Ukraine, Russia sign gas transit, legal claims protocol

BUCHAREST (ICIS)–Ukraine and Russia signed on Friday a protocol for the transit of gas to Europe from 1 January 2020.

As expected, the document covers the key issues of transit over the upcoming five years as well as the settlement of outstanding Gazprom debt to the Ukrainian incumbent Naftogaz and the cancellation of its ongoing multi-billion dollar legal claims.

It also includes a controversial arrangement where Gazprom would sign the transit agreement with Naftogaz, which would in turn sign an interconnection agreement with the new transmission system operator of Ukraine. Naftogaz is also expected to book capacities on behalf of Gazprom and take on any transit tariff risks.

Under the document officially published on 21 December, Russia’s Gazprom will transit 65 billion cubic metres (bcm) of gas for the first year of the transit in 2020. The volumes will then be reduced to 40bcm/year between 2021-2024. The parties can renew the contract for another 10 years from 2025.

The volumes will be only half of what Russia has been shipping via the Ukrainian system under the existing 10-year contract which expires at the end of this year.

Russia’s Gazprom has also agreed to pay off its $2.9bn debt to Naftogaz as part of a Stockholm arbitration award in February 2018.

For its part, the Ukrainian gas incumbent Naftogaz has agreed to drop legal claims of $12.2bn in a new consolidated arbitration award with Gazprom, a further $1.33bn claim and the termination by Ukraine of all current and possible future requirements for Gazprom based on a decision by the Anti-monopoly Committee of Ukraine.

The protocol does not include the direct sale of Russian gas volumes to the incumbent Naftogaz, although Ukrainian market sources told ICIS that five companies active in the country were likely to buy gas from the Russian producer from 2020.

The protocol is yet to be approved by Ukrainian authorities, including the Naftogaz supervisory board,as well as relevant Russian stakeholders. Once the approvals are received, parties will have until 29 December to conclude an irrevocable amicable agreement.

An unofficial English translation of the protocol was published by consultancy Tumbleweed Partners here .