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Court Rules In Favor Of Ukraine's Naftogaz In Gazprom Dispute

Authored by Irina Slav via OilPrice.com,

The Stockholm arbitration court ruled in favor of Naftogaz in a long-running payment dispute between the Ukrainian state company and Russia’s Gazprom. Gazprom has been obliged to pay Naftogaz US$2.56 billion for failing to supply Ukraine with the agreed amount of natural gas over a period of several years and also for failing to pay the full transit fees for the gas it did pump in that direction.

The Ukrainian company’s victory is pyrrhic, however: of the original US$4.63 billion in payments due by Gazprom, the Stockholm court ruled that only US$2.56 billion would actually be paid out to Naftogaz, as Naftogaz had previously been ordered to pay about $2 billion to Gazprom for arrears.

The court also obliged Naftogaz to buy 5 billion cu m of natural gas from the Russian company annually starting this year.

Gazprom acknowledged the ruling, but said it created a “material imbalance, which infringes the basic principles of Swedish law, which regulates the (gas) contract” adding that “Gazprom will defend its rights by all available means in accordance with the applicable law.”

Hours after the ruling was made public by Naftogaz, Gazprom’s CEO Alexander Medvedev said the company had received payment from the Ukrainian company for gas to be pumped its way this month, but had returned it. The reason is that the two companies have yet to sign a supplement to their original contract reflecting the court’s ruling.

Ukraine is Russia’s main gas transit route to Europe, but bilateral relations have been strained for quite a while. Events heated up in 2014 after Russia annexed Crimea after a referendum, and after it backed pro-Russian separatists in eastern Ukraine.

Adding to the problems is Gazprom’s Nord Stream 2 gas project that will divert a significant portion of gas from the Ukrainian transit route, causing Kiev will lose billions in transit fees.

Yesterday Russian President Vladimir Putin said that Nord Stream 2 was not an alternative to Ukraine. After a meeting with Austrian Chancellor Sebastian Kurz, Putin said “If Ukraine presents economically grounded factors for using its gas transportation system, we have nothing against continuing cooperation with Ukraine. The question is only in the volumes of pumping.”

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