Date: 18 May 2020

Poland wins in the Arbitration with Gazprom over the price of natural gas

PGNiG, a gas champion overseen by the Polish Government, has won USD 1.5 billion in the arbitration in Stockholm. This is arguably one of the most remarkable victories in an international dispute for liberated Poland in over 30 years.


On 30 March 2020, Polskie Górnictwo Naftowe i Gazownictwo (PGNiG) Spółka Akcyjna announced the favourable outcome in the international arbitration with Gazprom. PGNiG’s victory is a great success of the Polish gas champion, having effectually handled the dispute over gas prices included in the Yamal Contract in the Arbitral Tribunal in Stockholm. In February 2016, as Vice President of the PGNiG Management Board, I was responsible for providing legal services to the company, as well as the initiation of the dispute with Gazprom, coming to the decisions to file a suit together with the Management Board. As such, it is difficult not to have regard for this success with a personal angle, having assembled the team of lawyers that won this 4-year-long legal dispute with a Russian tycoon.

The final judgement of the Stockholm Arbitral Tribunal confirms the validity of PGNiG’s stance – that since 2014, gas had been being sold to Poland at a non-market and inflated price. Consequently, the Arbitral Tribunal changed the price formula. The ruling does genuinely prove that during the years from 2014 to 2020, Russians were deliberately selling gas to Poland at artificially inflated prices.

Terms of PGNiG’s legal dispute with Gazprom

This is the first arbitration proceeding in the dispute between PGNiG and Gazprom which actually concluded with a ruling. The previous arbitration proceedings initiated by the company in November 2011 did not result in a verdict but in an agreement between the parties which signed an annexe to the Yamal Contract in November 2012. Eventually, despite the initiation of the arbitration proceedings, no ruling was made. Therefore, there was no precedent on the grounds of the Yamal Contract from which to follow. Moreover, PGNiG’s victory in March 2020 may be considered as a meaningful success that acutely confirms the legitimacy of the actions taken by the Polish Government with regard to pursuing diversification of natural gas supplies to Poland. Experience indicates that Russia’s Gazprom has repeatedly used its dominant position to impose solutions that were disproportionately detrimental to Polish national interests, harmful to the well-being of the economy and the supply security for gas consumers, as well as contradictory to the provisions of both Polish and EU law.

As a consequence of the Arbitral Tribunal’s ruling, the price formula under which PGNiG purchased gas from Gazprom was changed. The change is retroactive to the first day of November 2014. The new price formula under which PGNiG is buying gas from Gazprom is effective since the day of the judgement, i.e. 30 March of this year. Therefore, PGNiG is already buying gas from Gazprom at the new price. Trading conditions of the state-controlled gas company changed overnight.


As a result of the implementation of the formula by the Tribunal’s ruling, retroactive to 2014, it is necessary to settle the difference between the price paid by PGNiG and the price which should have been paid since 2014. The Company pointed that the settlement resulting from the final judgment of the Arbitral Tribunal indicates that the difference to be reimbursed by Gazprom to PGNiG amounts to approximately USD 1.5 billion, i.e. approximately PLN 6.2 billion for the period from 1 November 2014 to 29 February 2020.

Natural gas price

Inasmuch, the sums show the extent to which how much the price at which Gazprom was selling gas to the Polish PGNiG company had been inflated. It can be estimated that each month of arbitration proceedings cost PGNiG about PLN 80-100 million of overpayment[1]. To put it another way, Gazprom, at the expense of PGNiG, gained about PLN 1-1.2 billion of overpayment every year. Such huge amounts affected PGNiG’s revenues, which was of considerable importance as at the same time the company was selling gas at market prices to domestic consumers. It also resulted from the fact that the price was calculated according to a completely archaic formula, based largely on the price of crude oil – a commodity behaving entirely different to gas as the crude oil market is more mature and wholly unalike to the gas market. The judgment of the Stockholm Arbitral Tribunal to a considerable extent tied the new price to the market quotations for natural gas on the European energy market. This means that the new price will follow gas prices to a much greater extent, rather than oil prices that are completely detached from them and subject to different conditions.

The arduous, 4-year long arbitration procedure has also had a significant impact on prices. PGNiG filed a lawsuit in February 2016, the preliminary judgment determining the ruling – a statement that PGNiG had the right to demand a price change and that the old price was incorrect – was issued by the Tribunal after more than two years of proceedings, in June 2018, with the final judgment arriving at the end of March 2020. Meanwhile, the parties to the Yamal Contract may apply for a change in gas price every three years. It is worth recalling that PGNiG reserved such a possibility during the arbitration proceedings and in November 2017 it filed another request for renegotiation of the contract price. Gazprom did likewise. Therefore, there is a possibility to further change the gas price in the Yamal Contract in the future. This time, with effect from November 2017. Whether this will happen is uncertain. The first thing to do now is to assess how the new formula established by the Arbitral Tribunal in the light of the Yamal Contract relates to the price conditions in 2017. The results of this assessment will give rise either to a further requests for changes in the contract price, or will lead to the conclusion that there are no grounds for such actions.

