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Naftogaz Targets Russia With New $5.2 Billion Lawsuit

Ukraine’s state oil and gas company Naftogaz Ukrainy has filed a lawsuit against the Russian Federation for assets that the latter seized after its annexation of Crimea in 2014. The Ukrainian company is seeking US$5.2 billion in compensation.

The suit was filed with the Permanent Court of Arbitration at the Hague and, according to a statement by Naftogaz, the ruling will come no sooner than the end of 2020.

According to the company, “Naftogaz owned the most valuable energy assets in Crimea and was one of Russia’s main targets when it confiscated Ukrainian assets after the unlawful invasion and occupation of the peninsula in 2014.”

Russia annexed Crimea in the spring of 2014 following a referendum that Ukraine and the EU slammed as illegitimate. Since then, relations between the two neighbours have deteriorated.

In energy, the most notable Russian-Ukrainian dispute is no doubt the Naftogaz-Gazprom saga, in which both sides accused each other of violating contractual obligations.

In March last year, the Stockholm Court of Arbitration finally ruled in favour of the Ukrainian company. That victory was pyrrhic, however: of the original US$4.63 billion in payments due by Gazprom, the Stockholm court ruled that only US$2.56 billion would actually be paid out to Naftogaz, as Naftogaz had previously been ordered to pay about $2 billion to Gazprom for arrears. The court also obliged Naftogaz to buy 5 billion cubic meters of natural gas from the Russian company annually starting this year.

Gazprom acknowledged the ruling, but said it created a “material imbalance, which infringes the basic principles of Swedish law, which regulates the (gas) contract” adding that “Gazprom will defend its rights by all available means in accordance with the applicable law.”

At the moment, the two are negotiating their new gas transit contract that should enter into effect next year.

By Irina Slav for Oilprice.com

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  • Mamdouh Salameh on August 02 2019 said:
    If Ukraine wants to continue to get some revenue from Russian gas supplies passing through its territory after Nord Stream 2 becomes operational by the end of this year, then it has no alternative but to drop its legal proceedings against Gazprom and reach an amicable settlement.

    Ukraine had in many occasions in the past made use illegally of shipments of Russian gas passing through its territory and destined for the European Union (EU) without paying for them, hence the ruling by the Stockholm Court of Arbitration in March finally ordering Ukraines’ Naftogaz to pay about $2 billion to Gazprom for arrear and obliging it to buy 5 billion cubic meters of natural gas from the Russian company annually starting this year.

    In 2009, Gazprom was forced to stop gas shipments to the EU across the territory of Ukraine causing a real gas shortage in the EU during one of the coldest winters because of Ukraine’s refusal to pay for the Russian gas it has been using illegally.

    Ukraine is also well advised not to burn all its bridges with Russia and drop the new lawsuit it filed against Russia for alleged seizure of Ukraine energy assets during the annexation of Crimea in 2014. The Ukrainian company is seeking US$5.2 billion in compensation.

    Since the Crimea was originally Russian before given to the Ukraine by the then Soviet Union, nobody is sure if the alleged assets claimed by Ukraine were originally installed and paid for by Russia. Still, a settlement can only be reached in political negotiations between the two countries without interference from the US, the EU, Poland and Baltic States.

    Dr Mamdouh G Salameh
    International Oil Economist
    Visiting Professor of Energy Economics at ESCP Europe Business School, London

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