On February 28, the Stockholm arbitration court issued its final ruling in the long-running dispute between Russia's Gazprom and Ukraine's Naftogaz Ukrayiny over the two companies' 10-year natural gas supply and transit contract signed in 2009.
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The court ruled in Naftogaz's favor on the transit element of the dispute, forcing Gazprom to pay $4.63 billion for having underused the Ukrainian transit system to deliver gas to Europe.
The final net award to Naftogaz was $2.56 billion after taking into account the court's ruling in 2017 on the supply element of the contract, which stated that Naftogaz must pay Gazprom for gas it took but did not pay for in 2014 and 2015.
Gazprom has accused the court of "double standards" and vowed to both appeal against the court's rulings and to cancel the contract altogether.
CEO Alexei Miller said Gazprom on Monday had officially sent Naftogaz notification of the beginning of the procedure for termination of the supply and transit contracts."
Following are the key elements of the dispute.
* Vladimir Putin, then Russia's prime minister, and his Ukrainian counterpart Yulia Tymoshenko agreed a new 10-year gas supply and transit deal on January 18, 2009, to end a dispute that saw Russian supplies to Europe via Ukraine disrupted for two weeks in the depths of winter. Gazprom and Naftogaz signed the contract the following day.
* In October 2011, Tymoshenko was jailed for having allegedly damaged the economic interests of Ukraine by agreeing the contract. She was exonerated in June 2014 having been freed in March that year.
* Gazprom filed a lawsuit with the Stockholm arbitration court in June 2014 against Naftogaz citing its "significant accumulated gas debt and non-payments for the ongoing supplies." At the same time, Gazprom switched Ukraine to gas pre-payment.
* The same day, Naftogaz also filed a lawsuit in Stockholm to force Gazprom to set a "fair market" price for gas and sought to recover $6 billion from Gazprom in "overpayments" for gas since 2011.
* The two cases were consolidated in July 2014.
* In October 2014, Naftogaz lodged a separate claim with the arbitration court in Stockholm seeking compensation for shortfalls in gas transit volumes since 2009. From 2009-14, Gazprom shipped an average of 94 Bcm of gas annually via Ukraine as opposed to 110-112 Bcm/year stipulated by the transit contract.
* Additional claims were added by both sides, with the final financial claims amounting to more than $70 billion.
* The supply ruling on December 22, 2017, dismissed Gazprom's $56 billion claim that Naftogaz did not take the agreed volumes under 'take-or-pay' rules in the contract after Naftogaz argued that its economic situation meant it had much reduced gas demand.
* However, the court ruled Naftogaz must pay a total of $2.019 billion to Gazprom for gas taken but underpaid for in 2014 and 2015 as well as interest. The arrears were not payable on any take-or-pay volumes, but rather money Naftogaz owed Gazprom for underpayment.
* Naftogaz was also obliged to buy at least 4 Bcm/year of Russian gas in both 2018 and 2019 under amended contractual take-or-pay rules.
* The court also ruled the price Naftogaz would pay for that Russian gas should be priced against a German hub, not under the previous oil-indexed formula that was written into the 2009 accord. Gazprom and Naftogaz entered talks on how these rulings would be implemented in real terms. An additional agreement on the new terms of supply has to be signed before Russian gas purchases by Naftogaz can resume.
* Despite there being no new agreement, Naftogaz in late February sent Gazprom a pre-payment for gas supplies to resume from March 1. Gazprom rejected the request and returned the money, saying it could not resume supplies to Ukraine without the additional agreement being in place.
* On February 28, the Stockholm court ruled that Gazprom underused the Ukrainian transit network and said the Russian company should pay $4.63 billion to Naftogaz for underuse of the transit network.
* The net award when considering both the supply and transit elements of the dispute was in favor of Naftogaz by $2.56 billion.
* The court dismissed Gazprom's argument that it was a fall in European demand for its gas that meant it did not transit the agreed volumes of gas via Ukraine.
* Gazprom reacted furiously to the transit agreement, saying the court's arguments in both cases were contradictory, namely that a change in economic circumstances were accepted in the supply deal, but not in the transit deal.
"We are categorically opposed to Ukraine's economic problems being solved at our expense," Miller said.
* Gazprom said it would appeal against the ruling and also had begun the process of unilaterally terminating the 2009 agreement, despite Naftogaz and experts doubting whether Gazprom had the right to take such action.
* Naftogaz used Gazprom's refusal to resume imports on March 1 as a reason to say the Russian company was not a reliable partner. However, both sides had understood a new agreement was necessary before resuming supplies.
* Without a supply deal in place, it is unlikely Gazprom will resume supplies to Naftogaz in the near term, putting into doubt Naftogaz's ability to buy the 4 Bcm the Stockholm court ordered it to.
* Gazprom still needs to transit significant volumes of gas via Ukraine in the two years before the contract expires at the end of 2019 -- and would need Ukraine even if it unilaterally terminated the contract. It could not risk not being able to supply key companies and countries that rely on Russian gas supply via Ukraine, such as Italy's Eni and Turkey's Botas.
* Gazprom would also still need Ukraine post-2019 even if it completes Nord Stream 2 and TurkStream on time by the end of 2019 given current demand levels in Europe for Russian gas (194 Bcm).
* Naftogaz would still likely want to buy the 8 Bcm of gas the court ordered it to buy in 2018 and 2019 as it would be cheaper than European gas at current prices because it does not have to pay the transportation tariffs.