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Lawyers and other representatives

Final Award

1. THE PARTIES TO THE DISPUTE AND THEIR COUNSEL

1.1 The Claimant

National Joint Stock Company Naftogaz of Ukraine
B. Khmelnitskogo Str., 6
01001, Kiev
Ukraine
hereinafter referred to as Naftogaz or the Claimant

represented in this Arbitration by

Wikborg Rein Advokatfirma AS
Attorneys-at-law Dag Mjaaland and Aadne M. Haga
P.O. Box 1513 Vika
N-0117 Oslo
Norway

Gernandt Danielsson Advokatbyra KB
Attorneys-at-law Bjorn Tude and Marcus Johansson
Hamngatan 2
P.O. Box 5747
SE-114 87 Stockholm
Sweden

AEQUO LLC
Attorneys-at-law Denis Lysenko and Pavlo Byelousov
Vector Business Centre
B. Khmelnitskogo Str., 52
01030 Kiev
Ukraine

1.2 The Respondent

Public Joint Stock Company Gazprom
Nametkina Street No. 16
Moscow, GCP-7, 117997
Russia
hereinafter referred to as Gazprom or the Respondent

represented in this Arbitration by

DLA Piper UK LLP
Attorneys-at-law Philip Chong and Christina Lawrence
3 Noble Street
London EC2V 7EE
England

DLA Piper Rus Limited
Attorneys-at-law Yaroslav Moshennikov and Angela Kolesnitskaya
Leontievsky pereulok, 25
Moscow
12509
Russian Federation

Advokatfirman Vinge
Attorney-at-law James Hope
Smálandsgatan 20
Box 1703
SE-111 87 Stockholm
Sweden

The Claimant and the Respondent are collectively referred to as the Parties.

2. THE ARBITRATORS

The Arbitral Tribunal has been constituted as follows:

Naftogaz has nominated as arbitrator:

Mr Jens Rostock-Jensen
Advokatfirmaet Kromann Reumert
Sundkrogsgade 5
DK-2100 Copenhagen
Denmark
Telephone: +45 38 77 44 50
Mobile phone: +45 40 59 04 32
Email: jrj@kromannreumert.com

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
Anhaltsvagen 48
SE-191 40 Sollentuna
Sweden
Telephone: +46 8 358068 (or +46 8 964164)
Telefax: +46 8 51989183
Email: johan@munck.one

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,
Pálsjóvagen 24,
223 63 Lund,
Sweden
Telephone: +46 709 100 134
Email: twn@indarb.se

Administrative Secretary to the Tribunal, appointed by the SCC with agreement of the Parties:

Professor Boel Flodgren
Pálsjóvagen 10
223 62 Lund,
Sweden
Email: boel@flodgren.se

3. THE DISPUTE

3.1 The Parties

1.
The Claimant, National Joint Stock Company Naftogaz (NJSC, or "NAK" in Ukrainian) of Ukraine ("Naftogaz"), is a Ukrainian wholly state owned oil and gas company with over 170 thousand employees, founded in 1998. Naftogaz is Ukraine's largest oil and gas producer as well as the major importer, transit provider through its wholly owned subsidiary Public Joint Stock Company Ukrtransgaz ("Ukrtransgaz"), and marketer of Natural Gas, covering all segments of the Ukrainian gas market, such as gas field exploration and development, production, transportation, storage and supply to final consumers, from industrial users down to direct residential and commercial customers.
2.
Naftogaz and its subsidiaries produce over 90% of the oil and gas produced domestically in Ukraine. Natural gas is the primary energy source in Ukraine, providing 40-45% of the total energy consumption.
3.
The Respondent, Public Joint Stock Company (PJSC, or "OAO" in Russian) Gazprom ("Gazprom") is the world's largest gas extracting company with over 350 000 employees. It was reorganised into a Russian joint stock company in 1993, and began the process of privatisation in 1994. It is today a publicly listed company situated in Moscow, Russia. Currently, 50,23% of Gazprom's shares are owned or controlled (directly or indirectly) by the Russian Federation (through the Federal Agency for State Property Management, OAO Rosneftegaz and OAO Rosgazifikatsiya). Gazprom is the biggest supplier of gas to Europe. Gazprom accounts for 14% and 74% of the global and Russian gas output respectively, and owns the world's largest gas transmission network - the Unified Gas Supply System of Russia - with a total length of over 168 thousand kilometres.

3.2 The Dispute

4.
On 19 January 2009, the Parties entered into Contract No. KP for the purchase and sale of natural gas for the period 2009-2019, the "Gas Sales Contract" or the "Contract", and into Contract No. TKGU on volumes and terms of transit of natural gas through the territory of Ukraine for the period 2009-2019, the "Gas Transit Contract" or the "Transit Contract". Both Contracts are now under dispute. The disputes are handled in separate arbitration proceedings ("The Sales Arbitration" and "The Transit Arbitration") but by the same Tribunal. The present Arbitration deals with the Gas Sales Contract. The Parties are in dispute about the price of gas under the Contract and about the validity of various clauses in the Contract. With regard to the price of gas, Naftogaz claims an adjustment of the price provisions of the Contract and determination of the price payable under the Contract. Naftogaz also claims that the volume and Take or Pay provision, the destination clause, the unilateral suspension right clause and the mandatory sales clause of the Contract should be declared invalid or ineffective and that the volume and Take or Pay provisions and the unilateral suspension right clause should be replaced. Naftogaz claims repayment, alternatively damages plus interest. Gazprom denies that Naftogaz is entitled to the relief sought and requests that Naftogaz' claims be rejected in their entirety. In its counterclaim, Gazprom claims payment of outstanding amounts due for gas delivered to Naftogaz and for gas accessible to Naftogaz but not off-taken by Naftogaz under the Contract, plus interest. Naftogaz requests the rejection of the relief sought by Gazprom in its counterclaim.

4. THE ARBITRATION AGREEMENT AND APPLICABLE LAW

5.
The Contract contains the following arbitration clause:

"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."

6.
With regard to applicable law, Article 9.4 of the Contract reads as follows: "The present Contract is regulated exclusively by the material law of Sweden. "

5. THE SEPARATE AWARD

7.
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.

8.
On 31 May 2017, the Tribunal rendered the Separate Award in which the Tribunal decided: "TO DECLARE

(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] ;

(5) [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."

9.
On 9 August 2017, the Tribunal rendered a Decision on Correction of the Separate Award according to the following:

In Decision (12) the date 24 April 2014 is corrected and shall be 27 April 2014.

6. THE PROCEDURE

10.
The procedure up to and including 17 May 2017 is recorded in the Separate Award, Section VII.
11.
On 23 May 2017, the Chairperson had a telephone contact with the Parties about the way forward in the proceedings in the two Arbitrations (V2014/078/080 and V2014/129) and the Parties expressed their understanding of the necessity for an extension of the time for rendering of the Final Award (30 June 2017) and that this issue was to be discussed further on 16 June 2017.
12.
On 30 May 2017, the SCC reminded the Tribunal that the date for the rendering of the Final Award was 30 June 2017 and that the tribunal, among other things, should request the SCC to determine the cost of the Arbitration by submitting a description of the Tribunal's work no later than two weeks before the Award is to be rendered.
13.
On 31 May 2017, the Tribunal, after consultation with the Parties, rendered a Separate Award in this Arbitration (the Sales Arbitration).
14.
On 16 June 2017, the Tribunal held a telephone conference with the Parties about the way forward in the two Arbitrations. With the concurrence of the Parties, the Tribunal was to seek extension of the time for rendering the Final Award (in both Arbitrations) until 30 November 2017. It was noted that the proceedings had not yet been closed (in neither Arbitration) in accordance with Article 34 of the SCC Arbitration Rules.

The possibility of rendering a simultaneous Final Award in both the Sales Arbitration and the Transit Arbitraion was discussed.

15.
On 17 June 2017, the Tribunal requested an extension of the time for rendering of the Final Award.
16.
On 19 June 2017, the SCC decided that the Final Award should be rendered by 30 November 2017.
17.
On 22 June 2017, Gazprom confirmed that it was available for a hearing on 9 and 10 October 2017.
18.
On 23 June 2017, Naftogaz confirmed that it was available for a hearing on 9 and 10 October 2017.
19.
On 24 June 2017, the Tribunal confirmed its availability for a hearing on 9 and 10 October 2017.
20.
On 30 June 2017, Gazprom - pursuant to Section 32 of the SCC Rules - in a letter attached to an email, requested that the Tribunal:

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.

