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Stockholm Will Help Us

Date of publication: 11 July 2014

Roman Marchenko, Attorney at Law, Senior Partner

Source: Ekonomichna Pravda

Yuriy Prodan, Minister of Energy and Coal Industry of Ukraine, communicated both good and bad news.

Firstly, Russia has cut off gas supplies to Ukraine.

Henceforth, Gazprom will pump through the Ukrainian gas transportation system only the volumes of fuel required for the needs of the European consumers.

The Ukrainian consumers will have to meet their demand for gas with domestic gas production.

Secondly, Naftogaz sues Gazprom in the Stockholm arbitration court.

It is worth noting that the prospects of entering a verdict in favor of Naftogaz are quite high.

Indeed, in 2009, Ukraine received a high price for Russian gas. In 2010, due to the controversial “Kharkov agreements”, Kyiv got a discount on gas in exchange for a long deployment of Russian Black Sea Fleet in the Crimea.

After occupation of the Crimea the Russian government unilaterally denounced the “Kharkov agreements”. The reason is the peninsula became a part of the federation. The representatives of Gazprom decided that henceforth Ukraine had to buy gas at the old high price.

It shall be noted that the vast majority of countries, including Sweden, which court of arbitration will consider the claim of Naftogaz, declared annexation of the Crimea illegal. As you know, only 11 states-outsiders, including Russia, voted against the resolution of the UN General Assembly.

Accordingly, the court is very likely to recognize as illegal demands of the Russian Federation to pay for gas without the discount received in exchange for deployment of the Black Sea Fleet in Crimea.
Further, Naftogaz stands a good chance to sue out setting the market price for Russian gas. The court of arbitration has repeatedly considered such claims against the Russian monopolist.

As a rule, Gazprom does not go through with court proceedings. The company agrees to sign a settlement agreement to prevent the adverse court verdict.

Many European companies have already managed to “obtain” such discounts: Wingas (Germany), GDF Suez SA (France), EconGas GmbH (Austria), SPP AS (Slovakia), Sinergie Italiane Srl (Italy).
A striking example is the litigation of Gazprom with the Polish state-owned Polskie Górnictwo Naftowe i Gazownictwo, which bought Russian gas at $550.

The Polish gas trader appealed to the Stockholm arbitration to reconsider the price that was unreasonably higher than prices for other states. However, as a result of negotiations, the parties agreed to lower the price, according to different estimates, up to 20%, and the company withdrew the suit.

Some companies refused to sign the settlement agreement and succeeded in approval of judgments in the Stockholm arbitration, which had negative consequences for the Russian gas monopoly.
Two such victories over Gazprom in Stockholm were secured by a Norwegian law firm that will also represent Naftogaz of Ukraine. Thus, the Ukrainians can count on a fair and positive judgment of the Stockholm arbitration.

However, I am not so optimistic about the chances of Naftogaz to recover from Gazprom $6 bln in overpayment for gas supplied.

The reason is that when transferring money and signing acceptance acts the Ukrainian party did not object to the conditions agreed upon by the parties. Thereto, the plaintiff’s conventional judicial principle operates: ask more – get yours.