represented in this Arbitration by
Wikborg Rein Advokatfirma AS
Attorneys-at-law Dag Mjaaland and Aadne M. Haga
P.O. Box 1513 Vika
Gernandt Danielsson Advokatbyra KB
Attorneys-at-law Bjorn Tude and Marcus Johansson
P.O. Box 5747
SE-114 87 Stockholm
Attorneys-at-law Denis Lysenko and Pavlo Byelousov
Vector Business Centre
B. Khmelnitskogo Str., 52
represented in this Arbitration by
DLA Piper UK LLP
Attorneys-at-law Philip Chong and Christina Lawrence
3 Noble Street
London EC2V 7EE
DLA Piper Rus Limited
Attorneys-at-law Yaroslav Moshennikov and Angela Kolesnitskaya
Leontievsky pereulok, 25
Attorney-at-law James Hope
SE-111 87 Stockholm
The Claimant and the Respondent are collectively referred to as the Parties.
Naftogaz has nominated as arbitrator:
Mr Jens Rostock-Jensen
Advokatfirmaet Kromann Reumert
Telephone: +45 38 77 44 50
Mobile phone: +45 40 59 04 32
in accordance with Article 13(3) of the Arbitration Rules of the Stockholm Chamber of Commerce (the "SCC") in force as of 1 January 2010 (the "SCC Rules").
Gazprom has nominated as arbitrator:
Mr Johan Munck
SE-191 40 Sollentuna
Telephone: +46 8 358068 (or +46 8 964164)
Telefax: +46 8 51989183
in accordance with Article 13(3) of the SCC Rules.
In accordance with Article 13(3) of the SCC Rules, the Board of the SCC appointed as Chairperson of the Arbitral Tribunal:
Mr Tore Wiwen-Nilsson,
223 63 Lund,
Telephone: +46 709 100 134
Administrative Secretary to the Tribunal, appointed by the SCC with agreement of the Parties:
Professor Boel Flodgren
223 62 Lund,
"ARTICLE 8. Regulation of disputes
8.1. All disputes and controversies, which may arise concerning the interpretation and application of the present Contract or in connection with it, shall be resolved by means of negotiations and consultations.
8.2. The Parties shall seek to resolve between themselves all disputes and controversies relating to the interpretation and application of this Contract by means of negotiations. Should the Parties fail to reach a mutually acceptable solution within 30 days upon the occurrence of any dispute or controversy, any dispute, controversy or claim in connection with the present Contract either its breach, termination or invalidity shall be finally resolved by arbitration in accordance with the Rules of the Arbitration Institute of the Stockholm Chamber of Commerce. The Arbitral Tribunal shall consist of three Arbitrators. The Arbitration shall be held in Stockholm, Sweden. The language of the Arbitration proceedings shall be Russian. The arbitral award shall be final and binding on both Parties.
8.3. The award of the Arbitration Institute of the Stockholm Chamber of Commerce shall be final, not subject to appeal, and binding on the Parties.
8.4. Articles 8.2-8.3 hereof relating to arbitration shall be binding on the Parties, their authorized representatives and legal successors, and the working of these Sections will remain in force regardless of the expiration or termination of the Contract."
i) Whether there is a right to price revision;
ii) Whether there is a right to price determination;
iii) Whether Gazprom has a right to Take or Pay payments;
iv) What the price will be for off-taken gas but not paid for;
v) Whether one or more contractual provisions shall be declared void or ineffective.
(1) That National Joint Stock Company Naftogaz of Ukraine has the right to price revision in accordance Article 4.4. of the Contract, and on no other basis claimed in the Arbitration;
(2) That a new formula in accordance with Article 4.1. of the Contract shall be applicable, [REDACTED] which shall take effect from and including [REDACTED] such formula with its remaining constituent elements to be determined by agreement of the Parties, or, failing such agreement, by the Tribunal after further proceedings in the Arbitration;
(3) That National Joint Stock Company Naftogaz of Ukraine does not have the right to price determination based on [REDACTED] to the Contract, and on no other basis in the Arbitration;
(4) That Articles [REDACTED]. ("Volumes") and [REDACTED] ("Take or Pay") of the Contract [REDACTED] ;
(6) That Article 3.10. ("Destination") of the Contract is [REDACTED]
(7) That Article 9.7. ("Mandatory sales") of the Contract is [REDACTED]
(8) That the price for outstanding amounts off-taken gas delivered in November - December 2013 and in April, Maj and June 2014, but not paid for, shall be the Contract Price applicable at the relevant periods;
(9) That National Joint Stock Company Naftogaz of Ukraine is entitled to repayment of amounts paid for gas at a price that is in excess of the Contract Price, as revised in accordance with this Award and any subsequent agreement by the Parties, or, failing such agreement, as decided by the Tribunal in further proceedings in the Arbitration;
(10) That National Joint Stock Company Naftogaz of Ukraine is not entitled to damages as claimed in the Arbitration;
(11) That interest on amounts to be paid in accordance with (8) above shall be pursuant to Article 6.2 of the Contract;
(12) That interest on amounts to be paid in accordance with (9) above shall be: (i) for payments made on or after 24 April 2014 and before 17 June 2014, yield interest according to Sections 2 and 5 of the Swedish Interest Act up to and including 17 June 2014, and thereafter delay interest according to Sections 4 and 6 of the Swedish Interest Act until payment is made; and (ii) for payments made on or after 17 June 2014, delay interest according to Sections 4 and 6 of the Swedish Interest Act until payment is made; and
(13) That all Gazprom's objections as to the jurisdiction of the Tribunal relevant to the declarations under (1), (2), (4), (5), (6), (7), (9), (11) and (12) are rejected."
The possibility of rendering a simultaneous Final Award in both the Sales Arbitration and the Transit Arbitraion was discussed.
a) make certain corrections to errors of typographical, computational or similar nature in the Separate Award identified in Appendix 1 to Gazprom's letter, and
b) provide certain clarifications as to the correct interpretation of the Separate Award in relation to matters identified in Appendix 2 to Gazprom's letter.
Gazprom - through a copy of the letter sent to Naftogaz' counsel - notified Naftogaz of the requests set out in Gazprom's letter in accordance with Article 41(1) of the SCC Rules.
- Simultaneous exchange by the Parties of their respective positions, supported by any relevant witness and expert evidence, on Friday 15 September;
- Simultaneous exchange by the Parties of replies, supported by any relevant witness and expert evidence, on Friday 29 September;
- A pre-hearing conference call to take place, subject to the Tribunal's availability, during the week commencing 2 October 2017, in order to determine any outstanding procedural issues such as hearing length and the allocation of time during the hearing; and
- Oral hearing to take place on 9 and 10 October 2017 (exact length to be determined in due course).
Gazprom asked for Naftogaz' confirmation that the above accords with the Parties' agreement. Gazprom also asked for the Tribunal's confirmation whether the above proposals were acceptable.
"Since the Separate Award has now been rendered, Claimant does not oppose set off of amounts owing between the Parties in the Gas Sales Arbitration and will itself request set off of such amounts as a practical solution to handle the monetary claims. There is consequently no need for a request for leave in support of a request for set off, and the latter may be set out directly in the submission due on 15 September. In our view, there are no confidentiality issues involved between the Parties in this respect."
"If the Tribunal is referring to the issue concerning the confidential nature of without prejudice communications between the Parties, then we confirm that this no longer appears to be an issue, as our understanding of the position was confirmed by Mr Mjaaland in his email to the Tribunal dated 4 September 2017."