21.
On 30 June 2017, the Tribunal invited Naftogaz to comment on Gazprom's 30 June 2017 letter no later than on 7 July 2017.
22.
On 30 June 2017, Naftogaz asked for extension of the time for commenting on Gazprom's 30 June 2017 letter until 17 July 2017.
23.
On 2 July 2017, Naftogaz' 30 June 2017 request was granted by the Tribunal.
24.
On 3 July 2017, the Tribunal - due to the holiday season and to the fact that Naftogaz had been granted leave to make its comments on Gazprom's 30 June 2017 request until 17 July 2017 - asked the Parties for their acceptance of extension of the time for rendering the decision regarding Gazprom's 30 June 2017 request for corrections and clarifications until the 30 of August 2017.
25.
On 7 July 2017, Naftogaz agreed to the extension requested by the Tribunal in its 3 July 2017 letter to the Parties.
26.
On 7 July 2017, Gazprom made clear that it was unable to agree to an extension whereby the Parties would only learn of the Tribunal's decision regarding Gazprom's request for corrections and clarifications by 30 August 2017, as that date is only one day prior to the three-month deadline for challenge of the Award. Gazprom requsted certainty as to whether or not a corrected Separate Award will be issued a reasonable period of time in advance of the challenge deadline of 31 August 2017.
27.
On 11 July 2017, the Tribunal notified the Parties that it intended to provide its decision on the Request for Corrections and Clarifications to the Parties in the week starting on 7 August 2017 and that the Tribunal understood the views of the Parties such that this was acceptable.
28.
On 11 July 2017, Naftogaz confirmed that the Tribunal's intention expressed in the Tribunal's 11 July 2017 letter was acceptable to Naftogaz.
29.
On 11 July 2017, Gazprom confirmed that the Tribunal's intention expressed in the Tribunal's 11 July 207 letter was acceptable to Gazprom.
30.
On 17 July 2017, Naftogaz notified the Tribunal that it had decided to abstain from making any comments on Gazprom's 30 June 2017 request for corrections and clarifications of the Separate Award and that this should not be interpreted to mean that Naftogaz agrees with the request.
31.
On 21 July 2017, Gazprom - referring to the telephone conference with the Tribunal on 16 June 2017 and to Naftogaz' proposal that the Tribunal issue simultaneous Final Awards in the Supply and Transit Arbitrations - informed that it was unable to agree to Naftogaz' proposal since - the Tribunal having [REDACTED] The revised [REDACTED] provisions, which are to be negotiated between the Parties in advance of [REDACTED] will not come into effect [REDACTED]. Gazprom requests certainty as to its contractual rights and obligations as soon as possible and cannot agree to any further delay in the rendering of the Final Award in the Supply Arbitration pending the finalisation of the Final Award in the Transit Arbitration. Gazprom notes that, in contrast, such a delay would not affect Naftogaz' right to a revised price, which, pursuant to the Separate Award, takes effect from
32.
On 24 July 2017, Naftogaz confirmed its position that the Tribunal should aim at simultaneous Awards in the Sales and Transit Arbitrations. Simultaneous Awards would facilitate the settlement of the monetary claims, since the Separate Award in the Sales Arbitration results in a net monetary claim for Gazprom, whereas Naftogaz has submitted the major monetary claims in the Transit Arbitration. Naftogaz also trusts that the Tribunal will be in a position to proceed with the Transit Arbitration while the Parties are negotiating the outstanding issues in the Sales Arbitration, and that a delay in the rendering of the Final Award in the Sales Arbitration can be avoided.
33.
On 3 August 2017, the Tribunal asked the Parties for a brief report of how the negotiations regarding the issues left for the Parties in the Separate Award were proceeding.
34.
On 3 August 2017, Gazprom confirmed that negotiations between the Parties had taken place and were ongoing on a without prejudice basis and that a further meeting was scheduled to take place between the Parties in late August 2017. Gazprom also noted that the dates 9 and 10 October 2017 had been reserved for a hearing to take place to resolve outstanding issues arising from the Separate Award in the event negotiations between the Parties did not result in an agreement. Gazprom intends very shortly to make a proposal to Naftogaz regarding a procedural timetable leading up to such hearing and Gazprom will update the Tribunal further once Gazprom has discussed these proposals with Naftogaz.
35.
On 4 August 2017, Naftogaz confirmed the information given by Gazprom on 3 August 2017, and added that discussions have so far taken place between the Parties assisted by counsel and experts, as well as at expert level, and that Naftogaz would be in a position to provide further information about the status of the discussions at the end of August after the holidays
36.
On 9 August 2017, Gazprom submitted a procedural timetable in advance of the hearing scheduled for 9 and 10 October 2017 in the event that the Parties are unable to agree on all the issues outstanding in the Separate Award:

- 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.

37.
On 9 August 2017, Naftogaz confirmed its agreement to Gazprom's proposed procedural timetable. However, Naftogaz reserved the right to request that the Tribunal postpone the submission dates and the oral hearing currently scheduled to 9-10 October 2017, if it, in the light of the on-going negotiations, turns out to be premature to submit such pleadings/arrange an oral hearing.
38.
On 9 August 2017, the Tribunal, in response to Gazprom's 30 June 2017 request for Corrections and Clarifications in the Separate Award, made a Decision on Request for Corrections and Clarifications which was submitted to the Parties and the SCC in an attachment to an email on the same date.
39.
On 9 August 2017, Gazprom requested that the Tribunal issue its Decision on Request for Corrections and Clarification as an attachment to the Separate Award, signed by all the members of the Tribunal, dated and stating that it constitutes a correction to the original award.
40.
On 9 August 2017, the Tribunal issued "Corrections to the Separate Award of 31 May 2017 in SCC Arbitration No. V2014/078/080" to be added as an attachment to the Separate Award of 31 May 2017, which - after having been signed by the Arbitrators - was sent to the Parties.
41.
On 10 August 2017, the Tribunal informed Gazprom that - subject to the 9 August 2017 expressed views of Naftogaz - the proposed procedural timetable was acceptable to the Tribunal.
42.
On 10 August 2017, Gazprom, referring to Naftogaz' 9 August 2017 reservation of its right to request postponement of submission dates and the dates for the oral hearing, expressed its position in the following wording: "It is Gazprom's position that, unless a request for postponement is made with the agreement of both Gazprom and Naftogaz, the hearing on 9-10 October should proceed as scheduled if the Parties have not by then come to an agreement on all outstanding issues."
43.
On 11 August 2017, the Tribunal informed the Parties in the following wording: "The Tribunal has accepted the timetable for the possible hearing on 9-10 October 2017 as per Gazprom's email of 9 October (later the same day corrected to "9 August") 2017. It is adopted by the Tribunal and shall apply unless otherwise decided by the Tribunal later. Either party is free to apply for an amendment but has to present justifiable reasons for the Tribunal to decide to amend the timetable."
44.
On 6 September 2017, the Chairperson, in a telephone conference with the Parties' counsel, received information about the progress of the on-going negotiations.
45.
On 12 September 2017, Gazprom requested leave, in accordance with the Chairperson's email dated 12 May 2017, to include in Gazprom's submission on issues arising from the Separate Award, which is due to be filed on 15 September 2017, a short submission in support of Gazprom's request for set off of amounts owing between the Parties as a result of the Separate Award.
46.
On 12 September 2017, Naftogaz, in an email from the Tribunal, was invited to comment on Gazprom's request of the same date no later than 9.00 pm on 12 September 2017. The Tribunal expressed its interest to understand whether there was an issue of confidentiality between the Parties and both Parties were invited to comment on this issue no later than 9.00 on the same date.
47.
On 12 September 2017, Naftogaz submitted the following answer to the Tribunal's email of the same date:

"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."

48.
On 12 September 2017, Gazprom submitted the following answer to the Tribunal's email of the same date:

"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."

49.
On 13 September 2017, in an email from the Tribunal, both Parties were granted leave to make a submission regarding set off of amounts owing between the Parties in the Supply Arbitration to be included in the submissions for the October hearing.
50.
On 15 September 2017, in accordance with the procedural timetable set out in emails from the Parties' respective counsel dated 9 August 2017, Gazprom submitted its Submissions on Outstanding Issues arising from the Separate Award dated 31 May 2017, along with 1) Fifth Expert Report of Dr Boaz Moselle, 2) Exhibits R-183 to R-187, and 3) Legal Authorities RLA-229 to RLA 231.
51.
On 15 September 2017, in accordance with the procedural timetable set out in emails from the Parties' respective counsel dated 9 August 2017, Naftogaz, in an email, submitted its Pleading on the Implementation of the Separate Award along with 1) Expert Report by Dr Hesmondhalgh, 2) Witness Statement by Mr [REDACTED], and 3) Exhibits.
52.
On 25 September 2017, in an email, Naftogaz submitted its Pleading on Fuel Gas under Naftogaz' Underdeliveries Claim together with 1) Expert Report by Dr Hesmondhalgh, and 2) four exhibits (Exhibits C-239-C-242).
53.
On 25 September 2017, Gazprom, in an email, submitted its Submissions in relation to the Fuel Gas issue together with 1) Seventhh Expert Report of Dr Boaz Moselle ("Moselle 7"), referred to by Dr Moselle as his Fourth Under-Delivery Calculation Report, and 2) Dr Hesmondhalgh's comments on Dr Moselle's robustness analysis dated 6 September 2017.
54.
On 2 October 2017, Naftogaz, in an email, submitted its Reply to Gazprom's Pleading on Outstanding Issues concerning the implementation of the Separate Award together with two Annexes (in a separate email).
55.
On 3 October 2017, Gazprom, in an email, submitted its Reply on the Outstanding Issues arising from the Separate Award, together with the Sixth Expert Report of Dr Boaz Moselle dated 15 September 2017, and Appendices 2-4.
56.
On 5 October 2017, Gazprom submitted a summary of the agreed and outstanding issues between the Parties and a Hearing Schedule for the hearing on 9-10 October 2017.
57.
On 5 October 2017, Naftogaz confirmed that Gazprom's submitted summary of the same date accurately reflected the discussions between the Parties.
58.
On 5 October 2017, the Chairperson had a telephone conference with the Parties' counsel regarding the Hearing Plan for the upcoming hearing on 9-10 October 2017.
59.
On 6 October 2017, Gazprom submitted an indicative timetable in respect of the upcoming hearing on 9-10 October 2017.
60.
On 6 October 2017, Naftogaz confirmed that the indicative timetable submitted by Gazprom on the same date reflected the agreement of the Parties.
61.
On 8 October 2017, Gazprom submitted a "Clarification of Gazprom's Request for Relief - Set Off".
62.
On 8 October 2017, Naftogaz submitted four new legal authorities (Exhibit CL-237, CL-238, CL-239 and CL-240) to which Naftogaz intended to refer during its Opening Statement at the hearing on 9 October 2017.
63.
On 9 October 2017, Gazprom, in an email, submitted a corrected "Clarification of Gazprom's request for Relief - Set Off" and a clean version of Gazprom's request for relief.
64.
On 9-10 October 2017, the hearing took place in Stockholm.
65.
During the hearing the following persons appeared before the Tribunal at the request of Naftogaz:

as witness of fact: Mr [REDACTED],
as expert witness: Dr Serena Hesmondhalgh.

66.
During the hearing, the following person appeared before the Tribunal at the request of Gazprom:

as expert witness: Dr Boaz Moselle.

67.
On 10 October 2017, during the hearing, after discussion with the expert witnesses, the Tribunal received "hot tub" questions prepared by the expert witnesses Drs Hesmondhalgh and Moselle.
68.
On 10 October 2017, during the hearing, after consultation with the Parties and the experts, the Tribunal decided according to the following:

- 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.

