Analyst: “…we believe that by submitting the appeal Gazprom will be only able to postpone its payment to Naftogaz. And such postponement may be costly for the Russian holding, as Naftogaz is asserting.”
KYIV, Mar 9, 2018 - Russian natural gas monopoly Gazprom (GAZP RX) has submitted an appeal to the Dec. 22 ruling of the Stockholm arbitration court, Concorde Capital informed clients based on a statement by deputy CEO Alexander Medvedev on March 6. That ruling on the gas supply contract between Gazprom and Naftogaz stated that Gazprom should receive USD 2.02 bln from Naftogaz. Also, the company is going to appeal the court’s Feb. 28 decision on their gas transit contract, which ordered Gazprom to pay USD 4.6 bln to Naftogaz. In his comments on Jan. 15, Medvedev had said that Gazprom sees no reason to appeal the December ruling. Commenting on these decisions, the press service of Naftogaz told Interfax-Ukraine that the appeal does not freeze the ruling, meaning that Gazprom continues to owe Naftogaz USD 2.56 bln and this debt is increasing by about USD 0.5 mln each day. Concorde analyst Alexander Paraschiy added: “What annoys Gazprom most is that the Stockholm court obliged the Russian company to fully obey the “ship-or-pay” clause of the gas transit contract (shipping at least 110 bcm through Ukraine annually, to the benefit of Naftogaz), while it earlier declared as inadequate the “take-or-pay” clause of their gas supply contract (obliging Ukraine to purchase no less than 42 bcm annually). By doing this, the court has likely taken into account that Ukraine does not need to import 42 bcm of natural gas from Russia (with a prohibition on re-exporting it) as total consumption in Ukraine was 32 bcm in 2017. Lawyers for Ukraine reportedly referred to adverse economic conditions that led to a significant drop in domestic gas demand in Ukraine, and the court ruled to reduce the minimum amount of gas imported from Russia to 4 bcm annually. However, Russia's lawyers could not effectively argue by citing a tough economy to ask for relaxation of the “ship-or-pay” clause (Gazprom was shipping over 140 bcm of gas to Europe each year starting 2009). For that reason, we see low chances for Gazprom to question the reasoning behind the Stockholm court ruling. Moreover, according to comments by Naftogaz, Gazprom can only question some procedural aspects of the court’s hearing, not the argumentation of the ruling. Therefore, we believe that by submitting the appeal Gazprom will be only able to postpone its payment to Naftogaz. And such postponement may be costly for the Russian holding, as Naftogaz is asserting. ### For more information, link here: www.concorde.ua
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