Stockholm Ruling Delays Naftogaz Unbundling

Naftogaz Ukrainy will not be able to carry out the unbundling of its transmission system operator (TSO) yet as the transit contract it has with Gazprom may not be assigned to its subsidiary, UkrTransGaz, it said July 18, citing the February ruling of the Stockholm arbitration tribunal.

Naftogaz, Ukraine's state-owned gas group, had previously said that the arbitration had to precede the unbundling, as the disputed transit contract would be a major asset for the transporter, and there was a risk that Gazprom might reject the request to assign the contract to the new TSO.

Naftogaz elaborated: "In the prevailing version of the gas transit contract, replacement of the contract party – and therefore the entry of any independent TSO into the contract – is subject to Gazprom’s consent which has been so far impossible to obtain.

"Moreover, Naftogaz sought to subject the contract to mandatory provisions of Ukrainian gas transmission legislation and regulatory framework, including the terms and condition for access to Ukrainian gas transportation system as adopted by the Ukrainian regulator.

"Unfortunately, the tribunal rejected abovementioned claims of Naftogaz. Thus, in order to implement the unbundling immediately, Naftogaz and the new TSO will face the need to obtain Gazprom’s consent for entrance of the independent TSO into the contract."

Naftogaz says that is not a realistic prospect. On the other hand, if Naftogaz goes ahead without consent, it will be in breach of the contract which Gazprom is now seeking to terminate. That could put gas supplies to Europe at jeopardy and give Gazprom "a powerful argument to support Nord Stream 2 construction" and risk Ukraine "losing gas transit even before the end of 2019."

Gazprom however argues it not need an argument to support NS2 construction, a pipeline built with private funds to deliver its gas where it chooses to.

At the Helsinki meeting between the US president Donald Trump and the Russian president Vladimir Putin July 16, transit through Ukraine was discussed. Putin told journalists afterwards that Trump had voiced concerns about the disappearance of Russian transit but that Russia was ready to maintain transit and even extend the transit contract that is about to expire next year in the event of the dispute between the two commercial entities is settled in arbitration court.

The existing contract terms do not comply with European Union rules on capacity bookings, and so any transit contract that did, would need to be rewritten to fit them, given Ukraine's determination to bring its gas market into line with the EU's.

Summing up the outcome of talks held in Berlin July 17 on ensuring future Russian gas transits via Ukraine, in which both governments took part, European Commission vice-president Maros Sefcovic who mediated said that the focus of such future trilateral talks would be on "how to make sure that we have a good new transit contract post-2019."