69.
On 10 October 2017, at the hearing, Naftogaz requested that the Final Award in the Sales Arbitration and the Final Award in the Transit Arbitration be rendered at the same date.
70.
On 13 October 2017, Naftogaz, in an email, in reaction to the Tribunal's proposal on the further proceedings, submitted a request for stay of the proceedings and that Gazprom clarifies its position with regard to volumes delivered to Naftogaz in the period covered by the Tribunal's decisions in the Separate Award and until the Final Award, including volumes allegedly delivered to the Donetsk and Luhansk regions in Eastern Ukraine.
71.
On 14 October 2017, Gazprom was allowed until 20 October 2017 to respond to Naftogaz' 13 October submission.
72.
On 17 October 2017, the Tribunal, in an email, submitted to the Parties the questions that the Tribunal would like the Parties to answer in their Post-Hearing Briefs.
73.
On 20 October 2017, Gazprom, in an email, submitted its "Response to Naftogaz' requests for a stay of proceedings and that Gazprom clarifies its position with regard to volumes delivered in the period covered by the Tribunal's decisions in the Separate Award and until the final award, including volumes delivered to Eastern Ukraine" together with Exhibits R-193, RLA-236 and RLA-237.
74.
On 22 October 2017, the Tribunal reminded the Parties that, until a further decision has been made on the issue of a stay or any other issue, the proceedings should continue according to the time table decided at the close of the hearing in the Sales Arbitration on 10 October 2017. The Tribunal also informed the Parties that the appropriate procedure for the Tribunal is to first make a request for an extension of the time for rendering the Award in the Transit Arbitration, and that only thereafter views of the Parties are submitted to the SCC.
75.
On 29 October 2017, the Tribunal decided that Naftogaz is not entitled to amend its defence in the Supply Arbitration by making a declaration of set-off between amounts awarded in the two Arbitrations, the Supply Arbitration and the Transit Arbitration, that the time schedule indicated at the end of the hearing on 10 October 2017 shall apply with a Final Award in the Supply Arbitration on 22 December 2017 and a Final Award in the Transit Arbitration on 28 February 2018. In the Supply Arbitration, Post-Hearing briefs and Cost Claims shall be made on 10 November 2017, and that Response to Cost Claims shall be made on 4 December 2017.
76.
On 7 November 2017, the Tribunal, in an email to the SCC, sought extension from the SCC Board according to Article 37 of the SCC Arbitration Rules for rendering the Final Award until 31 December 2017, the time limit for the award at present being 30 November 2017. The date 31 December 2017 has been chosen to provide a margin. The Tribunal also informed the SCC that the proceedings were not yet closed in accordance with Article 34 of the SCC Arbitration Rules.
77.
On 7 November 2017, Naftogaz, in an email, answered to the Tribunal's decision of 29 October 2017 that it for the sake of good order and to reserve all its rights in respect of these decisions, formally protests against the Tribunal's decision not to stay the proceedings and to dismiss its declaration of set-off.
78.
On 8 November 2017, Gazprom, in an email, requested the Tribunal's consent to the Parties' agreement that the page limit for the Post-Hearing Briefs be extended from 35 pages to 50 pages, to include the Parties' responses to the Tribunal's questions provided on 17 October 2017, and that the deadline for the exchange of Costs Submissions be extended by one week from 10 Novemer 2017 to 17 November 2017.
79.
On 8 November 2017, it was noted that Gazprom had challenged the Separate Award of 31 May 2017 by submitting a "Klander av skiljedom" with request for confidentiality to the Swedish Svea Court of Appeal.
80.
On 9 November 2017, the Tribunal accepted the proposals of the Parties as set forth in Gazprom's 8 November 2017 request.
81.
On 9 November 2017, the SCC, in response to the Tribunal's request of 7 November 2017, decided that the Final Award should be submitted by 30 December 2017.
82.
On 9 November 2017, Naftogaz, in an email, requested an extension for the submittal of the Post-Hearing Brief to enable it to review the challenge of the Separate Award made by Gazprom on 7 November 2017.
83.
On 9 November 2017, Gazprom, in an email, opposed Naftogaz' request for an extension of the time for the submission of the Post-Hearing Briefs.
84.
On 9 November 2017, the Tribunal, in an email in response to Naftogaz' request of the same date, submitted its decision not to grant an extension of the time for the submittal of the PostHearing Briefs. According to the Tribunal, the Arbitration will have to proceed as planned unless and until something emerged in relation to the challenge of the Separate Award that clearly had an impact on the Arbitration.
85.
On 10 November 2017, Naftogaz submitted its Post-Hearing Brief on the outstanding issues arising from the Separate Award dated 31 May 2017 together with two supporting Appendices.
86.
On 11 November 2017, Gazprom submitted its Post-Hearing Brief on the outstanding issues arising from the Separate Award dated 31 May 2017, along with a table setting out the remaining agreements and disagreements between the experts dated 10 November 2017
87.
On 13 November 2017, the Tribunal informed the Parties that no rebuttal submissions and no other submissions on the merits or on procedural matters should be made, unless so directed, or approved, by the Tribunal. The Tribunal also asked the Parties, as regards the agreement by Dr Hesmondalgh and Dr Moselle dated 10 November 2017 submitted by Gazprom together with its Post-Hearing Brief of 10 November 2017, to confirm that the contents of that agreement both as regards the agreements and disagreements of the experts, including the table and the impacts of their disagreements on the respective Party's primary claim (the disagreements not being a matter of calculations but solely a result of the underlying different approaches), can be taken to correctly show the position of the Parties. The Tribunal noted that the table only includes one reference to a report prepared by Dr Hesmondalgh and if there are other reports of Dr Hesmondalgh that are relevant to the issues as presented in the table, the Tribunal asked the Parties to instruct the experts to include in the table references such reports of Dr Hesmon-dalgh.
88.
On 14 November 2017, Gazprom, in an email, in response to the Tribunal's information of 13 November 2017, clarified that the document submitted together with Gazprom's Post Hearing Brief reflects Dr Moselle's understanding of issues on which the experts agree and issues which remain to be resolved by the Tribunal, which Dr Moselle considers that Dr Hesmondhalgh will be able to confirm. It has, however, not been previously agreed between Dr Moselle and Dr Hesmondhalgh.
89.
On 17 November 2017, Gazprom, in attachments to an email, submitted its Costs Submissions, along with an Appendix.
90.
On 17 November 2017, Naftogaz, in attachments to an email, submitted its Costs Submission along with supporting legal authorities.
91.
On 20 November 2017, Naftogaz, in an email, asked for leave to submit a no more than five-page submission concerning the impact of the challenge on the Sales Arbitration no later than 24 November 2017 with Gazprom being granted until 1 December 2017 to respond in equal length. Furthermore, Naftogaz noted that Gazprom still had not made its substantive position in respect of Naftogaz' request for a declaration as to volumes clear, and that all Naftogaz' reservations and requests for procedural actions by the Tribunal on that subject therefore remained.
92.
On 20 November 2017, the Tribunal, in an email, granted Naftogaz leave to submit no later than on 24 November 2017 a no more than a five-page submission concerning the impact on the Sales Arbitration of the challenge of the Separate Award, and Gazprom was granted leave to respond no later than on 1 December 2017 in equal length.
93.
On 21 November 2017, in an email in response to the Tribunal's 20 November 2017 email, Gazprom requested that the deadline for its reply be extended from 1 December 2017 to 8 December 2017, since most of Gazprom's legal team has significant other commitments in the week following 24 November 2017 (week commencing 27 November 2017). Furthermore, in relation to the matters set out in Naftogaz' 20 November 2017 email, Gazprom commented inter alia that its remaining requests for relief are as set out in its Post-Hearing Brief, that Gazprom's position as to supplies to the Donetsk and Luhansk regions of Ukraine was set out fully in its letter to the Tribunal dated 20 October 2017, to which it again refers for the full explanation of its position in respect of this issue, and that Naftogaz further refers (without permission) to a particular statement in the challenge application (out of the context in which it was made) in an attempt to invite the Tribunal to draw factually incorrect inferencesto which Gazprom reserves the right to respond and to any further related allegations by Naftogaz in Gazprom's response to Naftogaz' submission of 24 November 2017.
94.
On 22 November 2017, the Tribunal, in an email in response to Naftogaz' email of 20 November 2017 and Gazprom's email of 21 November 2017, submitted the following information to the Parties:

- 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.

95.
On 22 November 2017, the Tribunal, in an email in preparation for the Tribunal's upcoming consultations with the Parties' experts, asked each of the experts Dr Serena Hesmondhalgh and Dr Boaz Moselle to sign a Confidentiality Undertaking document prepared by the Tribunal. The Tribunal, in the same email, asked for the Parties' counsel's acceptance of the Confidentiality Undertakings.
96.
On 22 November 2017, Naftogaz, in an email in response to the Tribunal's information in an email of the same date, submitted a Table indicating agreements and disagreements between the experts.
97.
On 22 November 2017, the Tribunal, in an email to the Parties' experts and the Parties' counsel, provided Confidentiality Undertakings to be accepted by counsel and signed by the experts.
98.
On 23 November 2017, Naftogaz' counsel accepted the Confidentiality Undertakings, and that the costs and fees be covered by the Parties, subject to final allocation by the Tribunal as between the Parties.
99.
On 24 November 2017, Naftogaz' expert Dr Serena Hesmondhalgh, in an email, submitted a signed version of the Confidentiality Undertaking.
100.
On 24 November 2014, Gazprom in an email, submitted the following information to the Tribunal regarding the request that Dr Moselle sign a Confidentiality Undertaking:

[REDACTED]

101.
On 24 November 2017, in an email, Naftogaz submitted its submission concerning the impact on the Sales Arbitration of Gazprom's challenge of the Separate Award together with exhibits C-238 and C-239.
102.
On 24 November 2017, Gazprom, in an email referring to the email from Naftogaz' counsel of 22 November 2017, to which was attached the table provided with Gazprom's Post Hearing Brief amended to reflect Dr Hesmondhalgh's "disagreements (including clarifications of assumptions) and additional references", attached a further revised version of the table, amended to reflect Dr Moselle's comments and clarifications to Dr Hesmondhalgh's amendments.
103.
On 26 November 2017, Gazprom submitted a Confidentiality Undertaking document signed on behalf of the FTI Consulting Group.
104.
On 26 November 2017, Dr Boaz Moselle, in an email, submitted a signed Confidentiality Undertaking document, on behalf of himself and Cornerstone Research UK Limited.
105.
On 26 November 2017, the Tribunal submitted a draft list of questions to the Parties' experts and asked for their comments and queries regarding the questions.
106.
On 27 November 2017, a clarifying email correspondence regarding the Tribunal's draft list of questions of 26 November 2017 took place between the Parties' experts (Drs Hesmondhalgh and Moselle) and the Chairperson.
107.
On 27 November 2017, the Tribunal wrote to the SCC and requested a reconsideration of the advance on costs.
108.
On 28 November 2017, the clarifying email correspondence starting on 27 November 2017 between the Parties' experts and the Chairperson continued.
109.
On 29 November 2017 the Parties' experts submitted their answers to the Tribunal's questions of 26 November 2017.
110.
On 30 November 2017, the SCC, in a letter attached to an email, informed the Tribunal, among other things, about the Tribunal's obligation to inform the SCC about the work performed by the Tribunal, including the volume of written submissions and correspondence, the length of any hearing(s), and the number of procedural orders issued and that the Tribunal should request the SCC to determine the costs of the Arbitration.
111.
On 4 December 2017, Gazprom submitted its Reply Costs Submission, along with an Appendix and a zip file containing Exhibits R-201 to R-203 and Exhibits RLA-237 to RLA-238.
112.
On 4 December 2017, Naftogaz submitted its response to Gazprom's Costs Submission and update to Claim for Costs together with legal exhibits.
113.
On 4 December 2017, the Tribunal presented a follow-up question to the experts Dr Hesmondhalgh and Dr Moselle in relation to the Tribunal's questions of 26 November 2017.
114.
On 8 December 2017, Gazprom submitted its response to Naftogaz' Submission on the Impact on the Supply Arbitration of Gazprom's Challenge Application in respect of the Separate Award and clarification regarding the Donetsk and Luhansk region.
115.
On 12 December 2017, the experts, in an attachment to an email, provided their answers to the Tribunal's follow up question of 4 December 2017.
116.
On 15 December 2017, the SCC made a new decision regarding the costs of the Arbitration.
117.
On 20 December 2017, the Tribunal decided to close the proceedings in accordance with Article 34 of the SCC Rules.

