pay $5.3bn for gas we haven’t ordered and haven’t received. This is three times as much as we paid for the last year’s imports from Europe. Gazprom refers to the take or pay rule. The arbitration court will decide if the rule should be applied or not,” Naftogaz of Ukraine says on Facebook. Vitrenko adds that Gazprom also claims $29bn for the gas Naftogaz refused to take in 2012-2015.

Naftogaz insists that it was ready to buy Gazprom’s gas last year but on the terms of 2014-2015, when Gazprom agreed to suspend the take or pay rule. Last year, Gazprom’s CEO Alexey Miller said that the company was not going to do the same in 2016-2017.

Experts say that the key reason why the sides are so uncompromising is that they don’t want to give each other any advantages in Stockholm, where the local arbitration court is considering their mutual claims. Naftogaz wants Gazprom to revise the contract, to make the price fair and to revoke the take or pay rule. It also claims compensation for reduced transit – a total of $28bn. The Ukrainians also hope that the Stockholm court will allow them to re-import gas from Europe on a virtual basis and to raise the transit tariff by 1.5 times even though this is contrary to the contract.

Gazprom, in its turn, claims money for the gas Naftogaz has refused to take since 2012 and the debts it does not own – a total of $37bn.

In Dec 2016, CEO of Naftogaz Andriy Kobolev screwed up when admitting that he did not know how to pay the money. He said that even the sale of Ukraine’s gas network would not help as it costs just $30bn. But even if Kobolev loses, he has some plan B.