Therefore, PGNiG faces a number of challenges related to the execution of the Yamal Contract and this situation may continue until the end of its term, i.e. the end of 2022. This results from the nature and history of the contract and the fact that Gazprom is a difficult business partner, if it is possible to be considered a business partner at all rather than simply a power structure solely carrying out the Kremlin’s orders.

Gazprom’s charge against the judgement

It can be expected that the judgments of the Arbitral Tribunal will be appealed by Gazprom to the Court of Appeal in Stockholm, such as the preliminary judgement of June 2018. Although judgments of the Arbitral Tribunals are final and enforceable, according to the relevant regulations, they may be appealed to common courts. These are extraordinary remedies; in this case, the so-called petition for the reversal of an award of a court of arbitration. They may be brought only on the basis of formal charges concerning irregularities of arbitration proceedings. In practice, such complaints are considered extremely rarely.

With regard to the case discussed, this happened with the preliminary judgment of June 2018[2]  which Gazprom finally decided to appeal. It is likely that the same scenario may be applied to the final judgment. However, the appeal itself does not suspend the implementation of the judgment. In any case, the chances of success of such a complaint, even if based on statistics, should be assessed as rather unlikely. In general, less than a few percent of arbitral court judgments are overruled. Positive conclusions in this respect can be drawn from the already completed cases, in which Gazprom has demanded the reversal of the arbitration courts’ judgements.

In November 2019, the Swedish court rejected Gazprom’s complaint against the ruling of the Stockholm Arbitral Tribunal, which annulled the Russians’ claims for USD 80 billion from Ukraine for undelivered gas. In this case, Gazprom appealed against the arbitration to the Swedish Court of Appeal, claiming that the arbitration included mistakes and exceeded its jurisdiction. The Stockholm Court of Appeal disregarded Gazprom’s claims. When the judgement was delivered, Executive Officer of Naftogaz Yuriy Vitrenko remarked “A total victory! Ukraine wins again! We won the appeal on Gazprom’s first complaint against the decision of the arbitration in Stockholm”[3] . Unfortunately, probably due to the agreement concluded in December between Naftogaz and Gazprom, we will not know how the next two similar court proceedings before the Court of Appeal in Sweden would be finalised. Towards the end of December 2019, Gazprom and Naftogaz concluded an irrevocable agreement to settle their claims. Under the agreement, it was decided, amongst others, that they would withdraw all claims against each other from the courts and arbitration courts.

However, the judgment issued prior to this agreement by the Stockholm Court of Appeal in November, which was unfavourable to Gazprom, is open and available in English on the Court’s website. It shows that Gazprom’s complaint was unfounded[4]. It seems that the complaint was rather an element of Gazprom’s broader position, which did not voluntarily implement the Arbitral Tribunal’s ruling. Nota bene, this raises the question about the real effectiveness of the obligations imposed on Gazprom by the European Commission in the case of abuse of a dominant position by Gazprom[5]. Part of the obligations aimed at preventing Gazprom from inflating prices was Gazprom’s commitment to introduce an effective review mechanism of prices based on arbitrage into its contracts with customers. The possible failure to comply with the arbitration judgement may, therefore, translate into the assessment of Gazprom’s compliance with its commitments.


In May 2018, the European Commission closed the anti-trust proceedings against Gazprom that had lasted for nearly 7 years[6]. As it was written in the press at that time, in May, the EC announced a decision which finally approved the settlement with Gazprom on the abuse of its position in Central and Eastern Europe. Thus, the Russian company avoided penalties for monopolistic practices. Indeed, the European Commission’s proceedings ended for Gazprom unbelievably mildly. PGNiG raised objections against such. The company appealed against the decision to the Court of Justice of the European Union in November 2018, stating that the judgement was in contradiction to collected evidence and a number of procedural provisions of the EU law were breached[7].

There is no doubt that the obligations imposed on Gazprom were inadequate to the damage caused to Central European markets, including Poland. At the time, PGNiG stressed, as evidenced by the current ruling of the Arbitral Tribunal, that Gazprom overstated gas prices for its customers in Central and Eastern Europe. The European Commission’s gentleness in treating Gazprom may be described as surprising. In cases against IT giants, the European Commission is willing and capable of imposing considerably heavy penalties, such as a recent fine of EUR 4.3 billion on Google for forcing manufacturers to install the company’s programmes, in exchange for access to the app store and free use of the Android system[8]. Meanwhile, in the case against Gazprom, which was charged with very serious allegations, the European Commission considered it appropriate to issue the so-called “commitment decision”. In practice, this means that Gazprom’s request to conclude the proceedings without any sanctions has been accepted. Albeit no two cases are identical, this would make it seem that it is not necessary to compare the scale of both cases. Hence the lack of rationality of the sentences imposed; a penalty for extorting access to an Internet shop compared with relatively no penalties in matters concerning strategic raw material and the world market. The actions of the European Commission in Google’s case were completely inadequate to the violations of law committed by Gazprom. After all, this decision was a consequence of the European Commission’s objections to Gazprom’s monopolistic practices. The Commission’s preliminary assessment included in this document stated, among others: violation of the EU competition law and implementation of the strategy of dividing gas markets along the borders of Bulgaria, Estonia, Lithuania, Latvia, Poland, the Czech Republic, Slovakia and Hungary.