7. THE PARTIES' CASES

7.1 Naftogaz' case

7.1.1 Introduction

118.
The following matters are outstanding in the Separate Award and should be decided by the Tribunal.
119.
In relation to item [REDACTED] of the Tribunal's Decision concerning pricing:

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]

2. [REDACTED]

3. [REDACTED]

4. [REDACTED]

120.
In relation to item [REDACTED] of the Tribunal's Decision concerning volumes and take or pay:

1. [REDACTED]

2. [REDACTED]

3. [REDACTED]

4. [REDACTED]

121.
In relation to items [REDACTED] of the Tribunal's Decision concerning gas off-taken, but not paid for, amounts paid in excess of the revised Contract Price, and interest:

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.

122.
Issues that are not outstanding in the Separate Award because they have not been identified as such, or issues that are not consequential from the findings in the Separate Award, or issues that have not been considered in the Separate Award are not outstanding and cannot be introduced at this stage for resolution in the final award. For instance, the Separate Award makes no provision for adaptation of the Contract Price to the specifics of other long-term contracts. There is consequently no basis for any addition to the [REDACTED] price based on such specifics, like a "flexibility premium" or similar.
123.
The most important issue in monetary terms is the choice of [REDACTED] quotations and [REDACTED] where different choices may have implications in the range of hundreds of millions of dollars. Another important issue in monetary terms, but only for future deliveries is [REDACTED]1 A potential claim for a "flexibility premium" could also have significant monetary implications, but would, as discussed above, be outside the scope of the Final Award.
124.
The Tribunal has requested Naftogaz to answer certain questions, namely (i) clarify with precision which of its "claims" are derived solely from its interpretation of the Separate Award (but not how) and (ii) if it alleges that any claim(s) are new in relation to what it has claimed before the Separate Award, (ii)(a) which such claim(s) are, (ii)(b) on what basis it may make such claims(s) now, and (ii)(c) how such claim(s) are related to the price revision pursuant to Article 4.4 of the Contract. Naftogaz will address these questions in turn.
125.
All of Naftogaz' claims, requests for relief, grounds, material facts and facts are derived from its interpretation of the Separate Award and concern the same subject matters as were in dispute prior to the Separate Award.
126.
All requests for relief are based on material facts and other facts that are either (a) findings in the Decisions in the Separate Award and (b) findings by the Tribunal in the reasons of the Separate Award and (c) arithmetically, logically, commercially or legally derived from the Decisions or the Tribunal's findings in the reasons or, in some cases, (d) facts invoked by Naftogaz prior to the Separate Award, but that were not ruled on by the Tribunal in the Decisions of the Separate Award. There are no facts relied on in support of any request for relief that do not derive from any of these four categories. In other words, all facts are derived solely from the Separate Award (and/or from the case as it stood before the Separate Award). Naftogaz will explain into what category the facts relied on falls in the pertinent Sections dealing with the merits. It follows that every claim (Sw. karomal) and all requests for relief (Sw. yrkanden) based on these facts are also derived solely from the Separate Award (or the case as it stood before the Separate Award).
127.
Naftogaz does not allege that any of its claims (Sw. karomal), any request for relief or any ground for a request for relief is "new". Moreover, each claim, request for relief and ground concerns the same subject matters (Sw. samma saker) as was in dispute before the Separate Award.
128.
What Naftogaz has done in respect of Requests 1.1) to 1.4) is not to present new requests for relief but simply to amend the existing requests for relief to align them with the Decisions and the reasoning of the Tribunal in the Separate Award, while remaining within the scope of the Arbitration clause, the price revision clause in Article 4.4 and Decision (2) (which expressly leaves [REDACTED], without any limitation whatsoever, [REDACTED] The ground for Requests 1.1) to 1.4) is the same -due to changes in the market conditions in the fuel and energy market Naftogaz has a right under Article 4.4 of the Contract to have the price clauses of the Contract revised to achieve a market reflective price.
129.
In respect of Requests 2.1) to 2.6) these are again simply amendments to the existing requests for relief designed to align with the Separate Award, while remaining in the scope of the Arbitration clause and the powers of the Tribunal in applying Section 36 of the Contracts Act. The main ground for the Requests is that the clauses are unconscionable under Section 36 of the Contracts Act for the reasons stated and shall be adjusted, just as before the Separate Award.
130.
Request 4) concerns a fact held by the Tribunal to be undisputed.2 It was already addressed in the context of the over- and underpayment claims, Gazprom's late payment interest claim in respect of gas allegedly delivered in July 2015,3 Gazprom's take or pay claims and the dispute as to the validity and effectiveness of the volume and take or pay provisions. Gazprom's payment claims covered the periods November-December 2013, and April-June 2014,4 and its take or pay claims covered the periods 2012-2015.5 Naftogaz' payment claims and request for declaration of payment due covered the period 20 May 2011 to the date of the Separate Award.6 The Tribunal's conclusion in § 3819 of the Separate Award covered all these periods and there is no indication anywhere in the Separate Award that the volumes for any of the periods covered by the requests for relief referred to above were in dispute, which of course, they never were. In addition, Gazprom's own expert confirmed that no gas was delivered in July 2014-November 2014 or in Q3 (i.e. July-September) 2015:7
131.
The current Request 4) is simply a requested pronunciation - this time also in the dispositive parts of the Award - on a fact undisputed in the Arbitration at least at the time the request for relief was presented, i.e. 15 September 2017. The request for relief was therefore not "new". Only in the most artificially construed technical sense can it be argued that the Request has an element of "newness" and only because there was previously no immediately corresponding request for relief before the Separate Award. This is, however, irrelevant as the issue as such was already a material part of the case before the Separate Award and indeed a material issue under several requests for relief. Request 4) is therefore evidently not new and was derived directly and solely from the findings in the Separate Award.
132.
Requests 3 and 5 are simply updates of the requests for relief that existed prior to the Separate Award and are the monetary and other consequences of the Separate Award and thus derived from the Separate Award.
133.
The only basis for the Tribunal to dismiss any of Naftogaz' request for relief - whether labelled new (which they are not) or amended - would be if, extraordinarily, the Tribunal would find it "inappropriate" to allow Naftogaz to amend or supplement its "claim" pursuant to Article 25 of the SCC Rules.
134.
The presumption under Article 25 (or its equivalent in Section 23 of the Arbitration Act) is always that a new or amended request for relief or a new or amended ground or fact shall be allowed. In Arbitration in Sweden, at pages 122-123, it is explained that the starting point is that "the arbitrators should only dismiss a new or amended claim if allowing such would have a material adverse effect on the proceedings".8
135.
The first question is therefore whether a dismissal would in fact prevent a delay in the proceed-ings.9 This is obviously not the case here. All of what Gazprom claims to be new has already been thoroughly debated, has been the subject of written submissions, expert reports, a separate oral hearing and will be addressed in post-hearing briefs. There is simply no time to be gained in dismissing anything now. This also means that the usual and arguably only argument for not allowing a new or amended request for relief is simply non-existent in the present case at this time. In respect of Request 4), specifically, there is no conceivable delay because the ground for the request is undisputed. In addition, if Gazprom would dispute it, any delay would be a function of Gazprom's changed position. Naftogaz' request for relief cannot be dismissed because of a delay caused by Gazprom's procedurally changed position as to what volumes were delivered to Naftogaz.
136.
Additionally, a very important consideration is whether the allegedly new item is open to be adjudicated in a subsequent arbitral proceeding or whether it becomes res judicata. If it would become res judicata, the presumption for allowing such new issue is very strong.10 This would seem to be particularly relevant in the present case, as Naftogaz is unlikely to have the ability to return in a subsequent arbitration with the issues that Gazprom alleges are new. In fact, what Gazprom seeks to do is to achieve by procedural means a decision that is not correct as a matter of substance, a modus operandi familiar throughout both Arbitrations.
137.
The Tribunal would also need to consider the ability of each Party to present its case. This is a fundamental due process issue. Obviously, it follows from the foregoing that Gazprom has already had and has availed itself of more than sufficient opportunities to present its case on the allegedly new issues. But if the Tribunal would dismiss any request for relief, the Tribunal would prevent Naftogaz from presenting its case. As for Request 4), Gazprom has not had any reason to develop its case because it has previously in this Arbitration procedurally accepted (Sw. vitsordat) the volumes delivered to Naftogaz. If Gazprom now disputes the very same volumes, it cannot use that new dispute introduced by itself as an argument under Article 25 of the SCC Rules.
138.
All of Requests 1.1) to 1.4) are obviously grounded in Article 4.4 of the Contract. They all seek to have the price provisions revised as allowed in Article 4.4. Request 4) is also related to Article 4.4 because the volume delivered to Naftogaz in the relevant periods is a material fact in respect of the monetary claims for under- or overpayments by the two Parties and in order
139.
The Parties agree that no deliveries of gas to Naftogaz took place in July 2015, as well as in August and September 2015. In § 72 of its 20 October 2017 letter concerning Naftogaz' request for stay of the proceedings and clarification of its position with regard to volumes delivered, Gazprom confirms that the volumes delivered to the (occupied parts of) the Donetsk and Luhansk regions after February 2015 were delivered not to Naftogaz, but "to (an)other off-taker(s) in the Donetsk and Luhansk regions." The Parties' experts have also consistently submitted data confirming this agreement.11 Yet Gazprom now argues that there is "a potential issue" as to whether volumes not delivered to Naftogaz should still be considered as delivered to Naftogaz under the Contract.12

7.1.2 Adjustment of the price provisions

7.1.2.1 Introduction

140.
Naftogaz is entitled to a new price formula with effect from and including 27 April 2014, to be [REDACTED] based on [REDACTED] No provisions are made for adaptations to the specifics of other long-term contracts, for example a premium for flexibility, as apparently promoted by Dr Moselle13 (but rejected by the Tribunal)14 in the context of comparator prices, and there is no basis for such adaptations. Consequently, the decision to [REDACTED]

1) [REDACTED]

2) [REDACTED]

3) [REDACTED]

4) Technical and consequential adjustments.

