A new window of negotiations for PGNiG-Gazprom is opening, while the arbitrator’s illness delays the price dispute between these companies. Poland may soon be affected by the Yamal affair that politicians might want to use – writes Wojciech Jakóbik, editor-in-chief of BiznesAlert.pl.
Stalling for time?
– PGNiG SA continues to participate in the arbitration proceedings before the Stockholm Tribunal against PAO Gazprom and OOO Gazprom Export, on the renegotiation of the price of natural gas valid as of 1 November 2014 under the purchase and sale agreement of natural gas to the Republic of Poland concluded in 1996 – as we read in the statement of the PGNiG.
PGNiG SA expects to settle arbitration proceedings in the coming months. The schedule of the arbitration proceedings has extended due to illness of the arbitrator indicated by PAO Gazprom and OOO Gazprom Export – as the company reports. Irrespective of the above arbitration proceedings, PGNiG SA submitted to Gazprom and OOO Gazprom Export on November 1, 2017 an application for initiation of a new, further process of renegotiation of the price of natural gas delivered as of 1 November 2017 under the aforementioned along-term contract.
PGNiG emphasizes that both processes are independent. Although the Polish gas company formally starts price negotiations with the Russians, due to the fact that its representatives repeatedly emphasized that Gazprom’s lack of flexibility may make it the only chance for a revision of the pricing formula in favour of the Poles will be the victory in the arbitration proceedings. The verdict was due to be published by the end of October, but the arbiter’s illness extended the proceedings. In September, PGNiG CEO Piotr Woźniak admitted in a conversation with BiznesAlert.pl that ‘there are further voices that it is stalling for time’. – Anyway, we have no influence on this, because our partner has the right to choose a representative – he said.
PGNiG has challenged the terms of the Yamal contract in arbitration proceedings, i.e. the long-term contract of PGNiG-Gazprom of 1996, reviewed in 2010. A similar case was won among others by RWE. The Polish company did not exclude the agreement outside the court, but emphasized the lack of cooperation in this area on the Russian side.
Therefore, arbitration is so important, and perhaps due to the precedent of the Gazprom’s partners, stalling for time takes place. – The decision will move in time, but we are certain of the result, because our arguments are irrefutable – says Woźniak to Puls Biznesu.
Pawlak as a target of the prosecutor’s office
However, there is a specific context for this negotiating window. TVN 24 reports that the prosecutor’s office got interested in the process of negotiating an annex to the Yamal contract of 2010. Investigators are checking whether the agreement could be unfavourable for Poland and whether the negotiations were corrupt. The prosecutor Łukasz Łapczyński informed TVN24 that The proceedings were initiated on 19 September. It is conducted on the exceeding of powers and non-fulfillment of official duties by public officials in connection with negotiating and signing the international agreement, unfavourable for Poland and contrary to European Union law, for deliveries of Russian gas to Poland, which was an act to the detriment of the public interest – as we read in the portal of TVN24.
More detailed information is included in the notice of the launch of the investigation, which was found by BiznesAlert.pl. It refers to the ‘surpassing of powers and failing to fulfill obligations in 2010, by the then Deputy Prime Minister – Minister of Economy and other public officials’, which TVN24 did not mention. It is about Art. 231 para. 2, i.e. surpassing of powers in order to gain a personal or financial advantage.
This means that the prosecutor’s office investigates whether Deputy Prime Minister Waldemar Pawlak accepted a material or personal advantage for gas negotiations contrary to the interests of Poland. Already in September, there were the ideas to have it reviewed by the investigation committee but I convinced in conversation with the PAP that it should be left to the prosecutor’s office. I also repeated the appeal, valid for several years, for the disclosure of the content of the report of the Supreme Chamber of Control on the negotiation of an annex to the Yamal contract..
Non-compliance with EU law
The extension of the Yamal contract by the Pawlak team is controversial, as it has taken into account the relief of Gazprom’s debt for transit through the Yamal gas pipeline amounting to PLN 1.2 bn for – according to media reports – a decrease in delivery prices by about 1 percent. The RBK analysts have calculated that this reduction would cost Gazprom around USD 15 million, i.e. a fraction of the debt that was relieved.
