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Sunday, February 18, 2018

In a dispute over transit tariffs, Ukraine is digging a hole for myself

The Stockholm arbitration court will resume hearings in the case of the transit contract between Naftogaz and Gazprom. Kiev could not take advantage of this occasion to again Express their arguments in the dispute, – and once again demonstrate how they are helpless. And most importantly – increase tariffs on Ukrainian transit will only add interest to the implementation of the “Nord stream – 2”.

On Monday in the Stockholm arbitration court should begin hearings on the transit contract signed in 2009 between Naftogaz and Gazprom. Against this background, Ukraine recalled its optimistic expectations on this occasion.

“Gazprom will have to pay us tens of billions of dollars of compensation to sell gas at a much lower price, each year to pay $ 4 billion more for transit”

Ukraine’s position in this matter “not easy”, admitted in his blog, the commercial Director of Naftogaz Yuriy Vitrenko, however, Kiev assured her. “We understand that this is a very complex and demanding legal battle that it is vital for us to win it,” he wrote.

The weakness of Ukraine’s position is simple – she is contesting the contract, which was signed by the leaders of Ukraine and Naftogaz are not under the gun, and on their own. And to the Stockholm arbitration went to change the contract, Kiev must provide compelling evidence of its violation. And with that, things are more complicated.

“The problem is (in the case of the arbitration award in favor of the Naftogaz), which Gazprom will have to pay us tens of billions of dollars of compensation to sell gas at a much lower price, each year to pay $ 4 billion more for transit and not to obstruct our integration in the European market,” threatens Vitrenko. The requirements of Naftogaz are that the tariff for transit “was given in compliance with the European rules for setting tariffs,” he adds.

Naftogaz thinks Gazprom should pay for the service of gas transportation through the Ukrainian territory more than it pays now. And nods while rates in Europe. Meanwhile, to compare the tariffs for gas transit in different countries is incorrect, the situation is different everywhere and the uniform pricing of transit tariffs. Even within Europe, the tariffs for gas transit vary greatly.

Methods of calculating rates differ and depend on different factors, such as the technical parameters of the pipeline (diameter and pressure), from geographical and economic conditions, even the exchange rate is sometimes important, and that the condition of the pipe. The rate for Ukraine was justified, as spelled out in the contract from 2009, and this rate is floating and depends on the cost of fuel and inflation in Europe. Transit rate depends on the price of gas, which consists of another contract on gas supply signed with Gazprom in the same year 2009. The higher the gas price, the higher the rate of transit, and Vice versa.

The transit contract is a commercial contract through which just appeared a clear scheme of payment for transit of Russian gas, which up to 2009 do not. This contract allowed Ukraine to earn more than before. For example, in 2010, on the basis of the contract, the transit tariff has increased by 60%. In some years it decreased, but this was due to the dependence of the cost of imported fuel. But the income of Kiev is still growing: in 2009, the transit, Ukraine has earned $ 1.7 billion, in 2013-m – already $ 3.6 billion. In 2015, revenue was $ 2 billion.

However, Kiev has become smaller because Gazprom started to reduce the volume of gas pumped through the Ukrainian territory and to increase in passing gas directly to Europe through the “Nord stream”. Why Gazprom to pay for the transportation of gas through Ukraine, if it is cheaper to make in another way? Kiev, of course, didn’t like it. But why the Russian company should worry about the interests of a neighboring state?

Especially in the part of the transit contract, Gazprom does not violate the requirement volume of gas pumped through the territory of Ukraine is not spelled out, and penalties too. Kiev believes this, of course, unfair, but legally nothing could be done. Exactly how and unilaterally raise the tariffs for gas transit. A case of late 2015 – early 2016, when Naftogaz said that significantly raises the rate of pumping of gas to Gazprom. But at the beginning of this year, was forced to admit that he has no right to take such a step.

That is why Vitrenko and says that this battle in Stockholm “it is vital for us to win.” Revenues from transit – among the few income, which can now count the country, given the devastating to many other sectors of the economy the actions of their own authorities.

Naftogaz in his desire to take Gazprom as much money as possible for the transit forgets about the other side of the coin. Higher transit tariffs will make the “Nord stream – 2” is even more attractive for Gazprom to European consumers. In Europe understand that the growth of transit tariffs through Ukraine will mean the rise in gas prices for them.

Another requirement of Ukraine. According to commercial Director of Naftogaz, the contract between the two companies should be brought into conformity with the legislation of Ukraine. In his view, as the provision of services on transportation of gas is carried out on the territory of Ukraine, should apply to the Ukrainian legislation. We are talking about the anti-monopoly legislation of Ukraine, which it is trying to use against Gazprom, but the Russian company does not recognize these claims.

In other words, Ukraine wants the right to change the terms of the commercial contract with Gazprom at their discretion – what law will, as the rules of the game will change. And it is unlikely they will take into account any interests of the other party. This, of course, is contrary to international practice, the conclusion of commercial contracts between the two state-owned companies, backed by international agreement. Then Moscow should have the right to rewrite the contract in accordance with Russian law.

The transit contract was signed in accordance with international law, so the arbitration and is not in Kiev, and Stockholm. And this is why Gazprom does not recognize the antitrust claims of the Ukraine. The more that Gazprom as the entity does not conduct economic activities on the territory of Ukraine, transportorul Ukrainian gas company. As a company that operates outside of the country, you can apply the laws of this country?

The requirements of Ukrainian companies to Gazprom relate not only to tariffs on transit, but also the transfer of the transit contract with Naftogaz on a dedicated transmission system operator “Ukrtransgaz”, as well as providing Russian data to the design of acceptance-transmission of gas. According to Yury Vitrenko, the latter is necessary in order to eliminate the control of Gazprom over the connections between GTS and Ukrainian gas transmission systems of Romania, Slovakia, Hungary and Poland, including the organization’s goal of virtual reverse.

Actually, the change of Naftogaz, Ukrtransgaz on there is nothing wrong, but just in case, if the new company is transferred all responsibility of Ukraine under the contract. But Kiev wants so to gain control over the gas transportation system outside of their country and to deprive Gazprom of control over the flow at the Ukrainian-European border. Gazprom is logical does not allow you to pump gas at a controlled pipes from West to East, from East to West. Moreover, European consumers are also interested in this, since the implementation of the Ukrainian scenario poses a new threat to supplies of Russian gas to them through Ukraine.

“When we signed a transit agreement, there were no complaints. But they appeared after the change of government and the relevant differences with Russia. Russia operates in the framework of the contract”, – says the associate Professor of the higher school of Ranepa, senior researcher of the sector of the energy policy Institute of Economics of RAS Ivan Kapitonov.

“It is no coincidence, they believe his position saintecatherine. From the point of view of sanity is this a PR stunt of Ukraine, speaking out against Russia,” he adds. “They require additional overtures to their legislation. Come on ten more times they will change their legislation, we will revise all treaties? To adjust their laws, no one will” – said Kapitonov.


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