Naftogaz Initiates Arbitration Procedure Regarding Transit Contract with Gazprom to Ensure Stability of Gas Transit to EU

Naftogaz of Ukraine has appealed to the Arbitration Institute of the Stockholm Chamber of Commerce (SCC) to adjust the company’s gas transit contract with Russia’s Gazprom.

Naftogaz of Ukraine has appealed to the Arbitration Institute of the Stockholm Chamber of Commerce (SCC) to adjust the company’s gas transit contract with Russia’s Gazprom. Certain provisions of the 2009 contract are in breach of Ukraine’s legislation adopted after the country joined the Energy Community in 2010. The accession protocol requires Ukraine to implement the provisions of the Third Energy Package by January 1, 2015.

Requesting a review of this matter in the SCC, Naftogaz aims to prevent any potential disruptions of Russian gas transit through Ukraine related to discrepancies between national legislation and the provisions of the contract.

“We fully realise the importance of stable gas transit through Ukraine for the EU,” said Andriy Kobolyev, CEO of Naftogaz. “To make our relations with Gazprom as transparent and predictable as possible, we call for the adoption of standard European gas market agreements. In the current situation, applying for a resolution by an international court is a practical and secure way to settle the dispute in a civilised manner.”

Naftogaz has repeatedly appealed to Gazprom explaining the necessity of putting the contract in line with Ukraine’s international obligations and updated national legislation. Despite numerous requests, the issue has not been addressed so far.

The required changes include, among others, the substitution of Naftogaz (a gas trading and holding company) with Ukrtransgaz (Ukraine’s transmission system operator) as a party of the transit contract. In addition, the SCC will review the issue of adopting a standard tariff setting methodology used by European transmission system operators. Naftogaz is also seeking compensation for shortfalls in gas transit volumes since 2009. During the past five years, Gazprom transited an average of 94 bcm of gas annually instead of the 110-112 bcm per year stipulated by the contract.

Background information: Naftogaz is the national oil and gas company of Ukraine, which was established in 1998. Headquartered in Kyiv, the company covers a full range of activities in the oil and gas business including: production and refinery; transportation and storage; wholesale trade and distribution as well as technical support. More information can be found at naftogaz-europe.com.

Ukrtransgaz is the leading company engaged in transmission and storage of natural gas in Ukraine. The company is 100% owned by Naftogaz of Ukraine. Ukraine’s gas transmission system transported 132 bcm in 2013, including 86 bcm for the EU and Moldova. Ukrtransgaz owns Europe's largest underground gas storage network, with total capacity of 31 bcm. Daily data on Ukrainian underground gas storage levels is available at transparency.gie.eu.

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