However, the main concern to the Yamal contract is not the price but its non-compliance with European law. The intervention of the European Commission has made it possible to improve the provisions of the agreement in favour of Poland. This is another proof of the purpose of defence of the common energy policy as a protective umbrella against the abuse of large players such as Gazprom. I am writing further about the need to defend this umbrella in the concept of energy prometheism and the report for the College of Eastern Europe.
MFA’s comments to the annex included the three aspects:
1Ownership unbundling
2TPA
3Tariff rates
Reservations to the negotiation process were submitted on 9 March 2010 by the Minister of Foreign Affairs Radosław Sikorski, who was a member of the negotiating team from the beginning, but after the letter from the European Commission and the articles of Andrzej Kublik from Gazeta Wyborcza noting that the renegotiated contract may be incompatible with European Union law, he began to set alarm bells ringing.
This forced Pawlak to renegotiate the contract, which made it possible to abolish the ban on re-export and to establish that, according to the principle of ownership unbundling, supervision of the Polish section of the Yamal gas pipeline would be entrusted to an independent operator, which is already formally Gaz-System. In addition, in response to Sikorski’s allegations, Deputy Prime Minister Pawlak admitted in a letter dated 26 March 2010 that ‘TPA’s current rule for Yamal pipeline is not actually implemented’. He assured that he had taken steps to change this state of affairs.
According to my information, due to the impasse at EuRoPol Gaz, i.e. a company with shares in PGNiG and Gazprom, which effectively manages Yamal’s infrastructure on behalf of Gaz-System, this issue was not resolved, as I wrote in BiznesAlert.pl. It may be another, beyond unsatisfactory price conditions, fruit of incorrect negotiations of 2010.
The problem with Sikorski was also the mechanism for setting the transit rates for deliveries by the Yamal pipeline. It is an impact in the so called by me „Yamal lie” as if Poland was making a profit on the transit of Russian gas. Meanwhile, they are equal to the annual net profit of EuroPolGaz at the level of PLN 21 million. Poland has no significant benefit from the transit of Russian gas through its territory, and its maintenance should not be the aim of our energy policy, although such a thesis can be found in the Russian media and the centres repeating it in Poland.
Deputy Prime Minister rejects Sikorski’s charges. According to Pawlak, objections to the compatibility of the contract with the Treaty on the Functioning of the European Union are unjustified because that Sikorski’s article 101 on the not signing of restrictive competition agreements does not apply to intergovernmental agreements, which is the Yamal contract. The Deputy Prime Minister also states that the annex to the contract will not harm the competition.
Change of negotiation instruction
It is worth looking at the issue in a broader context. “Sieci” weekly revealed in August that the government in which Waldemar Pawlak was deputy prime minister and minister of economy suddenly changed the negotiating instruction to a less ambitious one. PAP recalls that the weekly, describing the circumstances of the signing of the 2010 Gazprom contract for gas supplies, included, among other things, that it appears from the confidential negotiating instructions of the PO-PSL government that the first negotiating instruction of March 2009 assumed the defence of Polish interests However, according to the weekly, in a further instruction, approved by the government of Donald Tusk in July 2009, Poland has resigned ‘from all the major demands for energy security’.
Analysts disregarded the fact that a gas supply agreement was signed with Qatar between the first and second instruction. It took place on 29 June 2009. The contract for 20 years until 2034 referred to the supplies of 1.5 billion cubic meters annually. It was a prerequisite to obtain financing from the European Commission for the construction of the LNG terminal in Świnoujście. Its terms were in line with the former market trends and could be considered likely to be unsuited to the present ones, when the price of LNG falls through the rising overproduction of the market.
The change of negotiating instruction to a less ambitious one may have been due to the fact that the Poles – in my view wrongly – considered as pointless the further disputes with the Russians since they signed the Qatar agreement before the renegotiation of the Yamal agreement and therefore improved their negotiating position and provided EU support for the gasport, so they ended the efforts aimed at the security of supplies. In the meantime, they should never end. The weak negotiating instruction gave the green light to the Pawlak team in the ministry of economy and its supporters at PGNiG for soft talks aimed at maximizing supplies from that direction. The prosecutor’s office is currently investigating whether a personal or financial advantage was accepted.