7.1.2.2 Choice of NCG quotation and reference period

7.1.2.2.1 The Parties' positions in the Arbitration and the Tribunal's decision and reasoning

7.1.2.2.1.1 Naftogaz' position in the Arbitration

141.
In the Arbitration, Naftogaz argues (i) that the prevailing price formula is a netback formula, and that (ii) the same netback approach to pricing as followed when the initial formula was agreed should be applied in price review. Consequently, Naftogaz also finds itself constrained to request a revised price formula which was closely modelled on the prevailing price formula, inter alia in terms of the price quotations to be used and the averaging period to be applied.
142.
Specifically, Naftogaz argues that to calculate the revised Contract Price, one should assess the price which Gazprom could effectively achieve if it had sold the Contract gas in Germany. Since the prevailing Contract Price is recalculated quarterly and therefore would be the same throughout every quarter, it made sense to rely on NCG quarter ahead (QA) prices (prices for delivery in a given quarter) in the revised price formula. Essentially, the prevailing Contract Price is a quarterly price, determined on the first day of a quarter and applicable to all gas delivered in that quarter.
143.
As common in oil-indexed contracts, the prevailing Contract Price relied on a very long reference period of nine months over which oil product prices were averaged in order to calculate the Contract Price. Historically, long term gas prices were indexed to the prices of oil products because there was no active market for gas trading, and gas prices were instead indexed to the prices of alternative fuels, mostly oil products, for which a market did exist. The link between the price of the index fuels and the market price of gas was therefore rather indirect, and long reference periods and sometimes time lags were used to smoothen volatility and introduce a delay between changes in the oil market and their effect on gas prices. With an active gas market, there is no need for such delays, as the long term gas prices can be indexed to follow the active gas trading market in real time. However, Naftogaz followed the historical netback logic also for reference periods, but suggested shortening the prevailing reference period from nine to three months, in order to capture most of the trading in QA products in the period leading up to the start of deliveries. This long averaging period exposed Naftogaz to a significant risk of a mismatch between the Contract Price and market prices, for which (among other risks) Naftogaz requests to be compensated with a margin.

7.1.2.2.1.2 Gazprom's position in the Arbitration

144.
Gazprom did not express any opinion on how a revised price formula should be structured or on relevant price quotations and reference periods in the Arbitration. On the contrary, Gazprom argued that the price revision provision in Article 4.4 was not a price revision clause, and (largely based on expert evidence) provided so little guidance on possible adjustments as to be unworkable. The position argued by Gazprom's counsel in the 6 September 2017 procedural telephone conference, i.e. that it is "clear" from the Contract that QA prices shall be applied, is consequently new and apparently opportunistic, intended to maximise the immediate net financial benefit to Gazprom. As Naftogaz will show immediately below, the Tribunal has rejected Naftogaz' arguments for why QA prices should be applied in the Separate Award, and Gazprom's newfound position is therefore also materially incorrect.

7.1.2.2.1.3 The Tribunal's decision and reasoning

145.
The Tribunal rejected Gazprom's argument that the price revision clause is not a price revision clause, and found that Naftogaz is entitled to a price revision and a new price formula, cf. items 1) and (2) of the Separate Award Decision. In other words, the Tribunal considered the plain and ordinary wording of Article 4.4 to be sufficiently specific to allow an arbitral tribunal to decide on a revision of the Contract Price.
146.
While the Tribunal [REDACTED]
147.
Specifically, the Tribunal [REDACTED] The Tribunal also reasoned that [REDACTED]
148.
Further, the Tribunal reasoned that [REDACTED]
149.
Finally, in this context, the Tribunal reasoned that when the Contract was concluded, the Parties wanted the Contract Price "to be kept in line with market developments."
150.
The Tribunal has not decided which [REDACTED]
151.
A straightforward reading of [REDACTED], and shall take effect from and including 27 April 2014. Everything else is "to be determined by agreement of the Parties, or, failing such agreement, by the Tribunal after further proceedings in the Arbitration". [REDACTED]
152.
There is no support in [REDACTED] as such or in the Tribunal's reasoning for Gazprom's argument that v "should be interpreted as granting Naftogaz's request for relief as set out in item 1.4.1" of Naftogaz' relief sought submitted on 15 November 2016, "except as expressly decided otherwise by the Tribunal"16. What Gazprom overlooks is that item 1.4.1 of Naftogaz' 15 November 2016 Relief Sought was based 100% on [REDACTED] (incorporated by reference to item 1.1), and that if the Tribunal had granted this request with only the exception of using [REDACTED] (as expressly decided by the Tribunal in Decision [REDACTED], it could easily have amended [REDACTED] set out in item 1.4.1 incorporating item 1.1 by reference) with this exception. The Tribunal did not do so, and did not even refer to item 1.4.1 in its reasoning or decisions.
153.
On the contrary, the Tribunal was apparently of the opinion that the choice of [REDACTED] and the period over which such quotations should be collected and averaged was a disputed issue of "a numeric or quantifiable nature"17. See inter alia the Tribunal's reasoning concerning [REDACTED] prices as one expression of the level of market prices as proposed by Gazprom's expert Dr Moselle18, and of [REDACTED]
154.
The Tribunal did not have any reason to decide on or even discuss the numeric issue of which [REDACTED] quotation to use or how it should be applied (in terms of recalculation) in the Separate Award because Gazprom had abstained from addressing Naftogaz' specific requests at this level of detail prior to the Separate Award. Rather, the Tribunal indicated in its 8 May 2017 Decision on Separate Award (Award Decision) that it would dispose "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; [...] What the price will be for off-taken gas but not paid for;..." Consequently, Decision [REDACTED] must be interpreted in the light of the issues of principle that were on the table prior to the Separate Award.
155.
The formulation " [REDACTED] in Decision must [REDACTED] be read to mean that the Tribunal has decided on the principled issues of whether [REDACTED] should be used to set the base price and the indexation, and if so with which weight, and nothing else. The numeric issues of which [REDACTED] price quotations to use and how to (re)cal-culate them for the purpose of setting the revised price are not addressed at all, and for good reasons. First, none of the Parties had presented the choice of NCG prices as an issue of principle prior to the Separate Award. Second, because Gazprom disputed Naftogaz' choice of [REDACTED] prices in general terms, and refused to enter into a discussion on the merits, the Tribunal had a very limited factual basis for making an informed decision on which [REDACTED] to use. Third, the Tribunal's [REDACTED] reasoning underlying Naftogaz' choice of [REDACTED] prices could reasonably require Naftogaz to amend its claims on this point.
156.
The above interpretation of Decision [REDACTED] is also confirmed by the Tribunal's handling of the other specific issues of principle regarding price determined in Decision [REDACTED], namely to use [REDACTED] instead of [REDACTED] prices and to give the revised Contract Price effect from 27 April 2014. Both issues are (i) discussed at length in the Tribunal's reasons, and (ii) explicitly decided in Decision [REDACTED]: "...[REDACTED] which shall take effect from and including 27 April 2014;...". If the Tribunal also had intended to decide on the disputed choice and application of [REDACTED] prices, it would have addressed those issues in the reasons and stated its decision expressly in Decision [REDACTED]
157.
The Tribunal was of course acutely aware of the numeric effect of decisions concerning the choice of reference periods for price quotations, and that the Parties previously had treated such decisions as a quasi-expert matter. We recall the discussion of the reference period and a possible time lag for the oil product prices applied in the original Contract price formula towards the end of the negotiations of the Contract. The financial implications were significant, and the issue was largely handled by the Parties' then in-house "pricing experts". Also for this reason, it made sense for the Tribunal to leave the choice of [REDACTED] price quotations and their application in the new price formula to the Parties and their experts, and only decide on these issues after further proceedings if the Parties could not agree.

7.1.2.2.2 Article 4.4 empowers the Tribunal to revise the recalculation of the Contract Price

158.
Gazprom's attempts to limit the Tribunal's jurisdiction by reference to Article 4.4 are contradicted by the Separate Award as well as by common sense.
159.
The Tribunal is empowered to revise all elements of Article 4.1 determining the level of the Contract Price Pn, and the only limiting parameter is that the revised Contract Price Pn shall reflect the level of prices in the market. As the differences between the Parties show, also the choices of price quotation and reference period (which, as a practical matter, may encourage a revision also of the recalculation date) may significantly affect the level of the revised Pn, and hence how well it reflects the level of prices in the market. That the recalculation dates and application period are determinative for the result of the formula, Pn, is made explicit in the third paragraph of Article 4.1: "The Contract Price P n shall be determined as of 1 January, 1 April, 1 July and 1 October of each Delivery Year and shall be valid within the corresponding quarter of the Delivery Year." Thus, the Tribunal is empowered to revise also the recalculation dates and the application period in Article 4.1.
160.
In addition, Gazprom's alleged requirements that the Contract Price shall be recalculated quarterly and applied prospectively is nowhere to be found. As shown above, both recalculation and application are simply parts of the current definition of Pn, which is subject to revision even on Gazprom's unduly narrow interpretation. In practice, the Contract Price has been recalculated retrospectively and monthly since the Contract was concluded.
161.
Gazprom apparently argues that the Tribunal's references to the "price formula" in Decision (2) and the reasoning of the Separate Award must be interpreted narrowly, to encompass only the mathematical expression after Article 4.1, first paragraph; "Pn = P0 x (0.5 x G/G0) + (0.5 x (M/M0)) x k". This argument is contradicted by [REDACTED] the reasoning of the Separate Award, Gazprom's own witness Mr [REDACTED] and common sense.
162.
[REDACTED] does not only refer to the formula as such, [REDACTED]
163.
The reasoning in §§ 3724 to 3727 of the Separate Award, in particular § 3727, makes clear that [REDACTED]
164.
Gazprom's own witness, Mr [REDACTED] confirms that G and M, including their recalculation dates and reference periods are constituent parts of the price formula under Article 4.121.
165.
Common sense says that Gazprom's interpretation must be incorrect. [REDACTED]
166.
In any event, the Tribunal may effectively grant Naftogaz' claim [REDACTED]. As indicated above, the Contract Price is in practice recalculated monthly and retrospectively already today (for monthly reconciliation and invoicing). The practical outcome of a monthly retrospective "summing up" of [REDACTED] for the purpose of issuing a final monthly invoice is the same whether you formally recalculate the Contract Price [REDACTED]

7.1.2.2.3 Naftogaz is not bound by its previous reasoning or Request for Relief

7.1.2.2.3.1 What the Tribunal decided in Decision (2)

167.
Gazprom's argument that Naftogaz is bound by its previous reasoning and Requests for Relief rests on a fundamental misreading of the Separate Award.
168.
Contrary to what Gazprom seeks to argue, the Tribunal's Decision (2) did not grant Naftogaz' request for relief as set out in request 1.4.1) of Annex 1 to Naftogaz' Post Hearing Brief. The only [REDACTED] this extent and with regard to [REDACTED]
169.
Accordingly, Naftogaz' revised requests for relief fully incorporate these findings, partly amending its requests for relief correspondingly.

