Ukraine and Russia both claim victory in gas dispute

Ukraine’s Naftogaz and Russia’s Gazprom both claimed victory on Friday in a long-running gas dispute, each saying a Stockholm court had ruled in its favour over a gas contract.

The dispute is a by-product of the worsening relations between Kiev and Moscow since Russia’s annexation of Crimea and the eruption of Russian-backed separatist violence in Ukraine’s Donbass region, which has killed more than 10,000 people. In June 2014, Gazprom and Naftogaz lodged multi-billion-dollar claims against each other with a Stockholm arbitration court, which resolves commercial disputes. In line with its policy, the Arbitration Institute of the Stockholm Chamber of Commerce declined to comment or even to confirm it is handling the case, so it was not possible to obtain an impartial account of what is the final ruling in this case.

Gazprom appealed a May ruling by the court over a ‘take-or-pay’ clause in a 2009–2019 contract between the two countries. Naftogaz on Friday said the court had again rejected Gazprom’s $56 billion claim on this issue and other points. “Naftogaz won the gas sales arbitration case against Gazprom on all issues in dispute,” Naftogaz said in an emailed statement. It said the ruling was worth around $75 billion to Naftogaz in the long term, but did not give a breakdown on how it reached the estimate.

With its claim, Naftogaz had sought a lower price for Russian gas and disputed the take-or-pay clause requiring buyers to pay for gas whether they take physical delivery or not. Gazprom, however, said the court had backed most of its claims and ruled that the main terms of the contract between Naftogaz and Gazprom were valid. Gazprom added the Stockholm court had ordered Naftogaz to pay more than $2 billion to Gazprom for gas supply arrears and that it had also ordered Naftogaz to buy 5 bcm of gas from Gazprom annually from 2018.

“The main thing is that Naftogaz managed to avoid tens of billions of dollars worth of claims on take-or-pay clauses, it could have been an unbearable burden both for Naftogaz and the state,” Fitch Ratings analyst Dmitry Marinchenko said. Pricing disputes in the past led to Russian gas supplies disruptions to Europe via Ukraine, including in 2006 and 2009. Since then Russia has been pushing for new pipeline projects via the Baltic and Black seas to bypass Ukraine.

In a separate claim still pending before the Stockholm court, Naftogaz is seeking up to $16 billion from Gazprom in relation to a transit contract. A decision is expected in February 2018.

Source: Pavel Polityuk for Reuters

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