Naftogaz Ukrainy considers Gazprom’s contract termination political

KIEV/MOSCOW/BRUSSELS, Mar 5 (PRIME) -- Russian gas giant Gazprom’s move to terminate natural gas supply and transit contracts with Ukraine is only political because the contracts will expire before the Stockholm court decides on them, Naftogaz Ukrainy’s CCO Yury Vitrenko said in an interview to Zik television channel broadcast late on March 2.

Gazprom said it has started procedures with the Stockholm arbitration court to terminate the contracts, and launched a new arbitration case on March 3.

Vitrenko said that the contracts do not envisage a unilateral termination. “The procedure sees a 30-day term on one contract and a 45-day term on the other for the company to send an offer to Naftogaz to terminate the contract, and if we don’t agree, they have the right to file a suit to the arbitration court,” he said.

“If you look at our recent experience, you’ll see that the arbitration court considers a case for more than one and a half years, in our case it took three to four years. The contract will lose its force even before (the arbitration decision). So, Gazprom’s move should only be seen as a political step.”

Naftogaz Ukrainy said in a statement on March 3 that the company was yet to receive any documents regarding Gazprom’s decision to terminate the contracts.

GAS TRANSIT DISPUTES

On March 1, the Stockholm arbitration court ordered Gazprom to pay $2.56 billion to Naftogaz Ukrainy under a transit agreement. Also on Thursday, Gazprom said it returned Naftogaz’ payment for March supplies, adding it would not start the shipments because a supplementary agreement to the contract was not coordinated.

A source familiar with Naftogaz Ukrainy’s documents told news agency Ukrainian News that Naftogaz Ukrainy wanted to buy about 500 million cubic meters of gas from Gazprom in March and pre-paid about $127 million for that.

Vitrenko said that the Ukrainian holding thinks it may recover Gazprom’s fine from its gas stored in Germany if Gazprom does not fulfill the court’s ruling.

“We know that Gazprom has many liquid assets in Europe from which we can collect the fine, this why I don’t expect them to fulfill (the ruling)…We may (seize) Gazprom’s gas that the company delivers to Germany. Germany has a liquid market of gas. We take their gas, sell it at an exchange, get the money. Everything is that easy,” he said.

Naftogaz Ukrainy may even demand Gazprom redeem the money that the Ukrainian holding overpaid for the European gas to weather the first critical cold days of March after Gazprom had denied supplies, he said.

Since 2010, the Ukrainian company has demanded revision of the transit tariff for Gazprom’s gas through Ukraine. But the Stockholm court disagreed as its 2009 request was not formalized according to the rules. Now Naftogaz Ukrainy is compiling another letter to Gazprom asking for revision of the tariff, and it may launch another arbitration hearing if the companies fail to agree on the changes, he said.

UKRAINIAN GAS DEFICIT

Naftogaz Ukrainy CEO Andrei Kobolev said that Gazprom’s refusal to sell gas to Ukraine may translate into gas shortages of about 10 million cubic meters per day. The company signed an emergency fixed-term contract with Poland’s PGNiG and bought more than 60 million cubic meters of gas from the company.

On March 3, Ukrainian President Pyotr Poroshenko said that the critical situation is over. Ukraine was receiving gas from Europe, and ensured gas transit to the E.U. in full, he said.

Naftogaz Ukrainy said in a statement that the country cut its gas consumption on March 3 by 14% as compared with March 1, and that it would continue gas economy.

TRILATERAL SOLUTION

Previously, the European Commission said that the format of trilateral negotiations of Brussels, Kiev, and Moscow on gas issues was an efficient instrument, that that the commission was ready to mediate at negotiations.

Naftogaz Ukrainy said on March 3 that the company was ready to partake in the negotiations.

The Russian Energy Ministry said that Minister Alexander Novak assured European Commission’s Vice President for the Energy Union Maros Sefcovic over the phone that nothing threatens Russian gas transit through Ukraine until the contract between Gazprom and Naftogaz Ukrainy is terminated.

The European Commission said in a statement that Gazprom’s decision would have no immediate impact on supplies to the E.U., and that Russia and Ukraine are ready to be in close contact with the commission over gas issues.

EXPERT VIEWS

Yelena Anankina, chief analyst at Corporate Ratings group of international rating agency S&P Global Ratings, told PRIME that Gazprom’s physical exports to Europe would remain even if the contract with Naftogaz Ukrainy changes, because no one benefits from suspension of exports. It is impossible to balance the European gas market without Gazprom, whose market share amounts to 34%, she said.

But escalation of the situation may lead to negotiations with Europeans and a new compromise over transit for Gazprom, she said.

Dmitry Marinchenko, director for natural resources and commodities at international rating agency Fitch, told PRIME that the two companies would likely try to solve the dispute without suspension of transit to the E.U.

“Gazprom cannot supply all the contracted gas bypassing Ukraine as the Nord Stream-2 has not been constructed yet. On the other hand, the $2 billion that Ukraine received each year for the transit is a large sum. They will have to solve the dispute somehow. But the situation will remain nervous until the sides sit down at the table to negotiate,” he said.

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