19 Jul 2022 14:46

Naftogaz confirms intention to file arbitration claim against Gazprom due to transit reduction

MOSCOW. July 19 (Interfax) - Next week, Ukraine's Naftogaz with its lawyers will begin the final stage of preparation of an international arbitration claim against Gazprom for reducing the transit of natural gas through Ukraine below contracted volumes, CEO Yuriy Vitrenko has said during a national television marathon on Tuesday.

"Gazprom has refused to conduct any negotiations in a bilateral format. Therefore, next week we are meeting with our lawyers and will finalize the corresponding submission for a new arbitration. If no miracle happens before July 21, it will take us some time to prepare an appeal - it is a complex system of documentation with the participation of a large number of lawyers and experts, and in the near future we will file a claim," Vitrenko said.

The current contract assumes that the place of arbitration will be Zurich, which will consider the claim under Swedish law, he said.

In May, Vitrenko said that Naftogaz had begun the pre-arbitration procedure due to Gazprom's non-compliance, according to the Ukrainian company, with the "pump or pay" condition under the contract for the organization of natural gas transit. Gazprom's failure to fulfill its contractual obligations, as claimed by the head of Naftogaz, entails a violation of the settlement agreement, under which Naftogaz waived claims in the $12.2 billion arbitration that began 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 (GTSOU) declared a force majeure in May in regard to accepting gas for transit through the Sokhranivka gas metering station (GMS), 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 GTSOU as well as the inter-operator agreement between GTSoU 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.