- Questions from the Tribunal for the Parties to answer will be submitted by the Tribunal to the Parties on 17 October 2017.
- Post Hearing Briefs, no longer than 35 pages, shall be submitted by the Parties on 10 November 2017, at the latest.
- The Parties' Claims for Costs shall be submitted on 10 November 2017, at the latest.
- At the suggestion of the Parties, it was agreed that the Tribunal will receive assistance by the experts regarding quantifications, calculations and clarifications.
- The Tribunal's work together with the experts is scheduled to 27-29 November 2017.
- Additional Claims for Costs shall be submitted by the Parties on 4 December 2017, at the latest.
- The Parties shall make their best effort to reach agreement on outstanding issues by 10 November 2017.
- The Final Award in the Sales Arbitration shall be rendered on 22 December 2017, but extension will be sought to 31 December 2017.
- The Tribunal will seek extension of the time for rendering the Award in the Transit Arbitration until 28 February 2018.
- The Parties are reminded of the email from the Tribunal of 13 November 2017 according to which no rebuttal submissions and no other submissions on the merits or on procedural matters shall be made, unless so directed, or approved, by the Tribunal.
- The Tribunal has accepted to receive a submission from Naftogaz regarding the challenge brought by Gazprom insofar as, and only in so far as, the challenge impacts on the Arbitration.
- The Tribunal has granted leave for Gazprom to reply to that submission, and now grants the request of Gazprom to reply no later than on 8 December 2017.
- Neither party shall make any further submission regarding the challenge unless so directed by the Tribunal.
- The Parties have been given the right to submit a response on costs claimed by the other Party on 4 December 2017.
- In the email of 13 November 2017, the Tribunal has requested the Parties to provide a certain confirmation. Whereas Gazprom has provided an explanation, that confirmation has not yet been provided by Naftogaz.
- The Tribunal sees no reasons for an extension of the time for the rendering of the Final Award.
1. The choice of [REDACTED] quotation and the relevant reference period, i.e. whether the relevant [REDACTED] prices shall be for [REDACTED] whether the relevant reference period determining the starting price on 27 April 2014 [REDACTED]
1. Determination of the outstanding amount for volumes off-taken in November and December 2013.
2. Confirmation of the off-taken volumes not paid for as agreed between the Parties.
3. Determination of the price for the volumes off-taken in April, May and June 2014 based on the revised price provisions and [REDACTED]
4. Calculation of the amounts owed by Naftogaz to Gazprom for the relevant period.
5. Calculation of the amounts owed by Gazprom to Naftogaz in the relevant period.
6. Offsetting the amounts owed under the Contract against each other.
7. Offsetting residual amounts owed by Naftogaz against any amounts owed by Gazprom in the Transit Arbitration.
4) Technical and consequential adjustments.
1. [REDACTED] commonly used in Naftogaz' other contracts;
2. [REDACTED] have been suggested by other market participants as the obvious choice for [REDACTED] contracts; and
3. [REDACTED] are most consistent with the [REDACTED] balancing regime that will be introduced in Ukraine.
Pn=P0 x [REDACTED]
52 § 3657 Separate Award.
"I have seen cases in which the buyer pays hub prices, less the costs of regasification - so the net price the buyer pays for the gas is the hub price. In some cases, the seller also deducts a very small 'administrative fee', to cover the buyer's additional costs of bringing the gas to the hub - again, the net price the buyer pays is essentially the hub price."106
"Q. If the producer sells not at the NBP [the hub in Great Britain] but at the beach, is it fair to expect him to -- that he would have to give the utility a discount for the cost of getting from the beach to the NBP? A. Yes, that's definitely fair."107
i) Gazprom does not appear to recognize that it is in the very nature of a "mellandom" to settle another issue than the ultimate issue that is the subject of the request for relief;
ii) The Tribunal has not declared that the ACQ be set at a number lower than what Naftogaz requested in its relief, but has merely set out the principles for the determination of the ACQ;
iii) The Tribunal's Decision (5) was within the relief sought by Naftogaz as correctly interpreted;
iv) The Tribunal's Decision (5) was within the relief sought by Gazprom in light of the Tribunal's wide discretion under Section 36 of the Contracts Act, taking into account the requirements of competition law, and the mandatory nature of both Section 36 and competition law.
v) Since Decision (5) is a "mellandom" it is not contrary to Naftogaz' original request for relief for replacement as of the date of the final award;
vi) Since the Separate Award requires a consequential adaptation of Naftogaz' reasoning and requests for relief, it cannot now be too late for Naftogaz to advance new requests for relief; this is entirely appropriate under Article 25 of the SCC Rules, also because these matters are well known to the Parties, and Gazprom itself presents entirely new requests for relief when previously it had presented none.
1. the transportation cost from the delivery points to the reference market should be deducted from the reference price (netback) and
2. that Naftogaz should be able to make a margin.
- First, the Energobiznes data are based on preliminary information.134 In the Transit Arbitration, the Parties have agreed to rely on official Ukrtransgaz data rather than Energobiznes data with regard to fuel gas calculations.
- Second, the Energobiznes data are not temperature-adjusted and thus do not provide a reliable basis for projecting gas demand. As the first quarter of 2017 was far colder than the first quarter of 2016, it is unsurprising that demand was higher in the first six months of 2017 than in the first six months of 2016. The abnormally cold first quarter of 2017 is likely to account for some of the increased demand from the first half of 2016 to the first half of 2017.
- Third, the increased demand in the first half of 2017 can also be explained by the increased inflow of gas into storage in this period.
- Fourth, another likely non-recurring reason why gas demand has been higher in the first six months of 2017 than the first six months of 2016 is that fuel gas consumption in 2017 was higher than can be expected in 2018 and 2019. 2017 saw above-normal transit flows through Ukraine caused by low winter temperatures also in Europe, as well as increased demand for gas to power production in the Balkans caused by low rainfall combined with high summer temperatures.
1. [REDACTED] of the Tribunal's Decision in the Separate Award clearly address volumes, i.e. "[REDACTED]" of gas; and
2. [REDACTED] of the Tribunal's Decision in the Separate Award effectively address volumes of gas delivered after February 2015. Notably, by deciding the price for (agreed) volumes of gas delivered, but not paid for, in November-December 2013 and in April, May and June 2014, the Separate Award implies that [REDACTED] Naftogaz' Request 4) simply seeks confirmation to this effect in the light of the fact that Gazprom has continued to invoice Naftogaz for volumes allegedly delivered but not paid for until August 2017.169
"If the ACQ set out in Article 2.2 exceeds fifty per cent (50%) of the Buyer's needs for importing gas, the Buyer may notify the Seller no later than six (6) months prior to the beginning of the relevant Delivery Year requesting a revision of the ACQ and proposing a revised ACQ for such Delivery Year so that it again reflects fifty per cent (50%) of the Buyer's needs for importing gas.
Such request shall be made in writing and be substantiated, and the Parties shall act in good faith when deciding on the need for such revision. The agreement between the Parties on changing the ACQ shall be made in writing and may be expressed in the form of a written confirmation made by the Seller in response to the corresponding written request from the Buyer."
" If during the term of the Contract the Seller carries out new additional natural gas sales in Ukraine, whether directly or indirectly (through its subsidiaries) to the Buyer's direct gas customers and/or to direct customers of the Buyer's direct customers, the Buyer on its own part has the right, subject to notifying the Seller in writing, to reduce in the respective Delivery Year the Annual Contract Quantity specified in Article 2.2 of the Contract, by an amount equivalent to the volumes of the said sales in the respective Delivery Year.
