Gazprom offers to settle $2.6 billion dispute with Naftogaz of Ukraine

The Russian state-controlled gas monopoly Gazprom has offered to sign a settlement agreement with the Ukrainian oil and gas company Naftogaz in order to resolve a long-standing dispute, Russian Energy Minister Alexander Novak told the press.

In February 2018, the Stockholm Arbitration Institute ordered Gazprom to pay Naftogaz $4.63 billion for failing to supply the volumes of gas stipulated in their transit agreement. Since previously the arbitrators had ordered Kyiv to pay Gazprom $2 billion for the already supplied gas plus interest, Gazprom owed Naftogaz a balance of around $2.6 billion, although it appealed the ruling. The Ukrainian company has already begun to seize Gazprom’s assets in various countries.

“The decisions that were made by the Stockholm Arbitration Court, in our opinion, are contradictory in nature,” remarked Novak. According to the minister, Gazprom duly appealed them at the Svea Court of Appeal, but the court will not have time to consider the appeal before 1 January 2020, that is, before the contract to transport Russian gas through Ukraine to Europe expires.

“For this reason, the Russian party, Gazprom, has suggested that the Ukrainian party consider the possibility of signing a settlement agreement, that is, an out-of-court settlement, which would establish conditions for more constructive relations in the subsequent contracts from 1 January 2020 both to supply gas and to transport it,” Novak explained.

The Russian minister said that all the necessary legal bases for signing a settlement agreement are in place, and that signing it could become one of the most important contributions to “future constructive relations with our Ukrainian partners”.

The minister also remarked that Gazprom is willing to extend the transit contract under the current terms, and even to reduce the price of gas supplied to Ukraine by 25%.

Gazprom and Naftogaz have mentioned the possibility of signing a settlement agreement before. However, the directors of the Ukrainian company have only been willing to discuss such a deal on their own terms.

“We needed to reach an agreement before the arbitrators’ final decision. Now it’s already too late for a settlement agreement. According to the arbitrators’ decision, Gazprom must pay us $2.56 billion plus $75 million in interest, and also compensate our expenses for the enforced collection,” said Naftogaz Commercial Director Yuriy Vitrenko in July 2018.

At the same time, Naftogaz CEO Andriy Kobolyev said that offers of a settlement agreement will only be considered on Naftogaz’s terms, since Gazprom lost the arbitration proceedings.

Naftogaz has accused Gazprom of using offers of a settlement agreement as a way to stall until the Nord Stream 2 gas pipeline is completed, and also to wait for Ukraine’s presidential elections, which could have resulted in a change in Ukraine’s political direction. After Ukraine’s 2019 elections, Petro Poroshenko had to hand over the presidency to Volodymyr Zelensky. However, Zelensky has continued his predecessor’s policy of actively opposing the construction of the Nord Stream 2 pipeline, which would make Ukraine’s gas transport system largely redundant.

  Naftogaz, Gazprom, Ukraine, Russia, Stockholm Arbitration Court