Ukraine Court Overturns Decision to Confiscate Russian Gas Money
26 July, 2017

Kyiv’s Economic Appeals Court has cancelled an earlier court decision to confiscate over $3 million from the Gaztranzit gas company and transfer it into the Ukrainian budget. The Gaztranzit money was initially intended to pay the company’s partial owner, Russian state natural gas firm Gazprom.

This latest decision, handed down on July 17, comes as part of the Ukrainian Anti-Monopoly Committee’s ongoing case against Russia’s Gazprom.

The committee — a government body charged with ensuring that the state protects competition in business — launched the case in January 2016, when it decided to fine Gazprom over $3 billion for monopoly abuse on the Ukrainian gas transit market. On February 22, 2017, Kyiv’s Appeals Court upheld the ruling and the penalty rose to nearly $6 billion.

Later, on May 31, the Ukrainian Ministry of Justice seized Gazprom assets under the court ruling. The ministry also obligated Gazprom to pay the aforementioned $6 billion in fines for monopoly abuse.

Then, on June 6, Kyiv’s Commercial Court ruled in favor of using more than $3 million of Gaztranzit’s dividends to pay off $6 billion in fines imposed by the Anti-Monopoly Committee.

Representatives from both companies, Gaztranzit and Gazprom, filed appeals arguing that the decision contains errors. The latest decision is a victory for them.

The case also fits into a larger legal battle between Gazprom and Ukraine’s national oil and gas company, Naftogaz, over contracts for the supply of Russian gas to Ukraine and gas transit through Ukrainian territory.

Ukraine has a history of energy disputes with Russia, but the latest round began in June 2014, when Russian forces annexed the Crimean peninsula and invaded Ukraine’s eastern regions. In June of that year, Gazprom and Naftogaz filed multi-billion-dollar cases against each other in a Stockholm arbitration court, Reuters reported.

The total claims under Naftogaz’s lawsuit against Gazprom amounted to about $42.5 billion. In turn, Gazprom counter-sued Ukraine, claiming that Naftogaz owed them $47.1 billion.

According to Vitaly Rybak of Internews Ukraine and the UkraineWorld group, the current legal case hinges on the so-called Putin-Tymoshenko agreement (full text available in Russian here). Russia and Ukraine reached this trade deal over gas supply and transit between Naftogaz and Gazprom in 2009, following extensive negotiations between Russian President Vladimir Putin (then serving as his country’s prime minister) and former Ukrainian Prime Minister Yulia Tymoshenko.

Rybak believes that this deal has been highly unfavourable for Ukraine. When it was signed in 2009, Ukraine was left paying the highest price among Russian gas consumers in Europe. Ukraine also accepted a fee for the transit of Russian gas to Europe that was far lower than market price.

On May 31, 2017, the Stockholm arbitration court ruled in Ukraine’s favor in its dispute with Gazprom. However, a future ruling will determine how much Naftogaz will gain financially, Reuters reported.

/ Translated and adapted by Eilish Hart