The Seller must inform the Buyer about all the contracts the Seller has signed for the sale of natural gas to Ukraine".
"2.2.2. In 2018, the delivery of Natural Gas in the quantity of [REDACTED] bcm shall be broken down in each Delivery Quarter as follows:
The quarterly distribution of the Gas deliveries in 2019 shall be determined by a supplementary agreement hereto, which shall be signed by the Parties at the latest on 1 November 2018, and if such supplementary agreement has not been signed, the quarterly distribution shall be made in accordance with the distribution in 2018."
"On each Day, the Buyer shall offtake at least fifty per cent (50%) of the Average Daily Delivery Rate. Daily nominations shall be made in accordance with relevant Ukrainian legislation."
a) whether the take or pay volumes shall be paid for in full or in part at the end of the Delivery Year when the buyer entered into take-or pay;
b) how to calculate the price for the make-up gas;
c) over what period of time the buyer can claim the right to offtake the make-up gas volumes;
d) that any make-up gas taken shall be counted against the make-up gas entitlement from the earliest debit year from which such entitlement exists.
1. volumes which Gazprom has not made available shall not be part of Naftogaz' take or pay liability. The same applies to all quantities which Naftogaz was hindered from offtak-ing, due to Force Majeure and/or agreed repair works (letter "D" in the volume formula MAQ=0.8 x ACQ - D);
2. If the MAQ has to be allocated to part-year deliveries of gas, the allocation shall be based on the quarterly distribution of gas deliveries;
3. Any make-up gas taken shall be counted against the make-up gas entitlement from the earliest year of delivery from which such entitlement exists; and
4. Upon expiry of the three-year make-up gas period, Naftogaz shall not be liable to pay for volumes which were not offtaken due to a) Gazprom's non-delivery of such volumes or b) due to Force Majeure and/or agreed repair works (the same circumstances as in letter "D" of the volume formula).
1. Naftogaz would be liable for gas volumes which were not delivered on time, but two days later (any volumes nominated by the Buyer but not delivered by the Seller within two Days). Thus, Gazprom may withheld volume deliveries up to two days, and still charge Naftogaz for take or pay of the undelivered volumes; and
2. If any shortfalls in Gazprom's deliveries are due to Force Majeure on Gazprom's side, or agreement between the Parties, Naftogaz would be liable for take or pay for such undelivered volumes. This is contrary to the very clear industry practice described by Brautaset in Norwegian Gas Sales, that the buyer is not liable for take or pay for volumes not delivered, irrespective of the reason why such volumes were not delivered, including Force Majeure on the part of the seller.202 In any event it would be contrary to the common principle in contract law that if the seller cannot deliver, the buyer is not obliged to take.
"That the price for outstanding amounts off-taken gas delivered in November - December 2013 and in April, May and June 2014, but not paid for, shall be the Contract Price applicable at the relevant periods;
"That National Joint Stock Company Naftogaz of Ukraine is entitled to repayment of amounts paid for gas at a price that is in excess of the Contract Price, as revised in accordance with this Award and any subsequent agreement by the Parties, or, failing such agreement, as decided by the Tribunal in further proceedings in the Arbitration;"
"That interest on amounts to be paid in accordance with (8) above shall be pursuant to Article
6.2. of the Contract;
"That interest on amounts to be paid in accordance with (9) above shall be (i) for payments made on or after 27 April 2014 and before 17 June 2014, yield interest according to Sections 2 and 5 of the Swedish Interest Act up to and including 17 June 2014, and thereafter delay interest according to Sections 4 and 6 of the Swedish Interest Act until payment is made; and (ii) for payments made on or after 17 June 2014, delay interest according to Sections 4 and 6 of the Swedish Interest Act until payment is made;"
|Month||Volume delivered (m3)||Invoiced price (USD/1000 m3)||Invoiced amount (USD)|
|Month||Volume delivered (m3)||Adjusted price (USD/1000 m3)||Amount due (USD)|
"First of all, it is clear from what actually happened that Naftogaz purported to pay the invoice price for the gas delivered in April, May and June 2014. This is actually rather obvious if you think of it, since the invoice price was the price at the time when the payment was made. This also does appear to follow from [REDACTED]. And the important point is that no one argued at the time that the price was actually lower than the invoice price, but that is what Dr Hesmondhalgh is now trying to do with her calculations: she is allocating a price lower than the invoice price at the time."222
Gazprom's line of reasoning is not easy to follow. As can be seen from [REDACTED] Naftogaz explicitly states that it considers its [REDACTED]. These statements show that Naftogaz paid in accordance with a revised Contract Price because the amount it would pay was lower than the aggregate invoiced amounts, and that Gazprom had the same understanding (while denying that the price should be revised). And obviously, it is incorrect that "no one at the time argued that the price was actually lower than the invoice price". This was exactly what Naftogaz did argue and it therefore logically stated that it considered its payment to constitute full payment.
"The second point is that applying Swedish law principles, since Naftogaz did not make any specific allocation at the time of making the payment, it falls to Gazprom to determine how the allocation is to be made and we say that the allocation should be made against the invoice price for the gas delivered in April, May and June 2014, which indeed is what the parties did appear to be understanding that they were doing. And also of course, as Swedish law requires, interest needs to be paid first. We're not in a position under Swedish law to say that capital should be paid first. Following the Supreme Court judgment the requirement is still, even at this stage where Gazprom could make the allocation, that interest has to be paid first."
1. on price revision, Naftogaz now wants to change Article 4.1 so as to change the provision for the price to be determined on a quarterly basis and prospectively to provide that the price be determined monthly and retrospectively;
2. also on price revision, Naftogaz now wants to change the provision in Article 4.2 that fixes the factual price by reference to the extent that the calorific value exceeds or fails to equal 8,050 kcal /m3 - requiring the rewriting of Article 4.1 and the deletion of all of Article 4.2;
3. on volume and take or pay, Naftogaz now wants for the first time to make changes not previously sought to other provisions of the Contract which were not the subject of challenge and which have not been invalidated: these include substantially different Articles 2.2.2, 2.2.3, and an entirely new Article 2.2.4.
1. To raise new claims and new issues following the Separate Award is precluded by reason of the operation of the Tribunal's ruling that there should be a Separate Award and by the Separate Award itself.
2. In any event, amendment of requests for relief to reflect new claims and new issues should be refused under Article 25 of the SCC Rules for the reasons given below.
"The Tribunal intends to have resolved all relevant legal and factual issues for answering these questions, and to have responded to all relevant declaratory requests regarding these issues, except as to certain elements and/or values of a numeric or quantifiable nature. All remaining issues, and any resulting monetary claims, will be left to be resolved in the Final Award, either based on an agreement by the Parties with the support of their experts, or on determinations by the Tribunal after further submissions by the Parties." (Emphasis added.)
"On 8 May 2017, the Tribunal decided to render a Separate Award disposing of the issues of fact and law required to decide as regards the issues of principle (with all the remaining issues and any resulting monetary claims to be left to be resolved in the Final Award):
(i) Whether there is a right to price revision;
(ii) Whether there is a right to price determination;
(iii) Whether Gazprom has a right to Take or Pay payments;
(iv) What the price will be for off-taken gas but not paid for;
(v) Whether one or more contractual provisions shall be declared void or ineffective [...]"