Consequently, it is really difficult to understand the obligations included in the European Commission Decision (presented a contrario) differently than the fact that Gazprom “promises” not to do what it used to do, i.e. to abuse its dominant position. Since the Decision orders Gazprom, for example, to remove all restrictions on the cross-border resale of gas imposed on its customers, it means that those restrictions existed in the first place, which should not have. Further, since the Decision orders Gazprom to allow the free flow of gas to those parts of Central and Eastern Europe which, due to the lack of interconnections, are still isolated from the other Member States, namely the Baltic States and Bulgaria, and this in itself asserts that Gazprom had been preventing the free flow of gas right up until then. The European Commission’s decision orders Gazprom to end the use of the dominant position in gas supply: the non-enforcement of the benefits connected with the gas infrastructure by Gazprom, which it could have obtained from its customers through its position in the gas supply market’[9]. This, a contrario, underlines that this dominance has so far been inappropriately used, in particular, by using Gazprom’s position e.g. to derive illegitimate benefits in the gas infrastructure.

Relations between PGNiG and Gazprom

The contract between Gazprom and the Polish company PGNiG is valid until the end of 2022 and is expected to be executed in accordance with the current form of the contract, as amended by an arbitration court ruling. Failure to respect the contract may be assessed, among others, by the European Commission in terms of compliance with the obligations imposed on Gazprom by the Commission. It also seems that if this happens, it should be assessed in two ways – as a breach of the existing obligations and as another tort – the manifestation of Gazprom’s abuse of its dominant position on the EU market against the EU anti-trust regulations.

This complex relationship with the Eastern gas supplier is not only an individual arbitration dispute over price. A far broader perspective is needed. In 2016, I created the PGNiG’s legal team, inspired by the actions of the late Professor Lech Kaczyński, who, during the years from 2002 to 2005, as the Mayor of Warsaw, created an excellent team of lawyers capable of effectually winning international disputes. As Vice President of PGNiG, I decided to restructure the company’s legal services at once.

The architects of the legal victory in the four-year arbitration with Gazprom, i.e. the leaders of the in-house Polish legal team, were: legal adviser Dariusz Hryniów, a graduate of the Faculty of Law and Administration at the University of Opole who currently serves as Director of the Legal Department at PGNiG; as well as attorney Tobiasz Szychowski, a graduate of the Faculty of Law and Administration at the University of Łódź, a specialist in litigation and arbitration disputes, currently serving as Deputy Director of the Legal Department at PGNiG. These lawyers also worked on the case of the OPAL gas pipeline. This is another proceeding of PGNIG in which I had the honour of being involved in at the turn of October and November 2016, when, as the PGNiG Management Board, we decided to join, through a German PGNiG subsidiary, to Poland’s appeal against the European Commission’s decision to the Court of Justice of the European Union, which had concluded in a favourable judgment of the General Court of the European Union in 2019.

[1] 1.5 billion USD / 65 months [overpayment period] = 23,076,923 million USD / month)

[2] PGNiG Raporty bieżące, Raport bieżący nr 48/2018, PGNiG, 02.10.2018, link: nr-48-2018

[3] Andrzej Kublik, Ukraina znów wygrała z Gazpromem, Euractiv, 27.11.2019, link:

[4] Svea hovrätt, Arbitral award in a dispute regarding supply of natural gas remains unchanged, Sveriges Domstolar, link:

[5] European Commission Antitrust/Cartel Cases, 39816 Upstream gas supplies in Central and Eastern Europe, European Commission, link:

[6] Antitrust Procedure, CASE AT.39816 – Upstream gas supplies in Central and Eastern Europe, European Commission, 25.05.2018, link:

[7] Krzysztof Strzępka, PAP: {PGNiG złożyło skargę na decyzję KE ws. praktyk Gazpromu, PAP, 16.10.2018, link:

[8] Adam Turek, Google to nie wszystko. Największe kary antymonopolowe dla technologicznych gigantów w historii UE, Business Insider, 19.07.2018, link:

[9] Aktualności: Przedstawicielstwo KE w Polsce, KE zobowiązuje Gazprom, European Commission, 24.05.2018, link:

Author: Janusz Kowalski

This article was originally published on The Warsaw Institute Review.

All texts published by the Warsaw Institute Foundation may be disseminated on the condition that their origin is credited. Images may not be used without permission.

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