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Friday, March 16, 2018

Defeat Lithuania from Gazprom heralds and the loss of Ukraine

Gazprom for the first time won an important victory in a dispute about what should be the cost of gas supplies to Europe. Lithuania lost the case in the Stockholm arbitration court and are unable to prove their understanding of the so-called fair prices. Ukraine should carefully examine the results of this process and the arguments of the parties – the claim of Naftogaz to Gazprom are almost identical.

The Stockholm arbitration court considering a dispute between Lithuania and Gazprom over the alleged overpayment in the amount of EUR 1.4 billion for the supplied gas to Lithuania, found no fault of the Russian company. This was stated by Minister of energy of Lithuania Rokas Masiulis, noting that Vilnius is disappointed with this decision. “The Stockholm arbitration court did not consider violations of the Russian concern”, according to the Delfi. Arbitration costs are divided between the two sides – half a million euros.

“Arbitration drew attention to the fact that the term “right price” is an abstract in order to assess the possible damage”

The lawsuit was filed by Lithuania in October 2012. Vilnius demanded that he be compensated for the approximately 1.4 billion euros for Russian gas deliveries in the years 2004-2012. He claimed that the gas was sold at too high a price, “unfair price”, so it is necessary to revise the contract and recalculate the payment for the supply in previous years.

“At the conclusion of the arbitration Institute argues that none of the parties have not specified the requirements and has not provided reasoned argument. This suggests that it is quite complicated and none of the parties are unable to defend their positions,” – said the Lithuanian Minister. Essentially, this means that Lithuania has been unable to prove his vision of a “fair” price.

Important is how the Tribunal understood the term unfair prices that Lithuania is constantly used – just as it constantly does Ukraine.

“Arbitration drew attention to the fact that the term “right price” is an abstract in order to assess the possible damage. In addition, the arbitrators decided that claim to provide gas at a lower price does not make sense”, – stated in the message published on the website of the Ministry of energy of Lithuania.

It is interesting to compare this case with similar claims of European companies and claims of Ukraine to Gazprom, which is now also addressed in the Stockholm arbitration.

Many European countries sued Gazprom for the cost of gas, and I must say, I succeeded. First in the summer of 2010 in Arbitration court of Stockholm has asked the Italian Edison. But the decision in this case was made was not: Gazprom chose to resolve the situation in the pretrial order. Italian ENI and Edison, German E. ON and RWE, Greek DEPA and the Polish PGNiG, the Russian company had to offer discounts.

In Europe such courts Gazprom lost or went to preventive changes to the contract and retroactive payments. In the case of Lithuania, the desire of Gazprom to voluntarily resolve this story was extremely low, for obvious reasons,” – said General Director of national energy security Fund Konstantin Simonov.

First, Lithuania went to the most rigid scheme of separation of energy assets and forfeiture of ownership of Gazprom. Gazprom was together with the German E. ON co-owned company Lietuvos Dujos. After the adoption of the so-called EU Third energy package the business had to share. But Lithuania could go on more simple way to resolve the issue – not to act rashly, and to reorganize the asset gradually. For example, in Estonia the output of Gazprom from the ownership of local companies was only completed in may this year and was not accompanied by political shocks.

Secondly, Lithuania to the detriment of themselves doing everything to buy less Russian gas. For this purpose she built the LNG terminal. “The United States constantly put the example of Lithuania as a perfect option of getting rid of Gazprom’s dependence on Russia”, – says Simonov. Therefore, Lithuania could hardly wait for the Gazprom world. And, as it turned out, Gazprom will not lose.

Causes of loss

Why Lithuania lost, unlike several other European countries who won in Stockholm from Gazprom? According to Simon, there are three factors.

First, it is the politicization of the requirements. “Lithuania, originally called the price of Russian gas is political, and this is in the lawsuit. I think that Lithuania has convinced itself that we must rest on political factors that, say, Gazprom torturing the Baltic States, sets high prices. But from a legal point of view, this is a controversial thesis. What does a political price? There is a formula in the contract with which Lithuania itself agreed”, – said the head of the NESF.

