Naftogaz CEO details Gazprom’s contract violations

Supplies for Ukraine are unrelated to stability of Russia-EU gas transit via Ukraine; Gazprom was reminded of Naftogaz’ contractual right to determine prepayment schedule

Naftogaz CEO Andriy Kobolyev has written a letter to Gazprom CEO Alexey Miller in which he noted that the Russian company has for four days not been complying with the contract between the two companies and the Binding Protocol signed by Russian Energy Minister Alexander Novak, European Commission Vice President Guenter Oettinger and Ukrainian Energy Minister Yuriy Prodan on October 30, 2014 in Brussels. Since 22 February, Gazprom has been only fulfilling approximately 40% of Naftogaz’s daily orders of 114 million cubic meters (mcm).

In its turn, Ukraine has painstakingly complied with the Brussels accord. In particular, Naftogaz has covered $3.1 billion of invoices it disputes in court. Since the trilateral agreement was signed, Naftogaz has additionally paid Gazprom over $0.83 billion for which it has purchased 2.39 billion cubic meters (bcm) of gas. Andriy Kobolyev states that as of February 25, more than 206 mcm of Russian gas supplies to Ukraine remain prepaid and Naftogaz plans to draw down this amount this month.

Uncoordinated change of entry points is another violation of the contract

Aside from failure to satisfy Ukraine's contractual nomination in full, Gazprom says it is supplying gas for Ukraine through entry points not approved by Naftogaz and at which the Ukrainian company has no staff. In his letter today, Kobolyev further drew the attention of his Russian counterpart to the fact that paragraphs 3.8 and 3.9 of the Technical Agreement between the two sides referred to in a letter from Gazprom’s CEO stipulate that any change in delivery points can only be carried out by mutual consent.

Naftogaz has repeatedly mentioned to Gazprom that gas cannot be supplied to Ukraine through the Platovo and Prokhorivka gas metering stations (GMS) and related infrastructure because these facilities are in the areas suffering military upheaval and Naftogaz does not have authorized representatives at these sites in order to not put its employees’ lives at severe risk. It would be impossible to properly measure such supplies, and they could lead to technical malfunctions.

Platove and Prokhorivka GMSs at the border of Russia and the occupied areas of Ukraine cannot be and were never used as entry points for gas destined for EU clients. Therefore, the fighting in areas of Luhansk and Donetsk does not affect the security of gas transit via the territory of Ukraine in any way.

Naftogaz has the contractual right to determine prepayment schedule

Gazprom’s breach of contract is the reason behind Naftogaz’s decision to suspend prepayments. In accordance with the Brussels agreement, Naftogaz is entitled to make prepayments in full or partially according to the schedule it sees fit. For example, the company did not order any gas from Gazprom in November 2014. The Brussels agreement obliges Gazprom to supply any prepaid amounts ordered under the contract in full.

Naftogaz has the right to make prepayments for further volumes of gas when it deems reasonable to do so. The decision on further prepayments strongly depends on Gazprom’s full compliance with the Winter Package signed in Brussels.

Gas transit to the EU is secure regardless of Gazprom supplies for Ukraine

Ukraine is a fully reliable provider of gas transit services to Europe. For six months in 2014, both during summer and winter, Ukraine flawlessly provided transit services despite receiving no gas from Gazprom for Ukrainian consumers.

Gazprom’s allegations of potential supply risks following its own contractual breach are puzzling and a cause for concern. Ukraine reiterates its commitment to continue impeccable transmission of gas for the EU.

Public Relations Department
National Joint-Stock Company «Naftogaz of Ukraine»

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