Ukraine Claims Transit Victory at Stockholm
State monopoly Naftogaz Ukrainy has won its claim for damages for under-deliveries in its transit arbitration with Gazprom, it said on its Facebook page late February 28, in a Ukrainian item titled in English "We did it!".
At that point, the spokeswoman said she had not finished going through the 800 pages of the Stockholm arbitration court's decision, which had been awaited all day.
However, she said Naftogaz was awarded damages of $4.63bn for Gazprom's failure to deliver the agreed transit gas volumes, and the tribunal also rejected Gazprom's claim for penalties for transit volumes allegedly unlawfully offtaken by Naftogaz.
The net result is that Gazprom will have to make a net payment of $2.56bn to Naftogaz following the two gas arbitration cases. The previous award late December covered the take-or-pay contract between the two, where both sides claimed partial success. In that case Gazprom was the plaintiff, and argued that Ukraine had under-purchased. Both of the 10-year contracts expire at the end of next year.
The value of the total claims in these two disputes is the biggest ever in arbitration in history, adding up to $125bn when the total claims and counterclaims are totted up.
Naftogaz submitted a monetary claim of $15bn for under-deliveries and corresponding underpayments for transit in the present case plus interest; while Gazprom submitted a counterclaim for $50mn based on the reduced contract price for gas awarded by the same tribunal in May and December 2017 in the gas sales arbitration.
In the latter, the tribunal rejected Gazprom's claim for more than $56bn, based on take-or-pay provisions which were deemed invalid. For 2018 and 2019, Naftogaz’s minimum annual offtake obligation was reduced from 41.6bn m³ to 4bn m³, saving Naftogaz $21.2bn but not letting it off the hook completely.
The tribunal in the gas sales arbitration also allowed Naftogaz to pay $1.8bn less for gas supplied at provisional prices in 2014 and 2015, compared with the amount based on the initial contract prices. Naftogaz estimates that based on current prices, the price revision will reduce gas supply costs for 2018 and 2019 by more than $500mn.