7.1.2.2.3.2 What the Tribunal did not decide in [REDACTED]

170.
Following the decision on these [REDACTED] It is clear from this formulation that such " [REDACTED] have not been decided in [REDACTED] and are therefore not res judicata. Effectively, this applies to all of the remaining elements that are disputed between the Parties.
171.
The Tribunal is therefore free to decide on such matters, and Naftogaz is free to bring a request for relief which seeks to settle such a matter, without being bound by its previous requests or reasoning.

7.1.2.2.3.3 The Tribunal's findings require consequential adaptations

172.
The Tribunal's findings against Naftogaz on some points, notably in respect of [REDACTED] as well as the Tribunal's reasoning, in particular [REDACTED], require a consequential adaptation of Naftogaz' reasoning and request for relief, consistent with the binding nature of the Decisions and the Tribunal's legal reasoning relevant to the interpretation of the Separate Award. Gazprom goes beyond amendments to its previous requests for relief and presents entirely new requests where previously it has presented none, while illogically arguing that Naftogaz is bound by its original requests for relief and reasoning.
173.
The detailed interpretation of [REDACTED] both in respect of what the Tribunal has decided, what it has not decided, and the required consequential adaptation of Naftogaz' reasoning and requests for relief is set out above. In particular, the Tribunal did not address which [REDACTED] to use and how to (re)calculate them for the purpose of setting the revised price. And the Tribunal's rejection of Naftogaz' choice of [REDACTED] could reasonably require Naftogaz to amend its claims on this point, as explained in further detail below.

7.1.2.2.4 Naftogaz' position following the Tribunal's decision and reasoning

7.1.2.2.4.1 Principally, [REDACTED]

174.
Naftogaz understands that the Tribunal has rejected Naftogaz' reasoning for the application of [REDACTED] which essentially relied on alternative sales of the Contract Gas, a netback logic and hence the recalculation dates of the prevailing Contract Price. The level of market prices shall be determined without any connection to the Contract Price. On the other hand, the Tribunal confirms that once the relevant market prices for comparator purposes are identified, they shall also be applied in the revised price provisions. The point in time when a price revision is requested is decisive for the market prices to be used.
175.
Naftogaz understands that the Tribunal directs the Parties (or itself) to find price quotations which correspond as closely as possible23 to the level of prices in the reference market at the end point of the present price revision, i.e. the single day of 27 April 2014, and which will closely track market developments going forward. The prevailing Contract Price provides no guidance for the selection.
176.
Against this background, Naftogaz concludes that its previous position on the use [REDACTED] in the revised price formula is incorrect based on the Separate Award. Instead, based on the Tribunal's reasoning in the Separate Award, the most correct price quotations to use are [REDACTED] prices should not be averaged over a historical reference period, but rather be applied to the Contract gas as it is delivered.
177.
[REDACTED]
178.
Consequently, the use of [REDACTED] allows the Tribunal to determine a revised Contract Price which is as close as possible to the market price in the reference market, Germany, [REDACTED] from which Naftogaz is entitled to price revision.
179.
Also, the use of [REDACTED] will ensure that the Contract Price will respond to market developments [REDACTED] ". As Dr Hesmondhalgh explains, the latter means that using [REDACTED] in the revised Contract Price also will fairly and exhaustively remunerate Gazprom for the quarterly delivery variations and the [REDACTED] operational tolerance in the Contract. For example, if Naftogaz opts to take more gas [REDACTED] with cold weather, it will have to pay the higher market price following from such cold weather. Even if Naftogaz does not take more gas [REDACTED], Gazprom can still benefit from the higher price by reducing deliveries within the [REDACTED] tolerance and sell the excess to others. [REDACTED] on the other hand, would give Naftogaz the possibility to profit from [REDACTED] spikes due to weather and maintenance without sharing them with Gazprom. [REDACTED] would therefore also in principle be the most beneficial choice for Gazprom, and its newfound preference for [REDACTED] prices seems to be an attempt to gain an arbitrary and unfair advantage from the fact that meaning that [REDACTED] using [REDACTED] prices [REDACTED] esults in a significantly higher Contract Price on the effective date than the [REDACTED] price on and around that specific date.
180.
For the same reasons, essentially to ensure that the Contract Price for every cubic metre of Contract gas taken by Naftogaz corresponds as closely as possible to the market price of gas in Germany on the day Naftogaz took that cubic metre, Naftogaz considers that the [REDACTED] should not be averaged over any historical period. Instead, the [REDACTED] applicable to deliveries on any [REDACTED] should be applied directly to the volume Naftogaz took [REDACTED]. In practice, therefore, the quarterly recalculation in Article 4.1 should be revised to monthly recalculation at the end of each month of delivery, weighting the average [REDACTED] over [REDACTED] with the volume Naftogaz took [REDACTED]. Contract Price recalculation at the end of each month is consistent with the Contract mechanism of calculating the actual costs of delivery at the end of each month for reconciliation with a preliminary invoice25.
181.
The choice of [REDACTED] also simplifies matters in the sense that the averaging period for invoicing purposes in the Contract effectively gives itself - [REDACTED] are always averaged over the relevant delivery period and never over historic periods. This is because averaging [REDACTED] from the past for application to future deliveries would detach the Contract Price from the level of market prices, since [REDACTED] by definition only apply to deliveries [REDACTED] after they have been quoted. For example, if the [REDACTED]
182.
On a more practical note, long averaging periods were historically used in long-term, indifference priced contracts which included a margin for the gas importer. This margin inter alia enabled the importer to absorb short term deviations between the contract prices at which they bought gas and the market prices at which they sold gas. Since the Tribunal has rejected Naftogaz' entitlement to a margin, a reasonable Contract Price should follow the market more immediately, reducing Naftogaz' exposure to short-term deviations between the market and the Contract Price. This supports the use [REDACTED]
183.
Other factual arguments supporting [REDACTED]

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.

184.
In terms of practical implementation, Naftogaz understands the Separate Award to mean that the new formula shall have a similar format to the prevailing formula, i.e. including a P0, [REDACTED] The new formula principally claimed by Naftogaz therefore has the following format:

Pn=P0 x [REDACTED]