Pawlak team argued the mild negotiation with the necessity of providing Poland with missing supplies after the removal of RosUkrEnergo broker and the increased flexibility of Gazprom, which was to be proven by the consent for temporary deliveries for three months during the transitional period preceding the signing of the annex to the Yamal contract. However, in the context of the agreement with the Qatari and the possibility of reaching other direction than the Russian one, the question arises as to why so much gas was contracted from Russia, i.e. more than 10 billion cubic meters annually. Since March 2010, representatives of Prime Minister Donald Tusk have joined the Pawlak team in negotiations, i.e. Mikołaj Budzanowski and Marcin Korolec. They presumably were to assure the deputy prime minister’s harder attitude. The signature of the contract was halted until the settlement of doubts and finally it was adjusted to the requirements of the European Commission. I prepared the detailed description of this case with Kamil Zając in September 2010.
Hunting for the Polish People’s Party [pl. Polskie Stronnictwo Ludowe]
What provokes reflections is the fact that in spite of two years of the governance of the team, which for years has consistently demanded the disclosure of the truth about the Yamal contract, the reports of the Supreme Chamber of Control on gas supply and transit contracts from Russia have still not been disclosed. Representatives of the government party call for the need to appoint a committee to investigate the matter. It would be another committee dealing with the energy policy of the previous government team, following the OZE commission called by the chairman of Energa, Daniel Obajtek. He insists on investigation if corruption took place with the contracts for the green certificates. As a matter of fact, the information on this subject is also reported in the report of the Supreme Chamber of Control. According to BusinessAlert.pl, they may also burden the former Deputy Prime Minister Waldemar Pawlak environment.
But why are investigation committees proposed instead of publishing these documents? Perhaps for the team it would be a more attractive arena for settling a dispute over the Yamal contract, especially in the face of the forthcoming local government elections in which the ruling party might be a significant opponent of the Polish People’s Party, tempting the rural electorate of Law and Justice Party [pl. Prawo i Sprawiedliwość] with postulates for the removal of time change supported by all parliamentary fractions.
The prosecutor’s office rightly investigates the abuse of the negotiation of an annex to the Yamal contract. It is necessary to examine the doubts that have been raised over the years by politicians from different political environments, as the aforementioned Radosław Sikorski, or the Government Plenipotentiary for Strategic Energy Infrastructure, Piotr Naimski, who demands disclosure of NIK reports. Those doubts are also faithfully noted by the media, of which Andrzej Kublik, a journalist from Gazeta Wyborcza, plays a special role, on whose texts I learned the subject myself. However, there is a risk that the substantive analysis of the facts about the Yamal contract may turn into a hunt for Pawlak so that PSL would not harm the PiS in local elections. Then, the Yamal affair, rightly signalled for years, may turn into a political war in the light of the flash, and what has often happened in the past, make it difficult to come to the truth. However, the facts about Yamal must come out in a controlled manner.
The Yamal affair should not destabilize politics, because Poland needs stability in the gas sector. On October 31st the second stage of the open season procedure for the Baltic Pipe gas pipeline project was completed, where the gas pipeline transmission capacity was reserved. PGNiG took part in the procedure, meaning that it committed itself to receiving gas from Norway for fifteen years. Binding declarations from the second stage of the open season are the basis for the final investment decision on the construction of the gas pipeline. This is Poland’s third approach to the Norwegian Corridor. The political war on gas could harm the project that could make the Yamal contract expire in 2022, and there will be no need for another nor subsequent negotiations associated with the risks, which are being investigated by the prosecutor’s office. The issue of the 2010 negotiations should be left to the prosecutor’s office. We can deal with an affair, but the investigation commission would not help in explaining it. In order to avoid manipulation, the undisclosed fragments of the report of the Supreme Chamber of Control on the Yamal Contract, should be disclosed as soon as possible.