Gazprom faces $12bn bill and penalties if it fails to pay for Ukraine transit – CEOs

Aura Sabadus

11-May-2022

LONDON (ICIS)–Russia’s Gazprom could face a $12bn bill related to an old arbitration claim and additional multi-million dollar penalties if it refuses to pay for the gas transiting Ukraine to Europe, Ukrainian senior officials said on Wednesday.

Speaking to the media just hours after Russia reduced gas flows to Europe by a third, Yurii Vitrenko, CEO of the Ukraine’s gas incumbent Naftogaz said the company was ready to reiterate a multi-billion claim against the Russian producer if it breaches the terms of the ship-or-pay transit agreement.

The Ukrainian gas grid operator GSTOU called force majeure and halted flows at the Sokhranivka border point in the Russian-controlled Luhansk region on Tuesday amid fears the occupants were stealing gas.

If left uncurbed, the unauthorised off-takes, which are thought to be used to operate fero-alloy plants regionally, could have cost Ukraine as much as $10bn this year.

Sergiy Makogon, CEO of the gas grid operator GTSOU, said the company had asked Gazprom to reroute the gas to the Sudzha border point, some 600km north-east of Sokhranivka and to book additional capacity to compensate for the halted gas. The rerouting to Sudzha, which has a technical capacity of 247.7mcm/day, would have been free of charge.

Instead of booking the 77mcm/day capacity which it is expected to reserve at Sudzha and an additional 33mcm/day for Sokhranivka, Gazprom booked only 72mcm/day on Wednesday.

Meanwhile, the Russian or Russia-affiliated occupying troops shut down the valves controlling the entry of gas into Ukrainian territory, according to Makogon.

TRANSIT AGREEMENT TERMS

Under the terms of the existing transit contract, Gazprom is expected to pay for a daily booked capacity of 109.6mcm, whether it uses it or not.

Although Gazprom transit flows are now reduced by a third, there are no indications that the producer would be looking to bail out on its payments to Ukraine.

Nevertheless, Vitrenko said that if Gazprom refused to pay for the booked capacity, Naftogaz, as the company organising the transit, would reiterate an old arbitration $12bn claim against the Russian producer,

The existing transit agreement with Russia’s Gazprom was signed in December 2019 on the understanding that Ukrainian counterparties would waive the consolidated $12bn against Gazprom in exchange for the latter signing a five-year transit agreement.

The claim related to Gazprom’s under-deliveries of gas under a previous contract which ended in 2019.

The claim would be added to penalties that Gazprom may have to pay if found in breach of its ship-or-pay transit agreement.

A Gazprom spokesman said on a Telegram post on Tuesday that the company did not see any evidence of obstacles to transit.

Makogon confirmed GTSOU had been collecting evidence about interference with the transmission system for potential litigation and added that Gazprom had been repeatedly notified of the fact that Russian or Russia-affiliated occupying troops were tampering with the operation of infrastructure.

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