185.
[REDACTED]
186.
Alternatively, Naftogaz' principal claim for revised price provisions following the Separate Award may be expressed in a simpler type of formula, which also is more common [REDACTED]
187.
To the extent the Tribunal still considers that other long-term contracts are relevant to determining the level of market prices, Naftogaz has submitted evidence that [REDACTED] are the most common prices in [REDACTED] long-term contracts, also in Naftogaz' other contracts with its suppliers from the EU.27 Gazprom has not disputed this evidence. Dr Hesmondhalgh has submitted evidence to the same effect.28 At the October Hearing, Dr Moselle acknowledged and did not dispute Dr Hesmondhalgh's evidence of Day-Ahead pricing.29 Both experts also explained that requests for the use of longer forward prices under some long-term contracts have been motivated by a wish to replicate the importer's sales portfolio30. But Naftogaz' sales portfolio (in Ukraine) is irrelevant under the Tribunal's test (in Germany).
188.
As regards the choice of hub product, Gazprom does not seem to argue that [REDACTED] prices are required under the Contract. Rather, Gazprom apparently argues that [REDACTED] prices are more "natural" given the [REDACTED] under the unrevised Contract, and that [REDACTED] in the meaning of the quarterly recalculation dates and application periods in the current Price Formula are not subject to revision.31 For the reasons explained above, the latter is incorrect. The former argument has no basis in the Contract or the Separate Award, for the reasons explained below.
189.
Gazprom rejects Naftogaz' explanation that the Tribunal's reasoning in the Separate Award confirms that changing the [REDACTED] quotation and application period is justified. In particular, Gazprom argued that the Tribunal's reasoning in § 3657 that the prevailing Contract Price and Contract product profile are irrelevant could not be relied on in the context of determining the "level of market prices" because it is found in Section X.3.2.9 of the Separate Award, headed "The 'delta-of-deltas' or the 'end-of-period' method".32 Gazprom's argument does not engage with the substance of the matter and is also factually incorrect:
190.
First, and in terms of substance: In their expert reports preceding the Separate Award, Dr Hesmondhalgh and Mr Way partly chose Quarter-Ahead prices to compare the Contract Price and market prices consistently, as required by the "delta-of-deltas" approach.33 Dr Moselle preferred to average month-ahead prices over the quarter for the same purpose, and not only for a sensitivity,34 as he argued at the October Hearing.35 The Tribunal's choice of the "end-of-period" approach, which does not have the same inherent requirement for consistency as the "delta-of-deltas" approach therefore in itself supports leaving [REDACTED]
191.
Second, Gazprom's argument is factually incorrect, as the Tribunal effectively concludes its reasoning on "delta-of-deltas" vs. "end-of-period" in § 3653 of Section X.3.2.9, and then analyses the term "level of market prices" in §§ 3654 et seq. of the same Section. The fact that the Tribunal did not insert a new heading does not change the contents or relevance of its reasoning, and § 3657 does address the term "level of market prices". In other words, the Tribunal explicitly [REDACTED]. Thus, contra Gazprom,36 Naftogaz views the Tribunal's reasoning in context: the material contents of Section X.3.2.9 are more important than its heading.
192.
In addition, Gazprom has completely ignored Dr Hesmondhalgh's arguments on the merits against the use of [REDACTED] Gazprom hides behind the argument that Dr Hesmondhalgh's new position was the result of a change of instruction, i.e. that the unrevised Contract Price and the Contract product profile are no longer relevant, and suggests that Gazprom's current position is exactly the same as Naftogaz' position prior to the Separate Award.37 However, Dr Hesmondhalgh has explained why this is not the case, and why, given the Tribunal's [REDACTED].38 This was illustrated by Dr Hesmondhalgh in her presentation,39 with a figure that clearly shows a mismatch of more than USD 50 between Balance of quarter prices over the period following 27 April 2014 on the one hand and the three-month average of Quarter-Ahead prices from Q1
193.
Dr Hesmondhalgh explained that this is why the Tribunal should not use the three-month average for the remaining period of Q2 2014 as of 27 April even if it were to find that [REDACTED] are required40
194.
As explained above, the logic of market pricing as well as other reasoning in the Separate Award suggests the use of [REDACTED] and averaging periods which would make the revised Contract Price respond in as closely as possible to real time to market developments. Therefore, Naftogaz in the alternative requests the Tribunal to apply the shortest available forward price and the shortest reasonable averaging period in the revised price provisions. Dr Hesmondhalgh presents two specific alternatives, in descending order of priority:
195.
A commonly used forward price (as opposed to the "spot" DA price) shorter than the QA price is the month-ahead (MA) price. This is the price Dr Moselle and the Tribunal used to assess the level of market prices as measured at the hub41. A MA price is the price for deliveries during a month, and MA products are most actively traded in the days shortly before the start of the month in which they are delivered. As Dr Hesmondhalgh demonstrates42, averaging MA prices over the last 5 days before the start of the delivery month (for example over the 5 last days of May for products delivered in June) on average captures around 25% of the total MA volumes traded. Principally, Naftogaz therefore finds that a five-day averaging period is reasonable.
196.
For the last days of April 2014, i.e. "at the time Article 4.4 is invoked" the MA price for April will not reflect the level of market prices. This is because the April MA price last was traded on the final day of March 2014, and does not capture market developments throughout April 2014. Therefore, if the Tribunal should find that MA prices can be used going forward, according to the reasoning in the Separate Award, the revised Contract Price for the last four days of April 2014 (27 to 30 April) should be set by the so-called balance-of-month ("BOM") price for April, which was published on 25 April 2014 and covers deliveries on 27 - 30 April.43 The price difference between the April MA price (336 USD/1000m3) and the April BOM price (297 USD/1000m3) further illustrates how market prices dropped through the first half of 2014 and why relying on prices traded well before the effective date will give Gazprom an arbitrary advantage in the present price revision.
197.
In addition, Dr Hesmondhalgh explains44 that it is also standard industry practice when a contract price based on [REDACTED] is agreed to only rely on quotations going forward from the day the contract is concluded. This enables the Parties to hedge their positions by trading in the [REDACTED] products specified in the contract. Prices from earlier dates cannot be hedged because they are no longer traded when the contract is concluded. Thus, if the Parties had agreed on a revised Contract Price on 27 April 2014, they would only have been willing to include [REDACTED] prices published [REDACTED]45.
198.
If the Tribunal for some reason should find that prices nevertheless may be used, a similar problem regarding a market-reflective price at the time Article 4.4 was invoked in the second quarter of 2014 arises as in respect of MA prices, because the QA products delivered in the second quarter of 2014 last were traded on the final day of March 2014. This problem is particularly acute for the second quarter of 2014. Thus, Dr Hesmondhalgh demonstrates that the quoted QA prices dropped consistently and significantly during the three last months of trading in QA products for delivery in the second quarter of 201446. In other words, there was a significant change in market sentiment during the first quarter of 2014, and the prices for deliveries in the second quarter quoted at the start of the first quarter do not reflect the level of market prices towards the end of the first quarter, and even less so the market prices in the last two thirds of the second quarter. As for MA prices and for the same reasons, QA prices published prior to 27 April cannot be used.
199.
Dr Hesmondhalgh suggests to solve these issues by relying on prices for three different NCG products which together cover deliveries on the last four days of April 2014 and all of May and June 201447 and which still were traded on (or immediately before) 27 April: For the last four days of April, she suggests to use the same BOM price as under the MA alternative described above. For May and June, she proposes to use the MA prices for May and June published on 28 April. The three prices are averaged weighted by the number of days on which the various products were delivered. The resulting Contract Price for the last four days of April, May and June 2014 amounts to 295 USD/1000m3. By contrast, and further illustrating how using prices last traded almost a month earlier will not reflect the market on 27 April and give Gazprom an arbitrary advantage, the average QA price for the second quarter 2014, traded in the first quarter, would be nearly 57 USD/1000m3 higher.
200.
As for MA prices, Naftogaz claims that the shortest reasonable averaging period possible should be used. For QA products, the last 10 days before deliveries begin captures around 14% of the total traded volume, and is sufficient.48 Consequently, if QA prices are to be used, prices from the third quarter of 2014 and going forward should be calculated based on the QA prices published on the last 10 days of the preceding quarter. (For example, the price for the third quarter of 2014 would be calculated based on the QA prices published on the last 10 days of June 2014.)

7.1.2.2.5 [REDACTED]

7.1.2.2.5.1 Introduction

201.
Gazprom alleges that "Naftogaz presents no cogent rationale" for revising Article 4.1 to introduce [REDACTED] or for monthly, retrospective, recalculation of the Contract Price. Presumably, the allegations are made with reference to Dr Hesmondhalgh's 27 June 2017 memo to Dr Moselle50 (Hesmondhalgh Memo), since the Parties have agreed not to refer to other information exchanged during their negotiations on implementation of the Separate Award, and Naftogaz' Implementation Pleading was not available to Gazprom when the allegations were made.
202.
The first allegation is manifestly false, since §§ 11 to 15 of the Hesmondhalgh Memo presented the rationale for using DA prices in the price formula following the Separate Award, essentially the same rationale as presented and further elaborated in Sections II.A-II.C Hesmondhalgh 7 and Section II, 2 Implementation Pleading. The second allegation is inaccurate, because, for the reasons explained in §§ 22 and 24 Hesmondhalgh 7 and §§ 32 and 34 Implementation Pleading, retrospective (or, perhaps more accurately, real-time) application gives itself when DA prices are chosen, and that monthly recalculation then is the practical option. This should at least be obvious to Dr Moselle, but he has apparently not been requested to offer his expert opinion on the issue.
203.
Consistently with its policy of not addressing Naftogaz' arguments regarding the choice of price quotations, reference periods and recalculation dates on the merits prior to the Separate Award, Gazprom refrains from addressing the rationale for [REDACTED] presented in the Hesmondhalgh Memo in the Gazprom Submission. Also, Dr Moselle refrains from addressing the rationale, perhaps due to his narrow instructions51. Instead, the factual arguments in the Gazprom Submission largely rely on (i) agreeing with select and inaccurately portrayed parts of Naftogaz' previous reasoning, even if such reasoning previously was disputed by Gazprom and has been rejected by the Tribunal, (ii) an extensive interpretation of Decision (2) and manifestly incorrect allegations about the practical workings of the revised price formula sought by Naftogaz. Naftogaz rejects these arguments below.
204.
In addition, Gazprom's arguments set the cart in front of the horse, by starting with the recalculation date and the reference period. As explained above and in Naftogaz' previous pleadings, the choice of recalculation date and reference period is essentially a function of the choice of price quotation, and can only be determined once the relevant price quotation has been selected.

7.1.2.2.5.2 The Tribunal rejected Naftogaz' reasons [REDACTED]

205.
Gazprom recapitulaes parts of Naftogaz' reasoning for proposing QA prices as comparators and to be used in the revised price formula, essentially that the use of QA prices would be consistent with the quarterly recalculation and quarterly nature of the prevailing Contract Price. Gazprom then, apparently forgetting its previous wholesale rejection of Naftogaz' proposal for QA prices, purports that "[t]his rationale is impeachable".
206.
Gazprom overlooks that the rationale it reproduces and now finds it convenient to agree with [REDACTED] As explained in Section II, 2.1 of the Implementation Plead-the Tribunal [REDACTED] and the prevailing Contract Price is [REDACTED] in the meaning of Article 4.4, summing up its argument as follows:

[REDACTED]52

207.
For that reason, Naftogaz realised that its previous request for [REDACTED] was incorrect, and amended its requests accordingly to correspond with the Tribunal's reasoning. For the same reason, Gazprom's new claim for [REDACTED] should be rejected by the Tribunal.

7.1.2.2.5.3 [REDACTED]

208.
Gazprom suggests that by revising the Contract Price to rely on [REDACTED] the Tribunal would go against its own finding that a price formula [REDACTED] would result in Naftogaz paying a Contract Price reflecting the level of market prices.
209.
In respect of [REDACTED] this argument rests on Gazprom's reading of [REDACTED] to mean that the Tribunal has granted Naftogaz' previous request for [REDACTED] Naftogaz rejected that reading above. The Tribunal has not yet decided on the [REDACTED] but left that numerical issue to be determined by the Parties and their experts (or in lieu of agreement itself) in the light of the guidance provided by the principled reasoning in the Separate Award.

52 § 3657 Separate Award.

210.
Naftogaz maintains that the principled interpretation of the term "level of market prices" in the reasoning of the Separate Award confirms that [REDACTED] prices shall be used. In particular, the Tribunal's reasoning in § 3632 Separate Award bears repeating:

[REDACTED]

211.
As a matter of fact, [REDACTED] result from the largest available number of transactions in the market. They are also detached from the prevailing, quarterly, Contract Price and hence from any hypothetical sales (or purchases) of the Contract gas.
212.
The fact that [REDACTED] are the most frequently traded prices in the market also mean that their introduction, contrary to Gazprom's allegations otherwise53, are warranted by the changes in economic circumstances justifying (or "triggering") the present price revision. Thus, as Gazprom admits, there have been a change in market conditions, "resulting in hub prices becoming a prominent or important price formation mechanism in Western European markets."54 And among the various hub prices, [REDACTED] are the most frequently traded in the market, and also among the most commonly used [REDACTED]in gas supply contracts55. [REDACTED] in the Contract Price will reflect the most frequently used hub price quotation and hence the core of the hub price formation mechanism. They are also the [REDACTED] prices which most immediately react to supply and demand events56, and hence the prices which are most in line with the change from the old indirect, time-lagged price formation mechanism based on competition between gas and oil products to the new, direct and immediate price formation mechanism based on the changing supply and demand for gas at the hubs.

