5-Year Agreement Between Gazprom and Naftogaz

As many times in the recent years, Europe is faced in full winter with the threat of malfunctions in terms of gas supplies from the Russian Federation. Things aren’t any different now, but, fortunately, the matter was solved on the last day of 2019, under a five-year agreement signed with the Russian consortium Gazprom and Ukraine’s Naftogaz for Russian gas transit via Ukraine.

“I am glad that one and a half years of talks on Russian gas transit through Ukraine could be successfully concluded. Continued gas transit through Ukraine as of January 1, 2020 is a good and important signal to guarantee the security of our European gas supply,” German Chancellor Angela Merkel said. She thanked the signatories, the Vice-President of the European Commission, Maroš Šefčovič, Germany’s Economy Minister Peter Altmaier and all those involved and, in particular, Georg Graf Waldersee, special envoy of the German Government, “which in the last three months has significantly contributed to involvement in mediation between Russia and Ukraine”.

The contract, signed in Vienna and relying on the political agreement reached on December 19-20, in Berlin and Minsk respectively, provides for a transit volume of 65 billion cubic meters of gas in 2020 and 40 billion cubic meters in the following four years (2021-2024). Moreover, the two companies have signed an agreement targeting the withdrawal of all legal claims of Kiev against Gazprom, of over USD 12 billion, although the Russian giant has paid to Kiev USD 2.9bn under the award of the Arbitration Court in Stockholm.

“Now all the aspects are settled and the mutual claims are cancelled. Russian gas transit through Ukraine will continue under terms that will satisfy all parties,” Russia’s PM Dmitri Medvedev said. On his part, Ukraine’s President Vladimir Zelenski explained that this agreement with Russia guaranteed for his country revenues of USD 7 billion. Ukrainian Government highlights that this transit agreement with Russia was necessary to protect the thousands jobs and the lower tariffs for Ukrainian consumers. Moreover, Naftogaz has linked to the success of negotiations with Gazprom to the US decision to impose sanctions against the Russian gas pipeline project Nord Stream 2.

“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 US for their firm support of energy security in Europe,” Naftogaz CEO Andriy Kobolyev said.

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.

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.

The package deal also does not affect Naftogaz Group’s claims against the Russian Federation regarding the assets seized in Crimea.

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