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Russia and Ukraine Locked in Gas-Related Court Battle

A four-year dispute over gas deliveries between Russian and Ukrainian energy giants ended in a court ruling on Wednesday, only to spark new disagreements.

1 March 2018

An international arbitration court on Wednesday ordered Gazprom, the world’s largest gas producer, to pay $4.5 billion (3.7 billion euros) in compensation to the Ukrainian state-owned gas company Naftogaz for failing to deliver the agreed-upon volume of gas to Ukraine. Though Gazprom is technically a private company, the Russian government owns a majority stake.

 

Gazprom headquarters in Moscow. Photo by Boevaya mashina/Wikimedia Commons.

 

Ukrainian President Petro Poroshenko congratulated his fellow countrymen on the ruling of the court, calling it a “historical decision” and a “real victory,” according to Echo Moskvy.

 

Disputing the decision of the Stockholm-based court, Gazprom said it “will defend its rights by all available means in accordance with the applicable law,” Reuters reports.

 

Gazprom and Naftogaz had both put forward several claims against each other. In one of them, Naftogaz requested $16 billion from Gazprom as compensation for the Russian company’s failure to deliver the annual 110 billion cubic meters of gas, as agreed upon in a 2009 contract between the companies, Kommersant writes.

 

The Stockholm court partially satisfied this claim, and said that Gazprom had indeed not met the agreed-upon quota between the years 2009 and 2017, but also ruled that a little over $4.5 billion dollars in damages should be paid, Kommersant said in another article.

 

The court didn’t uphold Gazprom’s claim against Naftogaz, amounting to $7 million, for illegally siphoning off gas that was going through Ukraine on transit to Western Europe, says Kommersant.

 

The actual amount of money that Gazprom has to pay will amount to $2.56 billion, because Ukraine still owes the Russian company around $2 billion for gas it imported from Russia in 2014 and 2015, The Moscow Times reports, citing Naftogaz as its source.

 

In its final verdict, the arbitration court also ruled that Naftogaz is required to buy five billion cubic meters of gas from Gazprom annually, starting in 2018. The first delivery should have been this month. However, Gazprom announced this morning that it had returned the money it had received, Reuters says.

 

“Therefore in this situation, acting in good faith, we refunded in full the (prepaid) sum from Naftogaz. Clearly, gas supplies to Ukraine’s Naftogaz will not be carried out from 1 March,” said Gazprom’s deputy head Alexander Medvedev, as cited by Reuters. The company did not provide an explanation for its decision, though it can be assumed that it was related to the unfavorable decision of the arbitration court.

 

According to Reuters, Naftogaz will go to court again to claim compensation for Gazprom’s latest failure to deliver gas.

 

 

  • Ukraine stopped buying gas from Russia in November 2015. Since that date, it has been buying gas from Western Europe in order to reduce its energy dependency on Russia, according to Reuters.

 

  • Naftogaz’s CEO, Andriy Kobolyev, says that the funds from the legal victory would be allocated to further attempts to diversity the country’s energy supplies away from Russian sources and toward increased domestic production and more efficient methods, writes The Financial Times.    

 

  • The gas dispute between the Russian and Ukrainian energy companies is one of the consequences of the troubled relations between the two countries since the 2014 Euromaidan protests in Ukraine, the subsequent regime change in Kyiv, the annexation of the Crimean peninsula by Russia, and the conflict that erupted in eastern Ukraine between the central administration and Russian-backed separatists.

Compiled by Wasse Jonkhans

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