1. Naftogaz' claims to amend Article 4.1 so that (1) the Contract Price is fixed monthly rather than quarterly, and (2) the Contract Price is fixed retrospectively rather than prospectively.
2. Naftogaz' claim to change the contractual provisions on calorific value by deleting Article 4.2 and amending Article 4.1.
3. Naftogaz' claims to amend Articles 2.2.2 and 2.2.3 and to insert a new Article 2.2.4.
1. The introduction of new claims and issues at this very late stage would undermine the Tribunal's rationale in deciding to have a Separate Award followed by a further award, rather than just to deliver a single award, which was that this was the most efficient way of deciding on the issues and resolving the claims that the parties had respectively advanced. The decision to have a Separate Award was not intended to offer the parties the opportunity to raise new claims and new issues after the Separate Award had been delivered. Otherwise, the claims and issues to be resolved would have been different depending on whether the Separate/further award route was adopted rather than a single award.
2. Had the single award route been adopted by the Tribunal, the proceedings would have been closed and Naftogaz would have been prevented from raising any new claims. The only reason the proceedings were not closed before the Separate Award was to allow for submissions to be raised post that award on the "remaining issues". In this regard the following should be noted:
- On 3 March 2017, more than seven months ago, the Tribunal wrote to the parties indicating that it intended "to close the proceedings pursuant to Article 34 of the SCC Rules",236 and had concluded that before closing the proceedings there were three specific issues that needed to be addressed:
"1. The alleged new issues raised by Naftogaz in its Post Hearing Brief, and the request for leave by Gazprom to respond, see below.
2. Naftogaz' request for leave regarding an adjustment of its monetary claim. Gazprom has been offered an opportunity to respond no later than on Wednesday 8 March 2017.
3. Cost submissions. The parties are encouraged to consult each other on when the cost submissions and rebuttal costs submissions should be submitted, and inform the Tribunal, who will then decide."
- Accordingly, in relation to all other issues, the Tribunal was satisfied that the Parties had had a reasonable opportunity to present their cases. The only reservation Naftogaz made in relation to the Tribunal's email of 3 March 2017 was as follows:
"In light of the various expected submissions from Gazprom, and for the sake of good order, Naftogaz reserves the possibility to request leave to briefly revert on issues raised in such submissions. Naftogaz also recalls that it has been given leave to update its monetary claims immediately prior to the award."237 (Emphasis added)
- Hence, both the Tribunal and the parties understood and accepted in March 2017 that, but for certain express issues, it was time for the proceedings to be closed pursuant to Article 37 of the 2010 SCC Rules.
3. The delay in bringing these claims and new issues could hardly be greater. There is no good reason advanced by Naftogaz as to why these new claims and new issues were not raised well in advance of the Separate Award, even if only as alternative claims.
4. There is nothing within the findings of the Tribunal in the Separate Award to justify the bringing of the new claims and new issues now.
5. Gazprom will be severely prejudiced if the amendment is allowed.
1. Requests 1.1 and 1.4 are barred by res judicata, insofar as they seek [REDACTED] the netback issue and the other issues summarised in paragraphs (555) and (556) below. It is consequently not open to Naftogaz now, on the basis that the Tribunal [REDACTED], to seek new adjustments to the price, the sole justification for which is to return the price to the level that Naftogaz had originally sought, [REDACTED]
2. Requests 2.2, 2.3, 2.4 and 2.6 are barred by res judicata, insofar as they seek to re-open the basis on which the adjustment to the take or pay provisions should be made.
"(2) That a new formula in accordance with Article 4.1 of the Contract shall be applicable, based [REDACTED] prices and [REDACTED] prices, which shall take effect from and including 27 April 2014; such formula with its remaining constituent elements to be determined by agreement of the Parties, or, failing such agreement, by the Tribunal after further proceedings in the Arbitration."
Table 2-1: Calculation of P0 in Naftogaz's April 2014 price revision claim
1. Naftogaz cannot argue that this change flows from the Tribunal's Decision; [REDACTED] and
2. the instruction given by Naftogaz' counsel to Dr Hesmondhalgh is not an accurate reflection of the Tribunal's Decision, and the Tribunal should therefore disregard the evidence given by Dr Hesmondhalgh as a consequence of this instruction. If the basis of the instruction is false (as it is), the consequence is that such evidence is irrelevant.
1. Whether the Contract, and in particular Article 4.1, should be altered to provide for the Contract Price to be determined at monthly intervals with the price being fixed retrospectively based [REDACTED]
2. Whether at each price determination date the Contract Price for the relevant period should be determined on the basis [REDACTED] There is also a dispute within the context of this question as to whether the [REDACTED](as Naftogaz originally sought and as Gazprom contends) [REDACTED] ("Issue 2").
3. Flowing from the decision on the previous two issues, whether the [REDACTED] should be set at [REDACTED] (Naftogaz' proposal) or [REDACTED] (Gazprom's proposal, and Naftogaz' previous proposal adjusted [REDACTED] ("Issue 3").
4. Whether Article 4.2 (which provides for the Contract Price to be adjusted based on the actual calorific value of delivered gas) should be deleted and the revised price should be calculated assuming a calorific value of 8,050 kcal/m3, with no further adjustments for calorific value thereafter ("Issue 4").
5. Whether the revised formula should contain a term reflecting Ukrainian entry costs (Em) as Naftogaz proposes ("Issue 5").
6. Whether [REDACTED] quoted exchange rates should be used ("Issue 6").
"dispos[e] of the issues of fact and law required to decide as regards the issues of principle: (i) whether there is a right to price revision;... (iv) what the price will be for off-taken gas but not paid for; (v) whether one or more contractual provisions shall be declared void or ineffective", and
"have resolved all relevant legal and factual issues for answering these questions, and to have responded to all relevant declaratory requests regarding these issues, except as to certain elements and/or values of a numeric or quantifiable nature."
1) Prior to the Separate Award,[REDACTED]. Naftogaz now seeks [REDACTED]
2) Prior to the Separate Award, Naftogaz requested that the existing provisions of Article 4.1 of the Contract, which provide for the price to be determined: (i) on a quarterly basis, and (ii) prospectively, be retained. Naftogaz now seeks an adjustment of these provisions to provide for the price to be determined: (i) on a monthly basis, and (ii) retrospectively.
3) Prior to the Separate Award, Naftogaz did not seek any adjustment in relation to the net calorific value of the gas. Naftogaz now seeks to include within its proposed revised price formula an adjustment whose effect is, mathematically, largely to cancel out the calorific value adjustment in Article 4.2, thereby reducing the price payable by Naftogaz by around USD 2 per 1,000 cubic metres.
4) Prior to the Separate Award, Naftogaz sought, in the context of its netback calculation [REDACTED]242), a deduction for transportation costs. Naftogaz explained that it had elected to deduct a "calculated transit cost" in place of the regulated re-entry charges, on the basis that the latter only applied from 1 January 2016 and could not be deducted for the whole price revision period. The Tribunal rejected Naftogaz' arguments in this regard and stated very clearly in the Separate Award [REDACTED]243 Naftogaz now seeks to re-open this issue, by claiming a deduction for the regulated entry charges, which it had previously expressly elected not to claim, preferring instead a claim for a calculated transit cost.
