Ukraine Starts Confiscating Gazprom Assets
1 June, 2017

The Ukrainian Anti-Monopoly Committee seized assets from the Russian gas company Gazprom as a penalty for monopoly abuse.

“The first amounts have been recovered from Gazprom. Soon we will show the result in numbers,” Pavlo Petrenko, the Minister of Justice of Ukraine said.

On May 31, the Ukrainian Ministry of Justice seized Gazprom assets under an anti-monopoly case and obligated Gazprom to pay $6 billion in fines for monopoly abuse on the Ukrainian market.

Petrenko added that "some Gazprom assets on Ukrainian territory have already been seized. Gazprom' itself has declared this”.

“We will not stop at this stage. Of course, $6 billion of Gazprom’s assets aren’t in Ukraine, and we will go to other countries where these assets and finances are and we will raise the question of implementing Ukrainian decisions in the future for an international decision on recovering Gazprom’s debts,” he claimed.

Petrenko added that they will strive to seize Gazprom assets in other countries in order to recover the penalty.

In January 2016, the Ukrainian Anti-Monopoly Committee decided to fine Gazprom more than $3 billion for monopoly abuse on the Ukrainian gas transit market. This decision was then approved by Ukrainian court. On February 22, the Kyiv Appeals Court upheld the ruling on Gazprom and the penalty rose to nearly $6 billion.

Also, on May 31, the Arbitration Institute of the Stockholm Chamber of Commerce satisfied the claim by the Ukrainian gas company Naftohaz against Russian Gazprom to reconsider gas prices so that they are more geared towards the market. Gazprom's 'Take-or-Pay" demands were dropped. The judiciary also cancelled the ban on gas re-export.

The next step is to consider the mutual demands and to make a decision on a transition contract.

The Russian gas company has counter-sued Ukraine. The total amount of claims under Naftohaz Ukraine's lawsuit against Gazprom is $42.5 billion, and Gazprom wants $47.1 billion in return.

Naftohaz and Gazprom have been in a legal battle since 2014. The contracts for supplying gas from Russia to Ukraine and gas transit through the territory of Ukraine from 2009 are the subjects of the case.

This is the analysis by Vitalii Rybak, Internews Ukraine, for UkraineWorld group :

1.    The case hinges on the gas trade deal in January 2009. It has been signed by Naftohaz and Gazprom. It is worth noting that the heads of these companies inked the deal right after the negotiation between Vladimir Putin and Yulia Tymoshenko, a former PM of Ukraine. Media and experts used to call it a “Putin-Tymoshenko agreement.” It’s full text is available here.

2.    This deal has been highly unfavourable for Ukraine. According to that agreement which was praised by Tymoshenko, Ukraine had to pay 450 dollars per 1000 cubic meters of Russian gas. In 2009, it was the highest price among all the consumers in Europe. Moreover, Ukraine was obliged to buy 52 billion cubic meters of gas regardless of the consumption. (For comparison, in 2016, after Ukraine made a substantial U-turn of its gas imports from Russia to EU, the country consumed only 11 billion cubic meters of gas, and none of them were bought directly from Russia). Ukraine also took a fee for the transit of Russian gas to Europe which was much lower than the market price — 1.7 dollars per 100 km transit of 1000 cubic meters of gas.

3.    Gazprom demanded to pay for the gas Ukraine did not buy. Russian company filed a lawsuit in order to make Naftohaz pay 47.1 billion dollars for the gas which Ukraine did not receive. Additionally, Russia wanted Ukraine to pay for the gas Gazprom delivered to the “DPR” and “LPR.” Gazprom also wanted to defend its ban on gas re-export.

4.    Naftohaz demanded to oversee the deal. Ukrainian company filed a lawsuit in order to re-calculate a fair price on the consumed gas and receive compensation for insufficient supply of gas. Naftohaz wanted to receive 30,3 billion dollars of reimbursement. Arbitration Institute of the Stockholm Chamber of Commerce upheld Naftohaz's demand to have the price revised with regard to market conditions. It also cancelled the ban on gas re-export. Ukraine has already received its first payment from Gazprom after the court decision, as Pavlo Petrenko, Ukraine’s justice minister, claimed. He promised to “name the figures soon.”

5.    Experts consider court’s decision a huge win for Ukraine. Mykhailo Honchar, a President of the Centre for Global Studies “Strategy XXI,” argued that Kremlin has been using the deal of 2009 to weaken Ukraine and drain its financial resources. “The decision of Stockholm Chamber of Commerce will have a long-lasting effect in Russia’s hybrid war against EU, which is not noticed by the Europeans. The EU has been treating Gazprom actions as business only,” Honchar noted. Karel Hirman, an expert of the Strategic Advisory Group for Supporting Ukrainian Reforms (SAGSUR), writes that this development might support Ukrainian economy and strengthen its currency, if used properly. However, he notes, the amount of reimbursement Gazprom has to pay is not clear yet. Olena Zerkal, Ukraine’s deputy foreign minister, also welcomed the decision of the Arbitration Institute of the Stockholm Chamber of Commerce. “Our main interest in this case is for gas supplies to Ukraine to be based on European principles and the rules of the gas market functioning, as required by our national legislation, the Energy Community Treaty, and the EU-Ukraine association agreement. The only company to aggressively oppose this is Gazprom,” Zerkal argued.