Business news from Ukraine

Gazprom, Naftogaz, Gas Transmission System Operator of Ukraine, and the Ukrainian Justice Ministry have signed a package of documents that allow to continue gas transit via Ukraine after December 31, 2019, consistent with the protocol of December 20, Gazprom said in a statement.
“Five days of continuous bilateral negotiations in Vienna have resulted in final decisions and final agreements. Also, the sides have signed a package of agreements and contracts as a big package deal, which restores balance of interests. The documents take effect today to ensure Russian gas transit via Ukraine after December 31, 2019,” Gazprom CEO Alexei Miller told the press.
“Gazprom has done its best and has yet again proven to be a responsible supplier and a reliable partner,” Miller said.
One of the documents signed by Gazprom and Naftogaz is an irrevocable settlement agreement, which stipulates withdrawal of every claim filed by the sides against one another in arbitration tribunals and criminal courts, on which no final judgment has been made as of yet, and prevents the sides from making claims in regard to gas supply and transit contracts of January 19, 2009, in the later period. Earlier, Gazprom paid $2.9 billion to Naftogaz awarded by the arbitration court in Stockholm within the period prescribed by the protocol.
Gazprom and the Ukrainian Justice Ministry concluded an irrevocable amicable agreement, which envisages termination of any current and possible future claims of Ukraine v. Gazprom based on the decision of the Ukrainian Anti-Monopoly Committee.
Gazprom and Naftogaz signed an agreement on organizing gas transit via Ukraine. “Naftogaz hereby undertakes to act as the transit organizer and assumes relevant risks,” Gazprom said.
Naftogaz and Gas Transmission System Operator of Ukraine concluded a transit agreement, while Gazprom and Gas Transmission System Operator of Ukraine signed an inter-operator agreement.
The transit organizer will provide transportation of 225 bcm of gas via the Ukrainian gas transmission system within a five-year period, including 65 bcm of gas in 2020 and annual 40 bcm of gas in 2021-2024.
Necessary compromise
The gas deal between Russia and Ukraine is a compromise which proves that Moscow and Kyiv are capable of reaching an agreement, Russian Prime Minister Dmitry Medvedev wrote on his page on the social network VKontakte.
“The gas contract concluded between Russia and Ukraine for the next five years is a compromise that had to be reached,” Medvedev said.
“The signing of these documents indicates that it is possible to discuss and reach an understanding even on the most difficult issues,” he said.
The Russian government and Gazprom had been working on settling the problem with Ukraine for quite some time, both in the bilateral format and in the trilateral format involving the European Commission, Medvedev said.
“All problems have been solved, and mutual claims have been dropped. Russian gas transit via Ukraine will continue on terms acceptable for all sides,” he said.
5-years signed, 10-year extension possible
A five-year contract for Russian gas transit to Europe via Ukraine has been signed, Ukrainian President Volodymyr Zelensky confirmed.
“This is the end of the year, and we have some achievements. Ukraine has signed a gas transit contract for five years, during which we will earn at least $7 billion. The sides may extend the contract for ten more years,” Zelensky said.
“The Ukrainian gas transmission system will be working, which means energy security and wellbeing of Ukrainians will be provided. At least 65 bcm of gas will be transited during the first year, in addition to 40 bcm of gas per annum within the four subsequent years. In fact, transit amounts can be larger. Europe knows that we will not let it down from the angle of energy security,” Zelensky said.
Ukraine is expecting the gas transit agreement to generate annual revenue of $2-3 billion for the next five years, Energy and Environmental Protection Minister Oleksiy Orzhel said.
The government website quoted Orzhel as saying following the Russian gas transit talks that “one of the conditions set by Ukraine at those negotiations was Gazprom’s payment of $2.9 billion awarded by the arbitration court in Stockholm. We have received these funds. Plus, considering full engagement of the Ukrainian gas transmission system and the fact that new gas delivery routes to Europe will not emerge for a long time, our transit earnings will amount to $2-3 billion annually for the next five years.”
Prime Minister Oleksiy Honcharuk, in turn, underlined the importance of the five-year contract on Russian gas transit to Europe via Ukraine.
“Our team has protected the national interests of Ukraine and has ensured acceptable terms for the gas contract. In signing this document, we were guided by the priorities of Ukraine’s energy security and the wellbeing of our citizens. Thanks to this contract, Ukraine will maintain stability on the domestic and European gas markets. That will have a positive effect on energy markets and serve as a significant factor in reducing gas market prices,” the website quoted Honcharuk as saying.
The Ukrainian gas transmission system will transport 65 bcm of Russian national gas in 2020 and 40 bcm of gas per year for the next four years. The actual amounts may be larger.
