Tomorrow, 19 January, it will be 10 years since Naftogaz and Gazprom signed the current gas supply and transit contracts. The contracts reflected political arrangements between the then prime ministers of Ukraine and Russia, Yulia Tymoshenko and Vladimir Putin.
Over the course of 10 years under the terms of those contracts, Ukraine has suffered USD 32.1 billion of unrecoverable losses, which is the equivalent of more than UAH 60,000 for each Ukrainian family. If Naftogaz had failed to defend its rights in the Stockholm arbitration, Ukraine’s total losses over the period covered by these contracts would have increased by another USD 94.7 billion, or an equivalent loss of UAH 177,000 per each Ukrainian family.
“Gas contracts with Gazprom, as concluded in 2009, put a strain on Ukraine. The asymmetric liability of the two parties put Naftogaz at risk of predatory penalties, while Gazprom gave Ukraine promises not backed up by penalties for failure to comply. These were perhaps the most unfavorable contracts ever concluded in the history of independent Ukraine,” said Naftogaz CEO Andriy Kobolyev.
Gazprom repeatedly breached the terms of the 2009 contracts, which were already disadvantageous for Ukraine. The Russian company failed to meet transit volumes commitments and tried to blackmail Ukraine, demanding political concessions in exchange for an acceptable price or further transit.
One of the most outrageous ultimatums from the Russian side was Ukraine’s withdrawal from the Association Agreement with the EU. Another political concession demanded by Russia in exchange for a gas discount was the extension of the Russian naval presence in Crimea, which paved the way for the occupation of the peninsula.
In 2014, the new management of Naftogaz applied to the Stockholm arbitration tribunal to review contract provisions that discriminated against the Ukrainian side, including the “take-or-pay” principle, which was not compliant with similar provisions in Gazprom’s European contracts. The tribunal deemed the provision in the contract to be unconscionable and revised it by its ruling.
In late 2017 and early 2018, the Stockholm arbitration tribunal rendered a number of awards that satisfied most of Naftogaz’s claims. The tribunal obliged Gazprom to compensate Naftogaz for USD 4.6 billion in losses.
NJSC Naftogaz of Ukraine