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Gazprom may get $1.7bn from Naftogaz

Naftogaz’s CEO Andriy Kobolyev. Photo: oligarh.org.ua

The Ukrainians are making triumphant statements after the interim verdict by the Arbitration Institute of the Stockholm Chamber of Commerce concerning the Gazprom-Naftogaz dispute. Naftogaz’s CEO Andriy Kobolyev says that Gazprom will have to pay back part of the money Naftogaz paid for gas supplied in Q2 2014. In its turn, Gazprom wants Naftogaz to repay the $2.2bn debt for gas supplied in Nov-Dec 2013 and Q1 2014. During those periods Naftogaz paid the price of $268.5, while, according to the contract, it had to pay $410 and $485, respectively. The Stockholm court has ruled that the price should be equal to the price of European hubs (regional exchanges).

“We have had the price for 2014 revised, which means that Gazprom will have to pay us certain compensation for the amount of gas we bought throughout that period,” Kobolyev said. Ukranews.com quotes him as saying that the sum is yet to be specified by experts to be selected by both sides, with their findings to serve as a basis for the Stockholm court’s final verdict.

As EADaily reported earlier, the Ukrainians claim that the court has dismissed all of Gazprom’s claims and has ruled that the “take or pay” rule should be removed from the contract. The court has also dismissed Naftogaz’s claims for compensation for 2010-2013. Thus, the money paid in Nov-Dec 2013 and Q2 2014 is the only money Naftogaz and Gazprom may get in Stockholm. The court is yet to decide on Naftogaz’s claims for $12.3bn compensation for underrated transit tariffs.

EADaily has examined the case to see who owes what to whom and if Naftogaz can hope to get any money from Gazprom.

Concerning the compensation for Q2 2014. During that period, the Ukrainians took 7.9bn c m of Russian gas. Had they paid $485 per 1,000 c m, they would have paid $3.83bn but they paid just $2.12bn because they insisted that the “winter package” price of $268.5 (the price approved through the intermediary of the EU for that winter) had to be extended for Q2 2014. The Stockholm court has ruled that the price should be linked to the prices that were in force at European regional exchanges at that time. According to the European Commission’s report on Q4 2014 and Pegas, the average gas price at European hubs in Apr-June 2014 was 18-20 EUR per MW, which makes up $292 per 1,000 c m and $2.31bn for the amount taken by Naftogaz during that period. That is Naftogaz owes Gazprom $190mn.

According to Deputy Director of the National Energy Security Fund Alexey Grivach, these calculations are not correct as the price does not include the transportation tariff – the tariff the Ukrainians regularly paid when buying reverse gas from Europe. Co-Chairman of the Energy Strategies Foundation Dmitry Marunich specifies that the tariff is $30 per 1,000 c m, which means that in Q2 2014, Naftogaz had to pay additional $237mn. In this case, the Ukrainians will have to repay Gazprom $427mn rather than just $190mn.

The Stockholm court has not reviewed the price for Nov-Dec 2013, which is $410 per 1,000 c m or $1.45bn for the supplied 3.5bn c m. Naftogaz paid $950mn or $500mn less.

So, we see that Gazprom does not have paid any compensations to Naftogaz. Quite the opposite, Naftogaz owes Gazprom as much as $927mn. Of course, this is not $2.2bn claimed by Gazprom but this is not bad considering the fact that Naftogaz’s counterclaims amount to billions of US dollars.

Grivach notes that what we have for the moment is just reports by Ukrainian sources, while lawyers are still examining the 790-page verdict. But as the court has ruled to link the price for Q2 2014 to the price of European hubs, it would be fair to do the same for Q1 2014, when Naftogaz paid the “winter package” price of $268.5 per 1,000 c m. During that period, the Ukrainians took 6.1bn c m of Russian gas and paid $1.63bn but that that at European hubs the same gas would have cost $348 per 1,000 c m, that is the Ukrainians should have paid $2.12bn and $2.4bn with the transportation tariff inclusive. So, if we follow the logic of the Stockholm court, Naftogaz owes Gazprom $770mn for Q1 2014.

If we add this sum to the debt for Q2 2014, we will have $1.7bn.

Kobolyev says that if Gazprom refuses to pay the compensation it allegedly owes to Naftogaz, the latter will have the right to seize its assets in the territory of Ukraine.

But what will the Ukrainians do if it turns out that it is they who have to pay compensation? Whatever the verdict, either of the sides may delay its enforcement by disputing it in other courts.

According to Marunich, Naftogaz will have no other way but to comply with the Stockholm court’s decision.

“But $1.7bn is a huge sum for that company. They will not be able to pay it at once and may ask for an installment plan. Last year, Naftogaz raised its tariff for domestic consumers and began generating profit (in 2016 it earned more than $1bn). They also have the money Gazprom pays for the transit of its gas via Ukraine. In 2016, the Russians paid $2bn for this service,” Marunich says.

Earlier, he told EADaily that Ukraine already paid some of its “debts” when it refused to buy Gazprom’s gas directly and began paying for it more by buying it from European resellers. In 2016 alone, Ukraine overpaid $440mn for re-exported gas. Over the last two, years, it has overpaid more than $1bn. If we add the $1.7bn Naftogaz may have to pay to Gazprom, the total sum will be much bigger than the $2.2bn Gazprom claims from Naftogaz in Stockholm. This situation benefits Gazprom as its exports to Europe is growing: last year, they grew by 12.5%, in Jan-June 2017, they grew by 13.3%. According to Gazprom’s CEO Alexey Miller, over the last 1.5 years, the exports to Europe have grown by 30bn c m. One reason is that the Europeans are buying more gas for reselling it to Ukraine and the other reason is that they are buying more gas because they no longer trust Ukraine as a transit country. This is one more ground for Gazprom to insist on the need for bypassing routes like TurkStream and Nord Stream 2. If they are built, the Stockholm court’s decisions will no longer matter as the contract will expire and Naftogaz will have no more instruments for blackmailing Gazprom.

Permalink: eadaily.com/en/news/2017/06/06/gazprom-may-get-17bn-from-naftogaz
Published on June 6th, 2017 02:19 PM
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