Russia Monitor is a review of the most important events related to Russian internal and external security, as well as its foreign policies.
Date: 15 June 2021
Ukraine Ready to Take Legal Action against Gazprom over Gas Transit
Ukraine is prepared to take legal action against Gazprom to unblock the flow of gas through its territory. “If Gazprom does not execute the deal, we are ready to take it to international arbitration,” Ukraine’s Prime Minister Denys Shmyhal was quoted as saying. Ukraine’s Naftogaz estimated its potential claim at some $7.2 billion. Furthermore, the Ukrainian gas company could come back to its $12.2 billion worth of claims against Gazprom it had earlier withdrawn.
The Russian state-run energy giant now sends its flows of gas to Europe through the Ukrainian gas transmission system (GTS) under its December 2019 deal that expires by the end of 2024. The agreement involves the take-or-pay clause. Gazprom committed to transit through Ukraine at least 60 billion cubic meters (bcm) of gas in 2020 and at least 40 bcm in the next four years. In the case of smaller flows, it is still required to pay the minimum amount as indicated in the deal. Clearly, not adhering to the contract will consist of refusing to send gas through Ukraine and securing the minimum gas transit volumes. No Gazprom official has mentioned this, but possibly Ukraine’s readiness to take action comes amid an increasingly likely launch of the Nord Stream 2 natural gas pipeline. No details have been provided on which Naftogaz based its $7.2 billion worth of claim. It is the aggregated sum of all transit fees Gazprom would pay in five years to send the minimum amount of gas as agreed by both sides. And yet the agreement has been in force for a year and a half while Gazprom is obliged to pay at least $4.5 billion over the remaining three years and a half. But there is more to it. So Naftogaz has taken out its $12.2 billion claim it had withdrawn after inking a five-year transit deal in 2019 and receiving $3 billion that a Stockholm arbitration ruling had awarded to Ukraine. Thus Ukrainian demands seem unrealistic while the country’s expectations look somewhat exaggerated in this respect. Possibly Kyiv is addressing this topic as part of an information campaign to channel its fears of Nord Stream 2 and perhaps Russian efforts to divert some of its gas flows from Ukraine to its new Baltic pipeline.
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