1) First, the suggestion that the Tribunal "decided" that Naftogaz was to pay a price that corresponds to the level of prices in the reference market is wrong. No such wording is found in the Tribunal's Decisions in the operative part of the Separate Award. What the Tribunal in fact said in the passage from the Separate Award relied upon by Dr Hesmondhalgh in her Memorandum was that "the intent [of Article 4.4] seems to be that Naftogaz shall pay a price that essentially corresponds to the level of prices in the reference market".245 Here the Tribunal was disposing of Naftogaz' argument (referred to in the preceding paragraph 3636) that the word "reflect" in Article 4.4 "should open up for application of the netback principle". The Tribunal characterised Naftogaz' argument [REDACTED]246
2) Second, it is implicit in the Tribunal's Decision [REDACTED]This is clear from the Tribunal's own reasoning on its jurisdiction to revise the price: [REDACTED]"247. To suggest that additional adjustments are required to bring NCG hub mid prices to a level that corresponds with the level of prices [REDACTED] is not only nonsensical, it is also equivalent to arguing that, in awarding a formula [REDACTED] based on[REDACTED], the Tribunal has failed to award a revised price that reflects the level of prices in the market, and has thus gone beyond the parameters of its jurisdiction that the Tribunal itself has defined.
3) Third, [REDACTED] "248 In other words, the Tribunal expressly [REDACTED]. Yet this is exactly what Naftogaz' proposals seek to do.
1. that there shall be a new formula;
2. that the new formula should be in accordance with Article 4.1. of the Contract;
3. that the formula should be [REDACTED];
4. that [REDACTED] should be used, not [REDACTED] "; and
5. that the formula "shall take effect from and including 27 April 2014".
1. Article 5.1.1: "[Gazprom] shall, no later than the 10th day of the Month of Delivery, issue a preliminary invoice to [Naftogaz] on the basis of the Monthly Delivery Volume and the Contract Price for the Natural Gas (Pn) specified in Clause 4, taking into account the reduction by the amount of reduced customs payments calculated in the manner similar to that established by the relevant resolutions of the Government of the Russian Federation […]"263 (emphasis added). Preparing a preliminary invoice obviously requires there to be a Contract Price going forward rather than retrospectively. The invoice is preliminary in terms of the volumes because those volumes may not in fact be offtaken.
2. Article 5.1.3: "The Parties shall perform the reconciliation of settlements not later than on the 15th (fifteenth) day of the month following the Month of Delivery, taking into account the payments made under this Contract and the actual gas delivery volumes on the basis of the commercial gas delivery and acceptance statement, the invoice and/or VAT (schet-faktura) issued not later than 5 (five) calendar days after the commercial statement is signed for the delivered gas." It is not the price that is subject to reconciliation, but the volumes, which can only be known after the end of the month of delivery.
1. Naftogaz has failed to deal with its own argument that "[u]sing quarter ahead prices for the indexation is consistent with the quarterly recalculation of the Contract Price, which effectively is a quarter ahead price".274
2. Naftogaz' expert has also failed to reconcile her current position with her prior positions.
- In her first report Dr Hesmondhalgh endorsed the use of quarter ahead prices stating that: "[w]e have relied on [REDACTED]275 and "... we consider that a [REDACTED]".276
- Indeed, all of the formula proposed by Dr Hesmondhalgh during the course of the Arbitration utilised [REDACTED]
1. The Tribunal did not require that [REDACTED]
2. In any event, if [REDACTED]
3. The contention that [REDACTED]
4. The fact that Naftogaz [REDACTED] is irrelevant.
5. Naftogaz' proposal to use [REDACTED] introduces new complications. If [REDACTED] are used, then it only makes sense to use the prices that apply in the month of delivery. So for gas delivered in May, [REDACTED] in May would need to be used to determine the Contract Price. This requires the provisions in the Contract to be changed so that the Contract Price is calculated [REDACTED] (as Naftogaz seeks) instead of prior to the quarter of delivery as is currently the case. However, such changes to Article 4.1 are not permissible.
"In my experience, for [REDACTED] contracts it is most common to match the averaging period with the period over which the contract is priced. So for a monthly priced contract, averaging the month ahead price over the previous month is a standard approach. For a quarterly priced contract, averaging the quarter ahead price over the previous quarter makes sense."280
1. In relation to import contracts, Dr Moselle stated that: "I've never seen an import contract that doesn't make these kinds of [calorific value] adjustments. Either they explicitly say"We charge you on an energy basis ", or they say"We charge you on a volume basis but we adjust the price for the energy content of the gas", just like Contract KP does."293
2. In relation to pricing at the end consumer level, and Dr Hesmondhalgh's (factually inaccurate) statements to the effect that UK customers pay for gas based on a volume with a fixed calorific value, Dr Moselle stated, "UK consumers are charged based very accurately on the actual energy content of the gas that they receive".294
3. Finally, Dr Moselle summarised that he has never seen a gas contract - whether for consumers in the UK or import contracts in Europe - that does not price gas according to its energy content:
"[...] my experience strictly speaking is to say that in the United Kingdom all consumers pay for gas on the basis of the energy they receive and outside of the United Kingdom, in all imports, or in fact all gas contracts I have ever seen, the payment is on the basis of energy.
...I would be astonished if the picture was different anywhere else in Europe. As I said, this is a bizarre proposal. It makes - I can't believe - I can't think of any conceivable reason why in any European country consumers would not be charged on the basis of energy. It is like selling people, you know, bags of coal and not charging for how much coal is in the bag."295
1. Article 4.4 only gives the Tribunal the jurisdiction to alter the "contract price provided in Article 4.1" - it does not give the Tribunal jurisdiction to change other aspects of Article 4.1 such as the requirement that the contract price relates to gas with a calorific value of 8,050 kcal/m3, let alone to change the provisions in Article 4.2 concerned with the adjustment to the Contract Price to arrive at the factual price.
2. In paragraph 3724 of the Separate Award the Tribunal ruled that [REDACTED]
3. Consistent with the limit of the Tribunal's jurisdiction, the Tribunal's Decision [REDACTED]) is limited to a change to the contractual formula in Article 4.1 for the Contract Price and does not extend to changes in other parts of Article 4.1 or of Article 4.2. As already noted, the Tribunal confirmed that "...[REDACTED]... ". These passages show that the Tribunal did not contemplate that it had power to alter aspects of Article 4.1 (or of Article 4 generally) other than the formula for the Contract Price.
4. Even if it had jurisdiction, the Tribunal cannot rule in favour of Naftogaz because it would effectively grant a relief which deviates from the Parties' requests. Naftogaz' requests for relief have consistently, and without exception, sought to maintain the reference in Article
4.1 to calorific value and the adjustment for calorific value under Article 4.2. If the Tribunal granted the relief that Naftogaz now seeks it would exceed its mandate.
1. Naftogaz does not suggest that the delivery of gas of higher calorific value is a new development. On the contrary, that was the position prior to the Supply Hearing and indeed the position since 2010297.
2. Naftogaz does not explain why, if it were the case that Naftogaz derives no benefit from the gas of higher calorific value, the new request to adjust the contract provisions, was not made in Naftogaz' prior requests for relief.
3. In any event, whether or not Naftogaz derives benefit from such gas is entirely irrelevant.
4. As explained in Moselle Report 2, paragraph 2.43, the proposed change is inconsistent with the Separate Award.
1. In paragraph [REDACTED] the Tribunal concluded that [REDACTED]. It did not conclude that it was [REDACTED] as if it was located in Ukraine.
