Kiev wants to make Gazprom pay through the nose for gas transit

Naftogaz of Ukraine claims $6.5-$16 billion from Gazprom under gas transit contract considered by the Stockholm Arbitration Tribunal, Yuri Vitrenko, Chief Commercial Director at Naftogaz national company has said. The contract provides for a “postal” rate, under which Gazprom pays $2.5 for transportation of every 1,000 cubic meters of gas per 100km. As a result, transit to the Slovak border costs the Russian holding $25-$27. According to Naftogaz of Ukraine, this rate is not fair. That is why, they have appealed to the Stockholm Arbitration against Gazprom. The national regulatory commission has introduced a new transit rate for gas “entry-exit” and demands $54.3 VAT inclusive from Gazprom. This is twice as much as under the current contract. The Russian holding does not accept the new rate and makes payments under the current contract that will expire in 2019.

"Our claims for transit are $6.5-16 billion, depending on the fact if the Ukrainian legislation is taken into account," Yuri Vitrenko told a press conference. He said that Gazprom’s cross claims are not high - $6 million.

“Such a wide range of demands by Naftogaz of Ukraine depends on the term the Stockholm Arbitration Tribunal will introduce the new rates for,” says Co-Chair of the Energy Strategies Fund Dmitry Marunich. In his words, the “entry-exit” rate (each entry and exit point of the gas transportation system has its special rate) is widely applied in Europe and is considered the most economically feasible one. “However, even in Ukraine they believe that the new rates are set too high. Now, they are applied only on the western border of the country for import of reverse gas. Meantime, Gazprom continues to pay under current contract and the domestic operators disputed the National Committee’s decision at the court. The judges accepted the arguments of the complainant and cancelled the ‘entry-exit’ rates inside the country,” Marunich says.

It is most likely, he says, that arbiters will adopt a compromise decision, like they did during the dispute over gas supply contract, and the sides will not have to pay billions to each other. “It’s a different matter that arbiters may set a new price-making formula for the future. For Ukraine this may be favorable only if Russia fails to build Nord Stream-2. Otherwise, 20-30 bn cubic meters of gas that Gazprom promised to save for the transit via Ukraine will not make the operation of the country’s gas transportation network profitable whatever rates they set,” the expert says.

Noteworthy that gas transit rate in Europe is low than the new rates in Ukraine. According to the website of Slovak Eustream, the standard transit rate for Gazprom is $4.5 for 100km when converting to postal rate. In Ukraine, the new rate will total $5.4 under the same calculation formula. In addition, the rates in Slovakia may be even lower for the Russian holding, since it is the largest and most profitable customer of the Slovak gas transportation network.

Earlier, the chief commercial director of Naftogaz of Ukraine linked the rise of the rates to Gazprom’s plans to refuse from the transit via Ukraine. So they have calculated the accelerated amortization of the gas transportation system on new rates. Starting 2020, if Gazprom pays $16 billion, the gas transportation rate will decrease 10-fold, Yuri Vitrenko said.

“Our comments saying that transit tariffs may fall 10-fold starting 2020 is still widely discussed,” Yuri Vitrenko said in a Facebook post. “That is why I’d like to clarify the issue. The rate will start falling after Gazprom starts paying for transit on new rate for 2016-2019 that was set by Ukraine as a result of implementation of relevant European laws. Note that under our transit contract with Gazprom, transit rates shall be brought in harmony with European rates. This means that in 2016-2019, Gazprom will be paying for the transit via Ukraine about 3-fold as much as it does now. Within four years, this difference will total $16 billion.”

Gazprom’s materials related to the issue of Eurobonds say the Stockholm Arbitration Tribunal will make the ruling on the dispute over the gas transit contract at least in February of the next year.

Noteworthy that they in Warsaw are closely following the dispute of Naftogaz and Gazprom at the Stockholm Arbitration Tribunal. They also seek to increase their incomes from the Russian gas transit via Yamal-Europe. At least, Piotr Naimski, Plenipotentiary of the Government for Strategic Energy Infrastructure, told Gazeta Polska that Warsaw seeks to revise the Russian gas transportation rates.

“The government of Tusk and Pawlak (former prime minister and deputy prime minister of Poland Donald Tusk and Waldemar Pawlak – editor’s note) refused from real money that would belong to Poland and Europol Gaz Company (co-owned by Gazprom and Poland’s PGNiG). Refusing from the incomes from transportation and writing off Russia’s debts to Europal Gaz meant depriving us of that money. The contract contains a provision that limits the annual income of Europol Gaz to 21 million zloty (about 5.9 million dollars on current exchange rate - editor’s note), which means that Russia transported 30 billion cubic meters of gas via Poland to the West free of charge. This is very strange. It is hard to believe in that,” Prime agency cites Piotr Naimski as saying.

The high-ranking official specified that the expiry of the contract in 2022 does not mean that Poland will stop transporting Russian gas to Germany. “We just want the transportation to be based on market principles,” Naimski says.

At present, they in Poland are holding a campaign similar to the one held by Viktor Yanukovych, the former president of Ukraine, against the then prime minister Yulia Tymoshenko who signed a contract with Gazprom. According to RIA Novosti, in September, Polish mass media reported that the ruling party of Poland, Right and Justice, was going to set up an investigation commission to inquire into the contract with Gazprom on gas transit dated 2009. Before that, wSieci reported that Pawlak agreed to buy one billion cubic meters of gas from Russia, though “Poland did not need it.” Besides, it was reported that the Polish government did not try to negotiate the gas price and the contract limited the profit of Europol Gaz to 20 million zloty. According to the source, Pawlak agreed on all terms of Russia.

Alexey Grivach, Deputy Director of the National Energy Security Fund, believes that the Polish political system is becoming more and more marginalized. “This is a logical, since the key reasons behind political aspirations of the present elite in Poland is anti-Russian vector. This can be clearly seen in the energy sector,” the expert says. “Yamal-Europe gas pipeline was built on Russian funds. Naturally, the transit contract met the interests of the investor fully.” He recalled that the Polish government created many obstacles to the construction, commissioning and operation of the gas pipeline. “Of course, the Russian side had no desire to discuss an increase in the profitability of transit for Poland. Moreover, Poland even blocked payment of dividends of Europol Gaz this year so that Gazprom cannot receive part of that money as co-owner of the Polish section of the pipeline.”