“TAKE OR PAY”

The exacerbation of Russian-Ukrainian relations at the start of every new year has become a traditional phenomenon of recent years. Moscow and Kiev are quite unable to settle their differences on the prices for Russian gas, the debts for its supplies and also its transportation across "independent" territory to Europe. And this year was no exception, although the stand-off continued in a somewhat non-traditional manner.

Russia's Gazprom sent Ukraine's Naftohaz a bill for last year's unused gas. Gazprom explained its actions by the conditions of the contract signed in September 2009 by former Ukrainian Prime Minister Yuliya Tymoshenko, in which clause 2.2 stipulates the principle of "take or pay". According to this contract Naftohaz Ukrainy must consume no less than 52bn cu m of Russian gas annually, with the possibility of a reduction in this volume to a maximum of 42bn cu m. Last year Ukraine acquired only 33bn cu m of Russian gas. Which means, Gazprom claims, that Kiev must pay the volumes remaining in the contract according to the "take or pay" principle.

The Ukrainian Energy Ministry, for its part, claims that the punitive sanctions imposed for the gas shortfall had been annulled by the Kharkiv agreements. Ukraine's main arguments in the dispute with Gazprom are that paragraph in the contract which says that the quantity of gas indicated in the acceptance-and-surrender commercial document and its cost are final. But since the Russian side has signed the acceptance-and-surrender document for last year, Ukraine owed nothing. Ukraine's Foreign Minister Leonid Kozhara, commenting on this question, said: "We are being given a bill for $7bn for Russian gas in 2012 which is not redeemed. Ukraine has not caused any direct damage to Gazprom. This is a consequential loss or one may even say this is a missed profit. I therefore think that this question should also be considered in the context of talks with the Russian Federation on recovery of these losses and the possibility of reducing the price for Russian gas. And I think that today Ukraine has secured certain privileges in the negotiations process because the consumption of Russian gas is being sharply reduced." 

The calculations of the cost of the action itself are strengthening Ukraine's position in this question even more. Earlier, the Standard & Poor's agency predicted Gazprom's possible financial claims against Ukraine for the shortfall in contracted gas at a level of no more than $1.2bn. But Gazprom presented a bill of $7bn for the approximately 9bn cu m shortfall in gas. Apparently, Russia intended to get $815 for every cubic metre of unredeemed gas. In the opinion of Valeriy Chalyy, deputy director of the A. Razumkov Centre, such a sum was more like blackmail: "They are forcing Ukraine to accept Russia's conditions through unfulfilled demands, the first of which, as we know, is membership of the Customs Union (CU)."

Ukrainian Foreign Minister Leonid Kozhara also hinted at this, stating that "partial integration" is not provided for in the documents of the CU and an exception to the general rules is hardly likely to be made for Ukraine. Therefore in the current year the sides must draw up an optimum model for inter-action.

Apart from the aforementioned arguments, Kiev believes it has at least two more trump cards. First, it seems that the Ukrainian side informed Gazprom in writing about the reduction in the consumption of gas. And since there were no official objections from the Russian side, Kiev decided that the matter had been agreed: "Silence is a sign of consent." But in legal matters this principle is a completely weak argument, on which the position of the Russian gas monopoly is resting. "A disclaimer on the consumption of gas was indeed received from Ukraine, but all the take-or-pay documents on the results of 2012 have been signed. But agreement implies our written consent and not the absence of a rejection," the Russian giant's statement says. Second, if Gazprom applies to the Stockholm Arbitration Court regarding the bill submitted to Ukraine, Kiev might make counter claims against Russia on the violation of the gas transit conditions for which there are legal grounds. 

According to the existing contracts, in the period from 2009 to 2019 inclusive Moscow is to pass to Ukraine for transit to Europe no less than 110bn cu m of gas annually. But in recent years Gazprom has been transporting via Ukraine substantially less than the stated minimum volumes. This trend intensified particularly after the launch of the North Stream gas pipeline. But later, after the implementation of the South Stream project, the construction of which is due to be completed in 2015, Ukraine may be struck off altogether from the list of Russian gas transit countries. But in this event Kiev really does have strong grounds for filing a lawsuit to the Stockholm court against Russia. And this argument substantially strengthens Ukraine's position in its gas stand-off with Russia.

A significant role in this question could be played by the position of the West, especially the European Union, which was clearly indicated by Ukrainian President Viktor Yanukovych during a joint press conference with Lithuanian President Dalia Gribauskaite, "Ukraine is not satisfied with the level of cooperation with the European Energy Community because this organization often does not take into account Kiev's point of view. In all these three years we have received no support or even sympathy in questions of gas force-majeur relations into which Ukraine has entered. Moreover, the documents signed by some EU countries, in particular on the construction of the South Stream, directly affect Ukraine's interests. When Russia sent us a bill of $7bn in punitive sanctions we hoped that we would also get some comment on this from the Energy Community. We have sent letters on these questions to the European Energy Community on a number of occasions and not received a single reply," the Ukrainian president said. At a separate briefing Yanukovych once again focused on the fact that his country has for three years running been paying the highest price for gas in Europe, almost $200 more than the average price on the spot market. Noting that Kiev was not asking for preferential treatment, the Ukrainian leader pointed to the mechanism for fixing a "fair price" which would suit his country: "the price of the spot market minus transportation".

So far the EU has not reacted to recent events or to Yanukovych's statement. Although some analysts are confident that Moscow by its actions is unwillingly assisting the acceleration of the process of Ukraine's European integration. On this occasion, they believe, Europe has finally become convinced that Moscow is using the gas lever to apply pressure with the aim of forcing Ukraine to join the CU.

However, the supporters of this version are forgetting that even during the years of its economic prosperity and increase in prestige in the international arena, when it came to Russian-Ukrainian gas quarrels the EU would put pressure not on Moscow but on Kiev.

Today we are witnessing a similar situation. Brussels continues to be worried by the fact that because of Kiev's "cussedness", Gazprom may once again shut off gas to Ukraine, from which Europe, too, will suffer in the long term. Because gas is supplied to Kiev and in transit to Europe via one and the same pipeline.

In order to qualify their concern, the EU, by all accounts, has even found a very convenient pretext. Recently, at the European Commission's office in Ukraine it was stated that Europe was aware of possible agreements between Kiev and Moscow regarding the sale of a Ukrainian GTS without the participation of the European side. At the same time, the European Commission has reaffirmed Brussels' readiness to become a broker in a possible trilateral consortium Ukraine-EU-Russia. However, Ukrainian President Yanukovych noted that Ukraine is having talks with Russia which are at a final stage, not about the sale of a gas transportation system, but about leasing it.

At the same time, Brussels is in no hurry to admit that the frequently unaccountable position of the EU, which is imposing ever more absurd conditions in the way of Ukraine's European integration, is forcing Kiev to accept Moscow's ever more stringent conditions. One of these is the demand at all costs to release Yuliya Tymoshenko from prison. Incidentally, it has not been ruled out that in exchange for her release Brussels might promise Kiev its support in the stand-off with Moscow. But this in no way means that the EU will keep its promise.

P.S. Russia's submission of its bills to Ukraine for unredeemed gas strangely coincided with increased activity by Kiev in the process of settling the Dnestr conflict at its post of chair of the OSCE.