Russian gas monopoly Gazprom said on 18 November that the company submitted to Naftogaz of Ukraine an official proposal signed by Gazprom CEO Alexey Miller to extend the effective contract or sign a new one-year contract for gas transit across Ukraine taking into account the projected demand for gas among European consumers in 2020.

However, Gazprom said the prerequisites for extending the current contract or signing a new one includes the waiver of all mutual claims in international arbitration by both parties as well as the termination of all court proceedings.

Gazprom is also calling for “the reversal of the decision by the Antimonopoly Committee of Ukraine imposing to fine Gazprom for the alleged ‘undermining economic competition’ and withdrawal of the petition filed with the European Commission by Naftogaz of Ukraine to launch an investigation against Gazprom.”

Katja Yafimava, a senior research fellow at the Oxford Institute for Energy Studies, told New Europe on 19 November that although it looks like an ultimatum – and as such is highly counterproductive, de facto it is an opening negotiating position as there are still some six or so weeks to go before the contract expires. The out of court settlement of all arbitration-litigation claims is a genuine red line for Gazprom and Russia, Yafimava argued, adding that she doubts that it would be shifted significantly.

However, she added, other things such as the length of the new transit contract and its volumes could be open to negotiation, should the settlement be achieved. “Thus, instead of a one-time 2.6 billion award payment and uncertainty as to what happens to its transit revenue once new export pipelines are completed, Ukraine could have a guaranteed and steady flow of transit revenue throughout the 2020s in the amount significantly higher than the sum of the award. I think this is where the EU could step in and moderate to help to agree such a contract,” Yafimava said.

Gazprom also said on 18 November the Russian gas monopoly expects to hear from Naftogaz on whether the latter is willing to purchase Russian gas directly in the period from 2020 onward.

Gazprom said copies of the formal proposal have been directed to Ukrainian Minister of Energy and Environment Protection Oleksiy Orzhel and European Commission Vice President for Energy Union Maroš Šefčovič.

Naftogaz said the Ukrainian company will “carefully study the document and revert.” Naftogaz and the future independent Transmission System Operator (TSO) of Ukraine, a prerequisite of the European Union, are committed to remain reliable energy partners for the EU Gas Transit 2020, Naftogaz said.

Gazprom, which is also spearheading efforts to build the Nord Stream-2 pipeline from Russia to Germany while bypassing Ukraine, is trying to send a clear message to the EU that EU law cannot be politicised. “I think the reason why Russia has taken such an uncompromising position making an out of court settlement a pre-requisite, is not only and perhaps not so much about the monetary value of the award  – and to be sure it is a lot of money – but more so also because of its desire to send a clear signal to the EU that the legal system cannot be politicised and misused to achieve political goals,” Yafimava said. “It has been widely reported that Gazprom believes the arbitration tribunal’s decision on the 2009 transit contract was fundamentally unfair because of its treatment as a ship or pay contract – i.e. where one has to pay for transit even if no gas is shipped – whereas its publicly available version clearly suggests that it is not,” she said.

According to the Oxford expert, Russia and Gazprom are highly likely to view the tribunal’s decision on the transit contract as well as the recent Court of Justice of the European Union (CJEU) decision on the OPAL pipeline exemption as examples of such politicisation and want to prevent such from happening in the future.

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