2. In paragraph [REDACTED], the Tribunal held when [REDACTED]
3. See to similar effect the Volvo analogy in paragraph 3637. The attempt by Naftogaz to use that analogy to support its own argument is simply to misunderstand the analogy.
"(5) That from the [REDACTED] in Article 2.2. ("Volumes") of the Contract the Annual Contract Quantity ("ACQ") shall be based on [REDACTED] for each year of the remaining term of the Contract from the date of the Final Award, [REDACTED] where Article 2.2.5. (MAQ) shall be based [REDACTED] of ACQ and where Article 2.2.5. shall include a [REDACTED] the details of the Volume and Take or Pay provisions to be determined by the Parties in agreement, or, failing such agreement, decided by the Tribunal after further proceedings in the Arbitration."
|80% of 50% of Naftogaz' imports||9.9824||5.5092||7.7032||6,154||3.2676|
1. Revisions of Article [REDACTED] which have as their intended effect:
- the adjustment of the ACQ volumes for 2018 and 2019 ("Revision 1 ")310; and
- the exclusion of entry points through which gas can be supplied under the Contract to those "controlled by" Naftogaz ("Revision 2 ")311;
2. Revision of Article 2.2.2, to set a quarterly distribution of volumes to be supplied from 2018 ("Revision 3 ")312;
3. Deletion of Article 2.2.3 (which permits the Parties to agree reductions of the ACQ) and its wholesale replacement with:
- a provision under which only Naftogaz (and not Gazprom) would be entitled to request, no later than six months in advance of the Delivery Year, a revision of the ACQ in the event it exceeds [REDACTED] and an obligation upon Gazprom to agree such revision in good faith ("Revision 4");313 and
- a provision granting Naftogaz a unilateral right, by notice to Gazprom, to reduce the ACQ in the event of any sales of natural gas in Ukraine, whether direct or indirect by Gazprom through other parties, and obliging Gazprom to inform Naftogaz about all the contracts it has signed for the sale of natural gas in Ukraine ("Revision 5");314
4. The inclusion of a brand new Article 2.2.4, which, in the guise of a minimum offtake obligation of Naftogaz, seeks to grant Naftogaz greater flexibility in varying daily volumes it is obliged to offtake, as well as to subject the daily nomination process under the Contract in place between the parties to the requirements of Ukrainian legislation ("Revision 6")315; and
5. Revision of Article 2.2.5 (the take or pay provision) to include a make-up provision ("Revision 7")316.
1. It projects that gas demand (consumption) in Ukraine will stabilise at between 32 and 35 bcm per annum.326 This is supported by recent levels of demand - in 2016, consumption was 32,361 bcm327 - and also expectations (by international financial institutions and analysts) of growth in the Ukrainian economy - an important driver of gas demand - of between 2.5 and 4 percent in each of the next two years until 2019328 (at the end of which, the Contract is due to expire); and
2. It notes that domestic production in Ukraine has stabilised at around 20 bcm per annum.329 This is supported by reference to historical data on levels of domestic production published by Energobiznes, as follows:
Domestic production in Ukraine, 2009 to 2016, in bcm (Energobiznes)330
Naftogaz' imports, 2012 to 2016331
|Naftogaz' imports, in bcm||24,956||13,773||19,258||15,385||8,169|
1. Whereas Naftogaz anticipates that the "steady decline" in Ukrainian consumption will continue, thereby decreasing imports, Gazprom's position is that Ukrainian consumption is set to increase, based on recent economic indicators and expectations of economic growth in Ukraine by international financial institutions, projections by independent industry analysts,342 and recent data evidencing growth of consumption over the first eight months of 2017.343
2. Whereas Naftogaz asserts that domestic production in Ukraine will increase substantially over the remainder of the term of the Contract,344 Gazprom's position is that domestic production is likely to remain around current levels, and any increase is likely to be substantially less than that projected by Naftogaz.
Total imports to Ukraine by month in 2016 and 2017346
|Month||2016||2017||Change from 2016 to 2017|
"The government, in a road-map for the upstream published in February, stated its aim of raising output to 27 bcm/year by 2020. Industry participants see this target as extremely optimistic. The extent to which progress can be made towards it will be determined largely by regulatory reform. The state-controlled producers are required to sell gas at regulated prices to Naftogaz, their parent company, to support sales to residential consumers at regulated prices - in 2016, 4849 uah ($177.78)/mcm, compared to import price levels of 6-7000 uah ($220-256)/mcm. This is one of the types of price regulation that the IMF is urging the government to abolish. Naftogaz, which buys at regulated prices from Ukrgazvydobuvannya, is warning that, in that case, retail prices for domestic consumers would rise by around 40%. Supporters of the reform argue that it is crucial for the provision of investment funds to Ukrgazvydobuvannya, the shortage of which has for many years obstructed any significant production growth. The privately-owned companies, most of which are controlled by Ukrainian industrial groups, are also pressing for changes in the regulatory framework....
To sum up, gas production has now been stabilised at around 20 bcm / year, despite the loss of Chernomorneftegaz. In the next few years, the main potential for new production is from the existing resources of both state-owned and privately-owned companies, and the pace at which it comes on probably depends mainly on how the regulatory regime develops. The wave of inward investment that began in 2013 has been interrupted, postponing for several more years at least the development of the projects on which it had been targeted. In order to meet demand, Ukraine will continue to need imported gas."349
Domestic production in Ukraine, 2009 to 2016, in bcm (Energobiznes)350
|Month||2016||2017||Change from 2016 to 2017|
"Q: So, in fact this table is representing an aspiration as to what could be achieved if the concept, as referred to there [in Resolution No 1079], is implemented; do you agree?
A: I would not use the expression "aspiration", I would rather use: a verified plan which is based on data and assessment made by a very reputable company. Exactly I'm talking now about McKinsey & Company, who helped develop the strategy based on similar application of similar technologies in other countries and out of all possible scenarios within that particular strategy this is not an optimistic strategy, but rather a baseline scenario.
Q: This is a projection based on the implementation of a concept. Do you accept that it requires the implementation of a concept to achieve it?
