21 Jun 2022 15:35

Naftogaz intends to file suit against Gazprom in int'l arbitration in July regarding reduction in transit

MOSCOW. June 21 (Interfax) - Naftogaz Ukraine intends to file a suit against Gazprom in July for reducing natural gas transit through Ukraine below the contracted volumes, Ukrainian media quoted Yuriy Vitrenko, CEO of Naftogaz, as saying at a press conference on Tuesday.

"The terms and conditions of our contract with Gazprom stipulate that there are 45 days to attempt to resolve any differences prior to going to arbitration. This period expires next month, thus, if nothing happens and Gazprom does not alter its position, then this means that we will have the right to apply to international arbitration next month," Vitrenko said.

Vitrenko said that Naftogaz would avail itself of all its rights, because Gazprom is currently not paying extra for the transit volumes that it has booked and that are available to the company.

Interfax has not yet received comment from Gazprom regarding this.

As Vitrenko told reporters in May, Naftogaz 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.

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.