The revelations of the Ukrainian government suggest that the Russian Gazprom deliberately triggered a crisis of gas supplies to Ukraine through a ruse that is to prove that Russia is not a reliable supplier for Europe – writes Wojciech Jakóbik, editor-in-chief of BiznesAlert.pl.
History of abuse
A working document from the Ukrainian government shows that in the past „Gazprom has used the crisis advantage by using gas supply disruptions in the midst of cold weather to put pressure on Ukraine and its western partners”. This is due to unclear and dubious entries in contracts for the supply and transit of gas through Ukraine from 2009. As a result, Gazprom „discriminated” Naftogaz by setting prices „significantly above” market values and requiring the company to pay too much gas, even if it was not consumed (under the „take or pay” clause).
Before 2014, Ukraine was forced to apply for „arbitrary” price rebates from the Russian government and for relief from coercion to buy a minimum amount of gas. – These discounts were used to force certain political concessions in Ukraine – state the Ukrainians.
In 2014, arbitration proceedings started regarding both contracts. The final decision was announced on December 22, 2017 on the supply contract and on February 28, 2018 on the transmission contract. Mutual claims amounted to 125 billion dollars. Both contracts are valid until the end of 2019.
Both contracts must be reviewed and the results of the court case are considered unfavorable and „unfair” by Gazprom. The Ukrainian side reminds that although the verdict on the gas supply contract is enough as a basis for the revision of the contract, together with the Russians, it considered adopting an additional agreement, which was to specify how the judgment should be implemented.
Gazprom, in the eyes of many witnesses, was to convince in the course of negotiations lasting from January to February 2018 that the supplement to the verdict should only be a convenience. His sketch was created by Naftogaz and sent to Gazprom in February this year. In the week preceding the verdict on the transit agreement, the Russian company rejected the draft, arguing that there was no need to sign it for a revision of the contract.
Gazprom’s fort
For this reason, Naftogaz provided a prepayment of USD 127 million for deliveries of 0,5 billion cubic meters in March, or about 18 million cubic meters daily from March 1. Gazprom confirmed receipt of prepayments. Nevertheless, on February 28, the Russian company delayed the transmission of standard nominations for the provision of capacity by Ukrtransgaz, the transmission pipeline operator owned by Naftogaz. This is the basic document justifying daily cooperation. At that time, Gazprom employees were to stop responding to calls and messages. The nominations provided finally to Ukrtransgaz did not contain the volume ordered by Naftogaz (they could contain orders of other users of the Russian network – an editorial note).
On the morning of March 1, minutes before the scheduled delivery starts at 10 am, Gazprom informed Naftogaz that it will not deliver gas and will refund the prepayment. It indicated the lack of additional agreement on the implementation of the arbitration award as the reason. It was a surprise for Naftogaz. The company treats this action as a breach of contract incompatible with the Court’s judgment. It will apply for compensation for damages resulting from this action.
By refusing to provide deliveries in March, Gazprom has not allowed Naftogaz to comply with the arbitration award by purchasing a minimum amount of gas from Russia (4 billion cubic meters per year – editorial note). Naftogaz reports that it has never seen such a treatment in the history of European imports. It has never been that it gave the prepayment and did not get gas. On 2 March, Gazprom officially announced that it intends to withdraw from the supply contract with Naftogaz. The lawyers of the Ukrainian company are still assessing this application.
Due to the lack of supplies from Gazprom, the Ukrainian Naftogaz had to take countermeasures. Daily demand in Ukraine is currently over 100 million cubic meters. Most of this (100 million cubic meters) is covered by stocks stored in gas storage. They are used with full bandwidth. One third of daily demand is covered by domestic production. The rest is covered by gas imports from the European Union. For this reason, Naftogaz had to sign a contract for an additional 18 million cubic meters per day on 1 March to make up for the shortage caused by Gazprom. The surprising, but official Gazprom’s decision, stock prices have risen – according to the information BiznesAlert.pl received. The situation was to worsen the shortage of gas in Europe caused by frost.
For this reason, Ukraine has introduced emergency measures to ensure security of supply: lowering temperatures in the public and industrial sectors, switching to other fuels, temporary closure of public institutions such as schools and kindergartens. At the call of the authorities, the society responded, which lowered temperatures in the houses by 1-2 degrees in the next three days after the crisis began.
The extraordinary situation caused that Naftogaz signed a contract with the Polish PGNiG on emergency gas supplies. It applies until the end of March 2018 and covers 60 million cubic meters. Deliveries started on March 2 at six in the morning of Ukrainian time by a connection in Hermanowice. – Gas deliveries from Poland will allow the abolition of extraordinary measures in the near future – we read in the information provided to journalists.
Ukraine informed about the problem of the European Commission on March 1. It asked to organize tripartite negotiations in the EC-Ukraine-Russia format as soon as possible, launching an early warning mechanism in accordance with Article 340 of the EU-Ukraine Association Agreement. The Ukrainian government declares its readiness to take all measures to further implement the current contracts, as well as to implement the arbitration decision in good faith. – Ukraine is and will remain a reliable energy partner for Europe – we read at the end of the document.
Conclusions
A statement of the Ukrainian side suggests that Gazprom deliberately misled it, leading to the failure to sign the document, which then became an excuse to block gas supplies to Ukraine. This policy was paid by Ukrainian society, which was threatened by the interruption of supplies during the period of the greatest frosts. This would be another proof that Russia is not a reliable gas supplier. As in Ukraine, it can also operate in the European Union. It may not submit to arbitration in a dispute with Polish PGNiG. It can use fortunes using Gazprom to obtain political results. This may even happen against the will of the Russian company and against its economic interest. Gazprom’s stronghold may result from Kremlin political pressure. The new, European and gentle image of the Russian giant splashes. The old, dangerous Gazprom returns. The proposal for a controversial Nord Stream 2 project currently promoted in Europe can only be one. However, it will not necessarily come to a reflection on this topic. This, in turn, may encourage the Russians to keep abusing.