A: Definitely, yes."354
1. the fixed assets of Ukrainian production enterprises are "obsolete and worn" and the Ukrainian gas production industry "does not have enough investments, modern technologies and equipment" necessary to increase production. Furthermore, and fundamentally, "the raw material base, which is the basis for natural gas production, is not replenished to the full extent.";355
2. it is necessary to a) "increase the coefficient of its extraction at the existing fields by intensifying extraction, including by drilling new wells, constructing new booster compressor stations, using well stimulation and improving systems for the development of reservoir", and b) "open new natural gas fields and reservoirs through geologic exploration, scientific research, seismic exploration, and the drilling of exploration wells";356
3. new wells will need to be put into operation "which will require the allocation of land plots and the raising of significant amounts of money to finance drilling operations";357 and
4. permits will need to be obtained, in circumstances where "[t]he system for obtaining permits is complicated and costly in terms of time and money, due to the lack of unification and out-of-date existing requirements and the large number of permits and approvals that must be obtained by producers [...]".358
1. Although Ukrgazvydobuvannya started an "intensification program", "due to political and corruption-motivated interference with the company's activities, full implementation of the program stalled".364 Unsurprisingly given that this statement is included in Naftogaz' Annual Report for 2016, Mr [REDACTED] did not deny this, accepting that that the problems faced were "more than just a bit of red tape".365
2. As at around June or July 2017, the date of publication of Naftogaz' Annual Report for 2016, Ukrgazvydobuvannya also faced a number of "urgent legislative programs":366
|Urgent legislative problems related to Ukrgazvydobuvannya and possible solutions|
|1. Considerable land allocation time periods (up to 2 years) 2. Downtime of drilling rigs due to lack of authorization for removal of fertile soil - loss of 43 million cubic meters in 2015||- Deregulation of the oil and gas industry - adoption of Bill No. 3096 - Simplification of the land allocation procedure -Allocation of state-owned land plots for drilling purposes - Removal of the ban on changing the purpose of private agricultural land|
|Delays in the issuance of special permits (especially problematic is the approval of issued special permits by regional councils)||Decentralization of rent -enactment of the provisions of Bill No. 3038 on the transfer of 5% of rent to local budgets|
|Because of joint activity agreements in 2016, the company sustained a loss 369 million cubic meters.||Support for further termination of contracts on joint activities|
|Outdated rules, mechanisms and rules for mining that do not meet modern realities||Development of an updated Code of Mineral Resources and adoption of the revised rules governing field development|
3. Whilst Ukrgazvydobuvannya "has initiated several measures to deregulate the oil and gas industry", "a number of regulatory documents remain in force even though they have long become obsolete and are hindering the development of the industry" (emphasis added). Furthermore, "[t]he situation is even worse if one takes into account the outdated capacities of Ukrgazpromgeofizyka's branches that are currently undergoing upgrades. This hinders the development of the industry since contractors are reluctant to update or import equipment. As a result, existing state geophysical enterprises [...] are slowly dy-ing".367 Mr [REDACTED] accepted that this was true, even going so far as to note that "'Slowly dying' is a good expression".368
1. An increase in consumption by households as a result of a cold winter. But as Mr [REDACTED] conceded, increases in consumption were also seen outside of the winter months, between April and August 2017.374
2. An increase in consumption of technical/fuel gas by Ukrtransgaz caused by an increase in transit volumes due to "temporary growth in consumption of Russian gas in Europe in 2017".375 According to Mr [REDACTED], this will not recur as a result of (amongst other things) a) the removal of the volume restrictions on the OPAL pipeline (the onshore German pipeline that transports gas from Nord Stream I), meaning that greater volumes of gas will be transited through that pipeline in preference to the Ukrainian GTS, and b) the commencement of construction of the Turkstream pipeline which will also provide an alternative transit route.376 Both arguments thus appear to rely upon wrong assumptions that the Nord Stream II and Turkstream pipeline projects will be completed and become operational much earlier than when the Contract is due to expire at the end of 2019. It is a matter of public record that they will not.
"[a]ccording to independent experts, potential reduction in natural gas usage through energy efficiency enhancements and energy saving programs is seriously restricted by the current system of subsidies. This system needs to improve to preserve the motivation to save energy and engage in efficient use of natural gas."377
1. In 2015, Energobiznes data reflects the total volume of gas supplied by Gazprom to Ukraine as being 6,140 BCM. This is the volume supplied to Naftogaz but excludes volumes supplied by Gazprom to South Eastern Ukraine via the Prokhorovka and Platovo GMSs.
2. In 2016 and 2017, Energobiznes data reflects zero deliveries by Gazprom to Ukraine, and therefore excludes supplies by Gazprom to Ukraine via the Prokhorovka and Platovo GMSs.
1. As Mr [REDACTED] knows very well - and as is reflected on the website of Naftogaz' own subsidiary, Ukrtransgaz387 - the Prokhorovka and Platovo GMSs are owned by Gazprom and are located within the territory of the Russian Federation.
2. There is no "military upheaval" in Russia affecting the Prokhorovka and Platovo GMSs, nor have such GMSs been "captured" by "Russia-backed terrorists", as alleged by Mr [REDACTED]
3. The Prokhorovka and Platovo GMSs are operational and staffed by Gazprom's personnel. Pursuant to the Technical Agreement, Naftogaz is entitled to have two of its representatives at each of the Prokhorovka and Platovo GMSs,388 and Naftogaz has not been prevented by Gazprom from exercising these rights of access (indeed, even Naftogaz does not suggest that this is the case).
"... The Gas quarterly distribution in 2011-2019 shall be determined by supplemental agreements hereto that shall be signed by the Parties by 1 November of the year preceding the Year of Delivery, and if the corresponding supplemental agreements have not been signed, the quarterly distribution shall be made in accordance with the distribution in the year preceding the Year of Delivery." (emphasis added.)
"The AC[Q] specified in this Clause 2.2 may be amended by agreement between the Parties not later than six (6) months prior to the beginning of the corresponding Year of Delivery. The agreement between the Parties on the issue of changing the AC [Q] shall be made in writing and may be expressed in the form of a written confirmation by one of the Parties in response to the corresponding written request of the other Party. However, the AC [Q] change shall not exceed 20% of the volume specified above in this Clause 2.2."
1. according to the proposal, only Naftogaz, and not Gazprom, can request a revision of the ACQ, i.e. Naftogaz' proposal removes Gazprom's right to request a revision of the ACQ;
2. the basis of the request is Naftogaz' own forecasts six or more months in advance of the relevant delivery year, and consequently has no relationship to Naftogaz' actual level of imports in that delivery year. It is therefore completely at Naftogaz' discretion;
3. a request may only be made for a downward adjustment, i.e. if Naftogaz forecasts that the ACQ will [REDACTED] and there is no mechanism by which the ACQ can be adjusted upwards in the event Naftogaz' forecasted levels of imports was too low and does not reflect actual imports;
4. it removes the provision that a request for revision shall not [REDACTED] of the ACQ. There is consequently no limit on what Naftogaz may request; and
5. it gives total discretion to Naftogaz in making requests, and imposes an obligation upon Gazprom to agree such requests in good faith.
1. Naftogaz can exercise its rights to offtake such excess volume in a subsequent year pursuant to the make-up provision, which is to be included in Article 2.2.5 as a consequence of and in implementation of the Tribunal's Decision (5);
2. Naftogaz can inject excess volumes into storage and use them at a later time. Naftogaz is unique amongst European offtakers in that it has huge storage capacity of 31 bcm. The MAQ volumes contemplated in the Parties' respective proposals (made by either Gazprom or Naftogaz) represent a small fraction of available capacity. Any small excess volumes not consumed in one year may be injected into storage for consumption or sale to other parties in the following year; and/or
3. Naftogaz can reduce its purchases from others suppliers.
1. Gazprom currently carries out no sales of gas to customers in Ukraine, its Ukrainian subsidiary, Gazprom Sbyt, having been forced out of the Ukrainian market by Naftogaz and the Ukrainian authorities. (Ms[REDACTED] gave details of how Naftogaz refused to sell gas to Gazprom Sbyt and ultimately forced it to cease operations in Ukraine in paragraphs 28 to 36 of her first witness statement.390);
2. There is no reason to suppose that Gazprom will re-enter the Ukrainian market in the next two years, particularly in circumstances where Naftogaz, Ukrtransgaz and the Ukrainian authorities are all hostile to Gazprom, as evidenced by Naftogaz' claims in both the Supply and Transit Arbitrations, as well as the actions by the Ukrainian authorities, in their imposition of a multi-billion dollar fine against Gazprom;
3. The clause operates at Naftogaz' sole discretion: Naftogaz can reduce the ACQ at its discretion by notice to Gazprom, and the clause offers Gazprom no protection from abuse by Naftogaz;
4. The wording, [REDACTED] is potentially far too wide. "Subsidiary" is undefined and could conceivably cover any related party of Gazprom. This is particularly objectionable since Gazprom's business spans Europe, and gas sold to Naftogaz by other European based entities in many instances may have originated from sales to such entities by Gazprom. Any sale by a Gazprom related entity or via a third party could potentially come within the scope of this clause.
