14:05 05.11.2019

Naftogaz in new arbitration seeks to recover over $12.2 bln from Gazprom, including $11.8 bln for transit – top manager

4 min read
Naftogaz in new arbitration seeks to recover over $12.2 bln from Gazprom, including $11.8 bln for transit – top manager

NJSC Naftogaz Ukrainy in a new legal claim against Russia's Gazprom with the Arbitration Institute of the Stockholm Chamber of Commerce wants to review the transit tariff from March 13, 2018 until the end of 2019 for the amount of $11.8 billion and interest and pay $448 million and interest under other liabilities, Naftogaz Executive Officer Yuriy Vitrenko has said.

"In fact, this is the difference between what we received for transit and should receive under the revised tariffs. This difference is $11.8 billion (plus interest). This is the amount we demand as compensation," he wrote on his Facebook page on Monday.

Vitrenko said that the right of Naftogaz to demand a revision of the tariff is provided for in the contract itself. According to him, the previous arbitration did not consider the issue of a substantive tariff revision, but only acknowledged that the request for a tariff revision that Naftogaz had sent to Gazprom in the summer of 2009 did not meet the formal requirements, and therefore, it cannot hear this matter.

"Having read about this in the arbitration decision dated February 28, 2018, we prepared a new claim for the tariff revision that would satisfy all the formalities (it required economic justification, calculations, and other materials) and sent it to Gazprom on March 13, 2018," Vitrenko said. At the same time, he said that it is from this date until the end of the contract (January 1, 2020) that Naftogaz requires now to review the transit tariff.

The top manager of Naftogaz said that, in accordance with the procedure stipulated by the contract, bilateral negotiations were held with Gazprom on this issue, which ended "without much success." In this regard, now the Arbitration Institute in Stockholm should resolve this issue.

According to him, the revision of the transit tariff is similar to the revision of the gas price that was carried out by the previous arbitration at the request of Naftogaz: as then, Naftogaz said that significant changes have been made in the procedure for the formation of transit tariffs compared to 2009. "In addition, our transit tariff does not yet correspond to the level of transit tariffs in the European market," Vitrenko said. He said that if no corrections are made (regarding average distance, loading, pipe diameter), but simply compare the published nominal rates of gas transit fees through European countries with the tariff calculated according to the formula in the transit contract with Gazprom "then the difference will be even greater. As the Naftogaz top manager said, Naftogaz, together with highly respected independent experts, calculated the tariff.

Vitrenko said that one of the justifications for the amount of compensation is the cost of the so-called "accelerated depreciation" and "depreciation" due to the fact that Naftogaz now has no sufficient reason to expect the use of the Ukrainian gas transmission system for transit when the current transit contract on expires on January 1, 2020. "To put it simply, an asset that could serve 30 years, we must depreciate for two years, because then it will not be used," the representative of Naftogaz said.

According to him, among other claims is $213 million (plus interest) of compensation for violation of obligations by Gazprom to supply gas under the contract from March 2018 through September 2019 with the possibility of adding some months (4 billion cubic meters of gas in 2018, 5 billion cubic meters of gas in 2019), since Naftogaz had to buy this gas more expensive on the European market.

In addition, Naftogaz seeks to recover $202 million (plus interest) in compensation for violation of obligations by Gazprom to supply transit gas in the amount of at least 110 billion cubic meters per year under the gas transit contract from January 1 through March 12, 2018, as well as $33 million (plus interest) compensation for Gazprom's failure to comply with its obligations to take gas at the points of exit from the Ukrainian GTS within the limits stipulated by the contract.

Another point of the claim is a declaration on gas supplies to territories not controlled by Ukraine, which Gazprom allegedly supplies. "We ask the arbitration, in particular, to order Gazprom to sign the technical and commercial acts (transfers) presented by Naftogaz, without these supplies, for the entire period when such acts were not signed by Gazprom," Vitrenko said.

The decision of the arbitration is expected to be announced in 2021, the top manager of Naftogaz said.

"If by this time it becomes clear that Ukraine has retained transit revenues at about the current level, then we will not be able to include accelerated depreciation and impairment costs in the calculation of compensation. That is, as I say, this is in hands of Gazprom," Vitrenko said.

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