“Naftogaz loses international arbitration for $41 million: implications for Ukraine
27 December 2024 09:56
Naftogaz of Ukraine has lost an international arbitration in Stockholm against Italia Ucraina Gas S.p.a. (IUGAS). The court ordered the Ukrainian company to pay about $41 million (UAH 1.7 billion), otherwise its assets, including gas in Europe, could be seized. This was reported by RBC-Ukraine, citing sources in Naftogaz, "Komersant Ukrainian" reports.
The lawsuit concerned the 2003 contract, which provided for the supply of 13 billion cubic meters of gas over 10 years at a fixed price of $110 per 1,000 cubic meters. NJSC planned to receive Turkmen gas at a price of $50 and earn up to $780 million annually.
However, the supply never materialized. In the early years, it failed to conclude an agreement with the Slovak company SPP, and later all gas was imported to Ukraine by RosUkrEnergo and sold by Ukrgas-Energo.
In 2007, IUGAS filed its first lawsuit against Naftogaz of Ukraine, demanding compensation in the amount of $3.9 billion for failure to fulfill the terms of the 2003 contract.
In 2012, the arbitration court ordered Naftogaz to pay $12.7 million, but the enforcement of the decision was delayed.
In 2020, the new owners of IUGAS filed a second lawsuit demanding $110 million for gas shortages in 2011-2013.
What are the consequences for Ukraine?
Naftogaz has reserved UAH 1.9 billion for the payment. Thus, the need for this payment will not affect the financial results of Naftogaz in 2024.
However, the decision has not yet been implemented.
If the situation is not resolved, the possible arrest of gas could significantly complicate Ukraine’s energy supply. IUGAS, for its part, has already initiated the enforcement of the decision. According to the newspaper’s sources, traders who sell gas to Naftogaz have already warned the Ukrainian buyer about the possibility of its arrest. These are primarily companies from Switzerland and Slovakia.
At the same time, Naftogaz is appealing this decision to the Svea County Court of Appeal (Sweden), expecting a verdict in 2027. It is worth noting that it is quite difficult to challenge arbitration decisions, as there must be serious reasons and strong arguments.