Gas transit via Ukraine could come to 75 billion cubic meters in 2020, Andriy Kobolev, the head of Ukraine’s Naftogaz, told a press conference in Kyiv.
He said the forecast was based on 90 bcm transit in 2019 less 15 bcm due to the commissioning of the TurkStream pipeline.
Naftogaz and Gazprom have signed a settlement agreement which stipulates mutual withdrawal of lawsuits, Naftogaz Executive Officer Yuriy Vitrenko said.
“When I was signing the settlement agreement, which stipulates mutual withdrawal of all lawsuits, I felt sorry for the work and knowledge invested by my team in their preparation. […] Still, I realize that our responsibility to the Ukrainians requires that we make decisions to the benefit of the national company instead of our own benefit,” Vitrenko wrote on Facebook.
Continuation of gas transit via Ukraine means thousands of jobs and lower gas fees for Ukrainian households, while the $12.2-billion claim filed with the arbitral tribunal has helped extend the transit contract, he said.
“In other words, we could have won the $12.2-billion claim in the arbitral tribunal only if Gazprom had refused to continue transit. But it did not,” Vitrenko said.
The gas transit deal made between Naftogaz and Gazprom for 2020-2024 is based on the “take or pay” principle, Vitrenko said.
“The fact that we have signed the transit contract based on the ‘pump or pay’ principle is an extraordinary event in this context. I should say this is the first time in the history of Ukraine that Gazprom has concluded a transit contract on the basis of the European ‘pump or pay’ principle. Earlier, Gazprom relied on the ‘take or pay’ principle, which was similar but disadvantageous for Ukraine and lucrative for Russia, only in the area of gas supply,” Vitrenko wrote on Facebook.
Nord Stream sanctions
Naftogaz twice thanked the United States for putting pressure on Moscow and Europe in a press release regarding the conclusion of a package deal with Gazprom.
Gazprom, Naftogaz, and Gas Transmission System Operator of Ukraine signed a package of agreements in Vienna on December 30 to ensure further transit of Russian gas to Europe via Ukraine through 2024.
“This result was backed by a systemic effort of Naftogaz team in preparation of Ukraine to the negotiations as well as the imposition of the U.S. sanctions related to Nord Stream 2 project,” Naftogaz said.
“The package includes the following documents:
1) interconnection agreement between GTSOU and Gazprom establishing technical procedures and rules for cooperation between the operators of the adjacent networks;
2) agreement on organization of transit between Naftogaz and Gazprom setting conditions and transit volumes for the next five years; and
3) settlement agreement between Naftogaz and Gazprom according to which both parties abandon mutual claims under the 2009 contracts,” Naftogaz said.
The three agreements have been signed to fulfill the protocol of the 19-20 December meetings in Berlin and in Minsk, which involved representatives of the EU, Ukraine, Russia, Naftogaz, Gas Transmission System Operator of Ukraine, and Gazprom.
“The protocol included the following provisions:
– USD 2.918 billion compensation paid by Gazprom under the Stockholm Arbitration Awards of December 2017 and February 2018 and received by Naftogaz on 27 December 2019;
– withdrawal from all arbitration proceedings where final decisions have not been rendered yet;
– lifting attachment from Gazprom’s property, assets and monetary funds and refusing from any future claims and proceedings under the contracts signed in January 2009; and
– minimal transit volumes: 65 bcm/year for 2020 and 40 bcm/year for 2021-2024,” Naftogaz said.
“The issue of gas supply was not subject to the package agreements. Naftogaz noted Gazprom’s interest in resuming gas supply to Ukraine in future with the pricing based on the NCG price,” it said.
“The package deal also does not affect Naftogaz Group’s claims against the Russian Federation regarding the assets seized in Crimea,” Naftogaz said.
“The concluded agreements will provide Ukraine with guaranteed revenues from gas transit over the next five years. The certainty of future gas transit creates a necessary environment for continuation of the domestic gas market and broader energy reforms, secures gas transmission jobs and future contracts with Ukrainian industrial producers related to the maintenance of the Ukrainian gas transmission system,” Naftogaz said.
“The agreements that have been signed today are a result of an acceptable compromise. The major outcome of the negotiations is that we have received almost USD 3 billion from Gazprom, and ensured that the Ukrainian system will be able to operate without a loss over the next five years. The transit won’t be interrupted, and will be performed by the independent certified operator. We have demonstrated Ukraine’s reliablility as a transit partner for the EU. Our team is grateful to the European Commission for its consistent position and certifying that the Ukrainian GTS is reliable and efficiently managed. We are also grateful to the U.S. for their firm support of energy security in Europe,” Naftogaz CEO Andriy Kobolyev said.