Gazprom has run out of patience: Ukraine will be fined and forced to pay for the uncollected gas

Gazprom fines Naftogaz for gas shortages of $2014 billion in 8,2.

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This was stated by the head of the Russian holding, Alexey Miller, speaking at a conference within the framework of the European Business Congress.

As a result, the total amount of Ukraine's debt to Russia for gas, along with fines for failure to fulfill the contractual “take and pay” clause, increased to $29,4 billion, the head of Gazprom added.

The last straw for Gazprom was Ukraine’s announcement of a claim to Stockholm to change the transit contract.

“There is an agreement that from November 1, 2014, for five months, Gazprom will not impose fines on Ukraine under the “take or pay” condition. However, there is a period from January 1, 2014 to October 31, 2014, in accordance with the contract, Gazprom must and does impose take-or-pay penalties on Ukraine for 2014,” Miller said.

According to him, a proposal for a fine of $8,2 billion will be sent today to Naftogaz, as well as to the Stockholm Arbitration. While Gazprom has issued fines before, this is the first time it has filed a lawsuit.

“Since 2012, we have been recording the fact of gas shortages and penalties. We emphasized that we can demand payment of the debt, but we do not do this as a sign towards Ukraine to normalize the situation and relations. Therefore, since 2009, we have not filed a claim for gas shortages,” says Konstantin Simonov, general director of the National Energy Security Fund.

Ukraine has consistently violated the take-or-pay clause, underpaying Russia billions of dollars annually. Until 2013, Russia turned a blind eye to this and forgave in a friendly manner. But for the shortage of gas in 2012, 2013, and now in 2014, Gazprom billed Naftogaz. Ukraine has always refused to pay, and last year Yuriy Prodan, being the Minister of Energy of Ukraine, advised Moscow to go to court: “Gazprom issued such an invoice, and if it wants, let it sue and go to arbitration.”

Then Gazprom did not listen to the advice of Prodan, who, due to a corruption scandal with coal from South Africa, had long since left the post of Minister of Energy. However, now the case with Ukraine’s gas debts to Russia will be decided by the Stockholm court.

The “take or pay” rule is spelled out in the contract between Naftogaz and Gazprom dated 2009 (valid until 2019 inclusive). According to it, Russia guarantees the supply of a maximum of 52 billion cubic meters of gas to Ukraine, and Kyiv, for its part, undertakes to buy from Russia annually at least 80% of this volume, or 41,6 billion cubic meters. According to this rule, even if Kyiv does not choose that much, it still must pay for 41,6 billion cubic meters.

As Miller explains, Naftogaz's total debt to Gazprom as of May 28, 2015 is $29,5 billion. It includes, firstly, the debt for gas supplies in 2013–2014. plus penalties in the amount of $2,6 billion; secondly, the debt for Gazprom’s gas supplies to the South-East of Ukraine this year in the amount of $200 million. And thirdly, Naftogaz never paid the “take and pay” fines for 2012, 2013 and 2014. The fine for gas shortages in 2012 is $7,1 billion, in 2013 – $11,4 billion and in 2014 – $8,2 billion.

Ukraine has been reducing its purchases of Russian gas every year. If in 2011 Naftogaz purchased 40 billion cubic meters, then in 2013 - only 25,8 billion cubic meters, and in 2014 - even 15,3 billion cubic meters, which is associated with a sharp drop in industrial production and rising prices.

We would like to remind you that the Stockholm Arbitration Court has already filed a lawsuit by Naftogaz with claims regarding the price of gas supplied, and a lawsuit by Gazprom to collect a debt from Naftogaz in the amount of $4,5 billion for gas supplies. The issue of pricing is also a sore point for Eastern Europe, so it is difficult to predict a decision on this Ukrainian lawsuit.

But it will be difficult for the court not to recognize the “take and pay” condition. The “take and pay” condition is spelled out in the agreement with Naftogaz, so legally Gazprom must win the dispute in court. Moreover, exactly the same “take and pay” rule is spelled out in European contracts, and Europeans are trying their best to follow it so as not to become violators.