15:22 15.11.2019

Naftogaz: Difference between Russian, European gas prices isn't discount, wouldn't make up for lost compensation in case with Gazprom

3 min read
Naftogaz: Difference between Russian, European gas prices isn't discount, wouldn't make up for lost compensation in case with Gazprom

The price of Russian gas for Ukraine should be 20-25% lower than the price for European gas, since Gazprom delivers it directly and does not have to pay for delivering it through Europe, according to Naftogaz Ukrainy Executive Officer Yuriy Vitrenko.

"Twenty to 25% isn't a discount; it's the normal price, a consequence of which would be a decrease in Ukraine's revenue from transit," he wrote on Facebook following Russian President Vladimir Putin's comments that the price of gas for Ukraine could be decreased by 20-25%.

Vitrenko wrote that since gas delivered to Europe goes through Ukraine, Gazprom ships less gas to Europe when it delivers directly to Ukraine and thus pays less to Ukraine in transit costs.

"Plus, in light of future gas import volumes, a 20-25% discount can't realistically compensate for not taking the $3 billion that Gazprom is supposed to pay us now under a decision of the Stockholm arbitration tribunal," he wrote.

Ukraine would be able to get such a price if, for instance, the European antimonopoly authority prevented Gazprom from abusing its dominant position in the European market – for instance, "if the opportunity to get gas at the Russian border is blocked for other companies," Vitrenko wrote. It could also get such a price if Ukraine realizes its potential for increasing gas production using new and existing fields and uses gas more efficiently, exporting it rather than importing, he wrote.

"It would be fair to calculate the discount with reference to the level 'price on the German market minus cost of transportation from the Russian border to Germany,'" Vitrenko wrote.

A contract with Gazprom only makes sense if Gazprom fulfills its obligations; its failure to do so is the subject of the proceedings in Stockholm, he said.

"Forcing us not to receive compensation for Gazprom's failure to fulfill its contractual obligations in exchange for a new contract means relieving Gazprom of any obligations for both current and new contracts. What would then guarantee that we'd get what we agreed on?" Vitrenko wrote.

The clearest proof that Naftogaz Ukrainy is not abusing its right to appeal to the court in Stockholm for compensation is the court's decision in its favor, including on the part of the arbiter appointed by Gazprom, he wrote.

"As concerns the new claims that we recently filed, first of all, they're counterclaims (in response to Gazprom's claims), and second, Naftogaz acted in accordance with an order of the arbitration tribunal issued long ago, under which Naftogaz was to issue such counterclaims by November 1," Vitrenko wrote, in response to Putin's rebuke.

The continuation of proceedings in Stockholm should not threaten the transit of gas through Ukraine, since Gazprom would sign a contract with a transport operator unbundled from Naftogaz.

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