Ukraine arrests Gazprom’s shares: will it endanger gas transit to Turkey?

Kiev has arrested 40% of Gazprom-owned Gaztransit’s shares. This is how Department of the State Executive Service, Justice Ministry of Ukraine, fines the Russian holding for more than 189 billion UAH (nearly 395 billion RUR). The fines were imposed by Ukraine’s Anti-Monopoly Committee for alleged abuse of monopoly position on gas transit market. The amount includes the penalties for delayed payment of the fine. Gazprom failed to dispute it at Ukraine’s courts and experts agreed that the trial is politically motivated, since Gazprom is the only company to transit gas via Ukraine. Gaztransit JSC was founded in 1997 by Naftogaz of Ukraine, Gazprom, and Turkish Turusgaz, Trans-Balkan to increase the design capacity of the Ananyev-Tiraspol-Ismail gas main feeding Romania, Bulgaria, and Turkey. Tarutino gas-compressor station and three loop lines were built on it at the request of Gaztransit in 2001.

Within 16 years, about 300 billion cu m of gas were supplied using Gaztransit’s equipment, the company says. The compressor station and loop lines are the company’s key assets, along with the building located in Kiev. Gaztransit’s total assets are estimated at $20 million.

According to Ukrtransgaz, the daily supplies via Orlovka gas distributing station where export pipelines to Romania, Bulgaria and Turkey are closing is 50 million cu m. Actually, half of it runs through Ananyev-Tiraspol-Izmail pipeline. Earlier this year, Naftogaz of Ukraine allowed Ukrtransgaz to extend the gas transportation agreement with Gaztransit for another year and increase the daily supply of the Russian gas to 20.5 million cu m.

“It is hard to say, but I think the situation with Gazprom’s shares will not affect the gas transit, since Gaztranzit’s facilities are operated by Ukrtransgaz, Ukrainian gas transportation system operator,” says Dmitry Marunich, the co-chair of the Energy Strategies Foundation. “Ukraine needs to ensure stable supplies to avoid another international scandal. The only question is who will be funding operation of the equipment, buy fuel gas, for instance.”

This will hardly result in halting of gas supplies to Turkey, says Aleksey Grivach, Deputy Director of the National Energy Security Foundation. “Arrest of the shares does not affect supplies directly, but the risks for transit are growing evidently,” he says.

Earlier, Ukraine’s Justice Minister Pavel Petrenko said fines enforcement documents were submitted to the enforcement service, which has launched an active search of Gazprom’s assets in the country. Ukrainian sources report that along with Gazprom’s 40% share in Gaztransit, they have arrested the recent 232 million RUR investment in Gazprom’s subsidiary.

Dmitry Marunich told EADaily Gazprom’s assets in Ukraine are well known and the company could hardly conceal anything. “According to publicly available information, Gazprom holds another 40% shares of YUZHNIGIPROGAZ OJSC and Gazpromsbit LLC. Kiev has managed to fine Gaztransit, but it will hardly manage to do it with the design institute, the expert said. The institute is located in Donetsk and is beyond Kiev’s control.”

Anyway, the expert says, Gazprom’s assets in Ukraine do not account for even a small part of the fine, so any attempts to charge big funds from Gazprom inside Ukraine are doomed to failure. “Arrest of the transit gas has been much spoken of recently. However, Kiev will hardly do it; otherwise it will face a huge scandal with EU and endanger Ukraine’s transit to Europe at large,” Dmitry Marunich says.

Earlier, Energy Minister of Russia Alexander Novak, European Commission Vice President in charge of Energy Affairs Maroš Šefčovič promised him that Ukraine will not be enforcing the court decision on Ukraine’s Anti-Monopoly Commission’s fines. “Mr. Šefčovič told us he had Ukraine’s guarantees that no fines or property arrests will be imposed. We are not satisfied, as these are not legal guarantees, just verbal ones. This became evident when Ukraine’s Court initiated additional proceedings to that end,” Novak told RIA Novosti.

“If there were such guarantees, it means Kiev deceived the European Commission and gave additional argument to Gazprom about why it builds by-pass pipelines,” Marunich says.

To recall, three weeks ago, Gazprom launched construction of the Turkish Stream pipeline to start supplying gas to that country passing by Ukraine in late 2019.

Experts say the reason why Ukraine’s Anti-Monopoly Commission imposed fines on Gazprom was perhaps the idea that it will become an additional argument for the Stockholm Arbitration Court that considers mutual multibillion claims of Naftogaz of Ukraine and Gazprom concerning the 10-year contract they made in 2009.