Naftogaz launches pre-arbitration with Gazprom over gas transit payments

MOSCOW. May 27 (Interfax) - Ukraine's Naftogaz has launched pre-arbitration proceedings due to what it considers to be Gazprom's failure to comply with the "pump or pay" clause in a gas transit contract, Naftogaz head Yuriy Vitrenko told reporters in Davos.

"We have already started the pre-arbitration procedure. We are preparing with our lawyers to notify Gazprom of this. There is some time during which we must try to resolve the issue before arbitration, and if we do not there will be new arbitration. The reason is that they are paying less than they should under the contract. They have no justification for this - our contract is pump or pay," he said.

Vitrenko said Gazprom's failure to honor its contractual obligations entailed a violation of the settlement agreement, according to which Naftogaz dropped claims in the $12.2 billion arbitration dispute initiated in 2018.

"If they do not honor the 'pump or pay' obligation, then they are violating not only the contract for organizing transit, but also the settlement agreement. That is, this is arbitration not only for the amount underpaid, but also for $12.2 billion, for which we dropped arbitration," Vitrenko said.

Ukraine's Gas Transport System Operator (OGTSU) declared a force majeure in May in regard to accepting gas for transit through Sokhranivka, citing the fact that it cannot control the Novopskov compressor station. It suggested that Gazprom redirect transit to the Sudzha GMS.

Gazprom believes there are no grounds for a force majeure or obstacles to continuing to operations as usual. Ukrainian specialists worked smoothly at the Sokhranivka and Novopskov stations all this time and continue to do so; transit through Sokhranivka was ensured in full, and there were and are no complaints from counterparties, the Russian gas giant has said.

In keeping with the Ukraine-Russia-European Commission intergovernmental protocol signed on December 20, 2019, a package agreement was implemented during December 27-30, with the payment of $2.9 billion by Gazprom to Naftogaz in keeping with a ruling by the Arbitration Institute of the Stockholm Chamber of Commerce, the waiver of existing claims by the parties, and signing of a five-year transit agreement.

The agreement between Naftogaz and Gazprom for the organization of transportation, the transport agreement between Naftogaz and OGTSU as well as the inter-operator agreement between OGTSU and Gazprom were signed on December 30, 2019.

The contract provides for transit of at least 65 billion cubic meters in 2020, and 40 billion cubic meters annually in 2021-2024. Payment for these volumes is guaranteed even if less gas is pumped through the GTS of Ukraine.