Naftogaz has welcomed the ruling in what it called the 'biggest commercial arbitration in history'
Naftogaz has welcomed the ruling in what it called the 'biggest commercial arbitration in history' © Reuters

Russia and Ukraine slipped towards a fresh dispute over natural gas supplies on Thursday, a day after Kiev’s state gas company Naftogaz claimed victory in a four-year legal battle over payment for supplies by securing a $2.56bn award from Gazprom

The long-running feud between Naftogaz and Kremlin-controlled Gazprom over the volume and price of natural gas supplies to the country is part of a broader geopolitical tussle between Moscow and Kiev, including Russia’s 2014 invasion and annexation of Crimea and its continued support for separatists in the country’s east.

Addressing his national security council on Thursday, Ukraine’s president accused Gazprom of violating international law by both refusing to pay the damages awarded by a Swedish arbitration tribunal and by cutting the pressure of gas flowing through the country’s pipeline system. A low gas pressure makes it more difficult for Ukraine to supply its European customers.

“Gazprom traditionally and absurdly took advantage of the cold weather and demonstratively does not take into account the [arbitration] decision not only with respect to the transfer of funds, but by reducing pressure in transit gas pipelines,” Petro Poroshenko said.

There was no immediate sign that the situation risked escalating into a repeat of 2006 and 2009 crises that disrupted European supplies. 

Gazprom, the world’s largest gas producer, earlier on Thursday said it had not restarted gas supplies to Ukraine because an additional agreement to an existing deal between the parties had not been concluded. It said it had instead returned pre-payments made by Naftogaz.

“In this situation, we, acting in good faith, have fully refunded the amount received from Naftogaz,” Gazprom’s deputy chairman Alexander Medvedev said in a statement. 

Naftogaz chief executive Andriy Kobolyev said Gazprom’s cutting of pipeline pressure and refusal to renew gas supplies starting in March would force industry and heating companies to cut gas consumption by 5-10 per cent over four days.

Gazprom has said that it “disagrees” with the arbitration decision and would “defend its rights in all ways available to it in accordance with the applicable law.” 

Wednesday’s arbitration ruling centred on a dispute between the companies over natural gas transit through Ukraine. It follows a December decision by the same tribunal over gas supplies in which Naftogaz had also claimed victory. 

With claims in the closely related disputes totalling $125bn, Naftogaz called the stand-off with Gazprom the “biggest commercial arbitration in history”. Gazprom had sought $81.4bn in total claims against state-owned Naftogaz, amounting to about 75 per cent of Ukraine’s gross domestic product. 

Naftogaz said the tribunal on Wednesday awarded $4.63bn in damages, finding that Gazprom deprived it of transit revenue by failing to pump agreed volumes through Ukraine’s pipeline system to European markets. 

Citing outstanding debt of more than $2bn to Gazprom for gas supplied in 2014-15, Naftogaz said the end result of the two rulings amounted to the Russian company owing it $2.56bn.

Mr Poroshenko warned the Russian company that Ukraine would “seize” Gazprom assets abroad through litigation if the financial award was not paid.

Naftogaz and Gazprom have a history of clashing over prices and other obligations.

Ukraine has in past years sharply cut gas consumption and ceased purchasing Russian gas altogether, opting instead to purchase from European markets, amid an effort by Gazprom to avoid transit through Ukraine by sending gas to the EU via Poland or through the Nord Stream pipeline under the Baltic Sea. 

Mr Kobolyev said proceeds from the legal victory would be spent to further diversify away from Russian supplies by boosting domestic production and energy efficiency.

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