The assertion that Gazprom is using its monopoly position to sell gas at higher prices and this discriminary Lithuania is divided on a number of objections.

“The Baltic States have no reason to say that the gas is supplied at high prices. If you take the price for consumers, households, gas prices in the Baltic States is traditionally one of the lowest in the EU. Below are usually only in Romania and Bulgaria. When you go to court and say that the population and industry of Lithuania eventually buys gas at the lowest EU price, what kind of discrimination you can talk?” “says Simonov.

It is not excluded that the arbitration award could affect the later history, although the claim concerned and of 2004-2012 years. “But these stories give a reason for thinking that the position of Lithuania is reduced to politically motivated assertions, nothing more”, – the expert believes. First, it’s the same story with the conclusion of the shareholders of the company Lietuvos Dujos to Gazprom. Lithuania at this time was actively accused Gazprom to raise prices. “In fact, there was a conflict of shareholders: the prices increased when there was an attempt to take away the property of Gazprom. But then Lithuania itself had paid the Gazprom the money for this asset, recognizing that her actions were excessive. Once joint the dispute was settled, the price of gas went down,” recalls Konstantin Simonov.

The second story connected with 2014, when Lithuania signed the first contract to supply LNG to the terminal. “After all, Lithuania now has an alternative to Russian gas, and this alternative is more expensive, – says Simonov. – Lithuania has signed a contract at prices obviously higher than that offered by Gazprom, but in this case the court says that Gazprom many years of her discriminare. The question arises: on what basis do you go to court, if you are happy to buy more expensive gas from other suppliers?”

An identical lawsuit from Ukraine

The contract with Lithuania is not public, in contrast to the published contract with Ukraine, so they are difficult to compare. However, the actions look almost identical. The expert does not exclude that Gazprom will be able to use Lithuanian history as an argument in its favor during the trial with Ukraine.

So, the rhetoric of Ukraine over the price of Russian gas is very similar to Lithuanian. “And the past and the present Ukrainian power all the time appealed to the fairness of the price, but in legal terms there is no such term. In Ukrainian the contract has a clause about change of contract in case of fundamental changes in the market. But it is an old dispute – what should be considered fundamental changes”, – says Simonov. Moreover, Gazprom made concessions to Naftogaz and after rising oil prices since 2010 has provided a well-known Kharkiv discount and refused Ukraine’s implementation of conditions take or pay (take or pay), which is required in the contract.

In addition, Ukraine, like Lithuania buys from other vendors of more expensive Russian gas. “We specifically considered, and it turned out that in 2015 the price of the reverse for Ukraine was higher than the Russian supplies. Kiev itself discreditied, buying more expensive gas from alternative suppliers”, – said Simonov. And now, according to him, reverse gas still costing Kiev more than if it bought from Gazprom directly.

“Claims are identical, while Ukraine is in some ways even worse position. Unlike Lithuania, Ukraine grossly violated the clauses of the contract on Russian gas purchases. She needs to take or pay conditions space amount. Lithuania, such a condition is not violated. Therefore, Ukraine’s position may be even weaker,” sums up Simon.

In 2014, Naftogaz filed a lawsuit against Gazprom in the Stockholm arbitration with the requirement to establish a fair and market price for the supplied gas. Kiev has also said it wants to collect from the Russian company $ 6 billion in overpayments for the purchased gas since 2010. Then followed the claim of Gazprom with a demand to pay for earlier gas supplies, but not paid by Ukraine. In the end, for two years, Stockholm has added a number of lawsuits from both sides. According to the latest data, the total amount of the claims of Gazprom to Naftogaz in Stockholm is estimated at 31,759 billion, claims of Naftogaz to Gazprom – at 25.7 billion.

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