5. It obliges Gazprom to inform Naftogaz of confidential business information to which Naftogaz is not entitled.
"[…] if you're going to have a workable take or pay clause you need more than the plus or minus 6% flexibility, because that doesn't allow you to get down to 80% of your ACQ. The very least you could get down to would be 94% of your ACQ if you went 6% below every day. So there clearly has to be some change to allow you to actually do what the separate award says: you can have a MAQ of 80%."392
1. The reference to "quantities not made available for any reason by the seller" is far too wide and open to abuse by Naftogaz. Gazprom's proposal was specifically intended to avoid such possibility for abuse by making the necessary connection between the nomination process and gas being made available. Hence, Gazprom's proposal provided that a reduction in the ACQ was [REDACTED]400 Such a provision fits the delivery regime under the Contract and is commercially reasonable.
2. The reference to [REDACTED] is also unacceptable. This wording would permit Naftogaz to [REDACTED] time. As a result, [REDACTED]
"(8) That the price for outstanding amounts off-taken gas delivered in November - December 2013 and in April, May and June 2014, but not paid for, shall be the Contract Price applicable at the relevant periods;"
"(11) That interest on amounts to be paid in accordance with [the Tribunal's Decision] (8) above shall be pursuant to Article 6.2 of the Contract."
"(9) That National Joint Stock Company Naftogaz of Ukraine is entitled to repayment of amounts paid for gas at a price that is in excess of the Contract Price, as revised in accordance with this Award and any subsequent agreement by the Parties, or, failing such agreement, as decided by the Tribunal in further proceedings in the Arbitration."
"(12) That interest on amounts to be paid in accordance with (9) above shall be (i) for payments made on or after 27 April 2014 and before 17 June 2014, yield interest according to Sections 2 and 5 of the Swedish Interest Act up to and including 17 June 2014, and thereafter delay interest according to Sections 4 and 6 of the Swedish Interest Act until payment is made; and (ii) for payments made on or after 17 June 2014, delay interest according to Sections 4 and 6 of the Swedish Interest Act until payment is made ;"
- Further to the Tribunal's Decision (2), Gazprom requests that the Tribunal, in its final award, make an ORDER that Gazprom is entitled to payment of the difference between amounts paid for gas in October and November 2015 and the revised price. In the event that the Tribunal grants this request, then the Tribunal should deduct the amounts ordered to be paid, if any, by Gazprom to Naftogaz in this Arbitration, with the result that a single net amount should be ordered to be paid by Naftogaz to Gazprom.
1. " Naftogaz' First Declaration of Set-off" - "with effect as of 30 September 2017, pursuant to which it sets off Naftogaz' capital and interest claims described above against Gazprom's capital claims";424 and
2. "Naftogaz' Second Declaration of Set-off" - "with effect as of 30 September 2017, pursuant to which it sets off Nafogaz's, interest claim in the Transit Arbitration first, against what remains of Gazprom's interest claim in this Sales Arbitration and, second, against what remains of Gazprom's capital claim in this Sales Arbitration after the set-off described in paragraph 133 [of Naftogaz' Submission] To the extent the Tribunal should find that Gazprom's interest and/or capital claims are not completely extinguished by set-off against Naftogaz's interest claim in the Transit Arbitration, Naftogaz sets off its capital claim in the Transit Arbitration against what remains of Gazprom's interest and/or capital claims in this Sales Arbitration. Naftogaz' second set-off applies until Gazprom's capital and interest claims in this Sales Arbitration are extinguished".425
"However, even so it is not possible for Gazprom to declare a set-off (Sw. avge kvittnings-forklaring j except with a claim that is due and against a claim that is due. Gazprom's purported declaration of set off in its Relief Sought is therefore legally ineffective.".
Declaring that as of 30 September 2017, Naftogaz had a claim against Gazprom for a capital amount of USD 283,579,009.80 and a claim against Gazprom for interest accrued on this capital amount of USD 57,548,384.36.
Ordering Gazprom to compensate Naftogaz for its costs of Arbitration in an amount to be specified later together with interest pursuant to Section 6 of the Swedish Interest Act (Swedish rantelagen (1975:635)) as from the date following the final award until full payment is made and, as between the Parties, alone to bear the arbitrators' fees and expenses and the SCC administrative expenses, and to compensate Naftogaz for any amounts that Naftogaz has paid or will pay to the SCC in relation to the Arbitration including, but not limited to, Naftogaz' part of the advance on costs.
An ORDER that Gazprom is entitled to payment of the difference between amounts paid for gas in October and November 2015 and the revised price. In the event that the Tribunal grants this request, then the Tribunal should deduct the amounts ordered to be paid, if any, by Gazprom to Naftogaz in this Arbitration, with the result that a single net amount should be ordered to be paid by Naftogaz to Gazprom.
1. An ORDER that Naftogaz makes payment to Gazprom, in respect of its Supply Claims concerning gas delivered in December 2013, of the outstanding amount of USD 1,527,971.32.
2. An ORDER that Naftogaz makes payment to Gazprom, in respect of its Supply Claims concerning gas delivered in May and June 2014, has a capital claim of the outstanding amount of USD 1,732,160,565.04.
1. An ORDER that Naftogaz makes payment to Gazprom, in respect of contractual interest on the amount of USD 965,666,826.69 pursuant to Article 6.2 of the Contract, in an amount equal to 0.03% of the amount overdue for each day of delay in payment, being the amount of USD 13,076,056.27, accrued from 8 March 2014 until and including 30 May 2014.
2. An ORDER that Naftogaz makes payment to Gazprom, in respect of contractual interest on the amount of USD 1,732,160,565.04 pursuant to Article 6.2 of the Contract, in an amount equal to 0.03% of the amount overdue for each day of delay in payment, being the amount of USD 526,403,595.72, accrued until and including 30 September 2017.
3. An ORDER that Naftogaz makes payment to Gazprom, in respect of contractual interest on the amount of USD 1,732,160,565.04436 pursuant to Article 6.2 of the Contract, in an amount equal to 0.03% of the amount overdue for each day of delay in payment, being the amount of USD 519,648.17 per day accruing from and including 1 October 2017 until full payment has been made.
Decision [REDACTED], a new formula for[REDACTED]
Decision (5), the volumes of Natural Gas of the ACQ and the MAQ, and a provision for Take or Pay, including a provision for make up gas; and
Decision (9), the determination of the repayment to which Naftogaz is entitled for amounts paid for gas at a price that is in excess of the Contract Price.
P0, the base price, and the gas index element Ho, to be determined based on the average of Day-Ahead or Week-End price assessments for the period 27 April - 30 April 2014; H to be determined based on the monthly average of Day-Ahead or Week-End price assessments; no adjustment of the Contract Price based on actual calorific value of the delivered gas; the Contract Price to reflect a cost for entry of the gas into Ukraine; and exchange rates EUR/USD to be those quoted by Bloomberg L.P. rather than the European Central Bank.
i) The principal amount payable to Naftogaz is USD 233,846,359.81 and t