17:20 03.10.2019

Gazprom's statement on signing of new gas delivery contract illogical, given non-fulfillment of current one – Naftogaz Ukrainy

3 min read
Gazprom's statement on signing of new gas delivery contract illogical, given non-fulfillment of current one – Naftogaz Ukrainy

Gazprom's statement regarding the need to sign a new gas supply contract is illogical in light of the non-fulfillment of the current contact, Naftogaz Ukrainy Executive Director Yuriy Vitrenko wrote on Facebook.

"At the last meeting, the Russian side raised the issue of supplying gas to Ukraine, and it insists that this issue be of fundamental importance with respect to transit. How will this question be settled? Especially given that Gazprom currently isn't fulfilling its contractual obligations for supplies of gas to Naftogaz, and also that Naftogaz demands with good reason that Gazprom unblock the possibility of receiving gas from Turkmenistan at the Ukraine-Russia border, the gas of independent producers in Russia, and gas for Gazprom's European counterparties," Vitrenko wrote.

When Russian President Vladimir Putin said there are two ways to solve the issue of the transit of Russian gas through Ukraine after 2019 – signing a long-term contact under European rules or extending the current contract by a year – he did not mention the possibility of swap deliveries, Vitrenko wrote.

"It's also important not to forget about the third option, so-called 'swap' operations. This option is better than extending the current contract and allows us to apply European rules for these operations right away," he wrote.

Earlier, Vitrenko said that if Ukraine does not manage to fully implement European legislation regarding gas, Naftogaz is ready to switch to gas swaps, under which Gazprom would deliver a certain volume at the Ukraine-Russia border, and Naftogaz would transfer the same volume at the Ukraine-EU border, with transfers confirmed by operators in bordering countries (Slovakia, Hungary, Poland, Romania).

A swap contract could be based on Swedish law, with payment for transit agreed upon ahead of time by the parties. Naftogaz would independently conclude a transportation contract with the standalone operator of Ukraine's gas transportation system.

In December 2017, the Arbitration Institute of the Stockholm Chamber of Commerce revised the formula in the contract between Naftogaz and Gazprom to make the price of gas for Naftogaz equal to the price at the hub in Germany. Previously it was tied to gas oil and fuel oil prices.

On March 1, 2018, Gazprom decided not to resume deliveries of gas to Ukraine, returning Naftogaz's advance payment of $127.624 million despite the decision of the Arbitration Institute. This made it impossible for Naftogaz to fulfill the tribunal's decision on minimum yearly gas purchases.

Naftogaz estimates its losses from Gazprom's non-fulfillment of the contract at hundreds of millions of dollars, for which the Ukrainian company is trying to obtain compensation through the Arbitration Institute.

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