7.1.2.2.5.4 [REDACTED]give the Parties certainty about the price [REDACTED]

213.
On a more practical note, Gazprom alleges that [REDACTED] would lead to unacceptable uncertainty, in particular because "at [REDACTED] when gas is being delivered, the price at which the gas was being sold would be unknown to the parties because it had yet to be determined. "57
214.
This allegation is factually incorrect. As previously explained, [REDACTED] are prices set and published [REDACTED]58. The revised price provisions requested by Naftogaz apply the DA prices published on one day to the Contract gas delivered the next day. Consequently, on every date when gas is delivered, the Parties will know the price at which the gas is being sold, because it was published the day before59.
215.
If Gazprom's argument is related to the total monthly cost of gas delivered rather than the price as such, then it is irrelevant. The total monthly cost has only been known by the Parties after the end of each Month of Delivery since the Contract was concluded, due to the monthly reconciliation procedure60 and not least the current adjustment for the calorific value of the gas actually delivered, which of course is (and only can be) made retrospectively61.

7.1.2.2.5.5 [REDACTED] necessitate "retrospective" recalculation and encourages [REDACTED] recalculation

216.
Gazprom appears to inaccurately cite Naftogaz' previous explanations that the use of [REDACTED] would "create no need" for adjustment of the [REDACTED] recalculation dates in the prevailing price provisions as parts of Naftogaz' past reasoning for using [REDACTED] prices. This is misunderstood. The quotes simply show that the use of [REDACTED] prices (based on the quarterly nature of the prevailing Contract Price and Naftogaz' subsequently rejected opinion that the structure of the prevailing Contract Price was determinative for the choice of comparator prices) did not necessitate any adjustment of the recalculation dates, and are not part of Naftogaz' reasoning for selecting [REDACTED] prices. In particular, the quotes show that Naftogaz always has been of the opinion that also the recalculation dates could be revised, if required by the choice of price quotation.
217.
Similarly misunderstood is Gazprom's suggestion that Naftogaz previously has argued that "using [REDACTED] prices allows for the derivation of a 'reliable' [REDACTED] price"62.
218.
The statement (partially and misleadingly) quoted by Gazprom63 does not deal with the choice of [REDACTED] prices at all, but with the choice of averaging period if [REDACTED] prices are selected, namely that the averaging period should capture the period in which most of the trades in [REDACTED] products take place. As previously explained, [REDACTED] prices in earlier months are based on very low traded volumes and may not be reliable, and Naftogaz' experts therefore recommended to use an averaging period [REDACTED]
219.
Also as explained previously, the issue of selecting an averaging period simply [REDACTED] Unreliable prices based on low trading volumes long before the start of delivery [REDACTED] On the contrary, [REDACTED]. Using [REDACTED] weighted by [REDACTED] off-take will therefore create the most reliable [REDACTED] price possible, consisting of the sum of the [REDACTED]
220.
Finally, as explained above, the choice of recalculation date if [REDACTED] are selected is more of a practical matter. Thus, maintaining quarterly recalculation is perfectly possible also if [REDACTED] prices are selected. However, formally maintaining quarterly recalculation would be an unnecessary complication when the use of [REDACTED] ces would extend the already existing practice of monthly retrospective price recalculation based on the volumes delivered in the preceding month to also encompass the [REDACTED] quoted in the preceding month.
221.
The monetary impact of the level of P0 was further addressed at the October Hearing. In particular, Dr Moselle was asked whether the variations due to the indexation would subsequently compensate Naftogaz if the P0 were set too high.67 Dr Moselle's argument was essentially that, arithmetically, P0 would not play any role as from the first recalculation date.68 However, Nafytogaz explained that potentially lower prices in the future would not be enough to compensate Naftogaz for the higher price paid in the period of Q2 2014 remaining after 27 April. This is because the volumes purchased by Naftogaz in that period, at the higher price, are proportionally much larger than the volumes Naftogaz is likely to take in the future69, given the substantial reduction of the ACQ following the Separate Award.70 This was in principle accepted by Dr Moselle, who agreed that at least "if no gas was taken after April 2014 then that would certainly be the case".71
222.
In fact, precisely because the P0 would not have any impact in the period subsequent to the first recalculation date, the Tribunal may use a lower P0 in order to correct the mismatch between prices on and after 27 April 2014 and the three-month average of Quarter-Ahead prices from Q1 2014, and align the P0 to the market level on 27 April 2014 e.g. by using the synthetic balance of quarter price derived by Dr Hesmondhalgh according to standard practice72, even if it were to find that longer averaging periods and/or forward prices should be used later.73 Since the P0 only determines a retroactive, monetary, settlement, Gazprom's alleged requirement for "quarterly pricing" and alleged practical difficulties with [REDACTED] pricing would be irrelevant.

7.1.2.3 Source of price and currency quotations

223.
The Parties agree that the source to be used for [REDACTED] shall be [REDACTED] which is a reliable and commonly used source for gas prices.
224.
Also earlier in the Arbitration, Naftogaz proposed to rely on currency exchange rates published by the European Central Bank. Gazprom did not express any opinion on exchange rates in the Arbitration. Due to recent changes in circumstances Naftogaz now proposes to use currency exchange rates published by [REDACTED] for transaction cost and efficiency reasons. As Mr [REDACTED] explains74, the use of [REDACTED] data have now been integrated in many of Naftogaz' business processes. In particular, the EUR/USD exchange rate from [REDACTED] is now used to calculate regulated prices for the Ukrainian residential sector.
225.
With regard to Naftogaz' request for [REDACTED] currency quotations, Gazprom has argued that there is no reason to depart from Naftogaz' previous request for ECB exchange rates, depicting this change as a way to "save some money" and alleging that it is not a coincidence that [REDACTED] quotations reduce the amount owed by Naftogaz.75 This argument is incorrect. Dr Moselle has acknowledged certain mechanical errors in his calculations. Correcting these errors essentially disproves Gazprom's allegation, as switching to [REDACTED] exchange rates would actually work in Gazprom's favour under Gazprom's pricing proposal. In fact, Gazprom itself has previously accepted that "there is no systematic bias" in the [REDACTED] data,76 and Naftogaz has explained that the choice of Bloomberg exchange rates is a matter of efficiency.77
226.
Naftogaz maintains its request for [REDACTED] as the source for currency quotations. Gazprom suggests that the [REDACTED] shall be used. Naftogaz' amended request for relief 1.4 and Gazprom's new request (i) allow the Tribunal to choose between both possibilities, and the Parties effectively agree on the relevant formulation if the [REDACTED] should be selected.

7.1.2.4 Energy and currency conversion

7.1.2.4.1 Introduction

227.
[REDACTED] are quoted in [REDACTED] i.e. per unit of energy (gross calorific value, or GCV), while the prevailing Contract Price is quoted in USD/1000m3, i.e. per volume unit with an assumed basic net calorific value (NCV)78. Changing the unit and currency of the Contract Price to EUR/MWh (GCV) would arguably bring the revised Contract Price into even closer proximity with market prices in the reference market (Germany). However, the entire Contract relies on volume units and payments in USD79, and changing to energy units in the price provisions may require very extensive consequential amendments and/or have unintended consequences. Therefore, the most prudent solution is to maintain USD/1000m3 as the Contract Price unit, and convert the [REDACTED] prices from EUR/MWh to USD/1000m3.

7.1.2.4.2 Energy conversion

228.
Gazprom and Dr Moselle essentially argued that Gazprom sells energy to Naftogaz,80 and therefore there is no justification for a claim to fix the calorific value of the gas for which Naftogaz shall pay. That is incorrect. All delivery and off-take provisions of the Contract refer to cubic metres81. The ACQ, the quarterly breakdown and the MAQ are all in cubic metres. Naftogaz has also submitted witness evidence that Naftogaz expected that the gas delivered under the Contract would be equal to approximately 8050 kcal/m3 because Naftogaz would not be able to extract any additional value from gas delivered with a higher calorific value.82 Gazprom has not submitted evidence to the contrary, nor has it disputed this evidence in the cross examination of Mr [REDACTED] The only objection in Gazprom's closing was that the additional evidence to which Dr Moselle was taken allegedly is "ambiguous".83 Gazprom also incorrectly characterises the 2015 Annual Report put to Dr Moselle as the "only" evidence in this respect, disregarding Mr [REDACTED] witness statement.84
229.
In the Separate Award, [REDACTED]. In other words, the Tribunal found that the price [REDACTED] Naftogax has explained that not using a normative conversion factor as proposed by Naftogaz is likely to allow Gazprom to artificially inflate the revised Contract Price, making it de facto higher than the market price [REDACTED] This is also likely in the light of Gazprom's past conduct, i.e. supplying gas in the upper end of or above the permitted range85. Thus, to comply with its finding that it is the [REDACTED]86 the Tribunal should grant Naftogaz' request to introduce a fixed energy conversion factor in Article 4.1 and consequentially delete Article 4.2 to prevent Gazprom from artificially setting the price above the German prices.
230.
It follows from the reasoning above that Naftogaz' requests for relief in respect of Article 4.2 are derived from the Separate Award.
231.
To convert between energy and volume units, it is necessary to determine a relationship between the calorific value for the gas traded at the [REDACTED] and the Contract gas. As will be explained below, Naftogaz suggests replacing the impractical current adjustment to variations in the calorific value of the Contract Gas in Article 4.2 with a normative (fixed) conversion factor from MWh to 1000m3. Naftogaz' proposal is consistent with the common practice of converting from GCV to NCV with a normative conversion factor.87
232.
Pursuant to the prevailing Article 4.1, the basic NCV of the gas delivered under the Contract is 8,050 kcal/m3. When the Contract was concluded, Naftogaz expected to receive gas with on average this calorific value88, as also reflected in Article 2.5 on quality, stipulating an allowable range of NCV between 7800 and 8250 kcal/m3. Consequently, the revised Price provisions claimed by Naftogaz in the Arbitration relied on a conversion factor of "10.4024 (being the conversion rate for a net calorific value of 8,050 kcal/m3)"89 to convert NCG prices from MWh (GCV) to 1000m3.
233.
Article 4.2 provides for a further, current, adjustment of the Factual Price for a calorific value different from the calorific value as provided in Article 4.190. In the light of subsequent developments and the negotiations following the Separate Award, Naftogaz proposes to use a fixed conversion factor to convert from MWh to 1000m3 when setting the new P0 instead of in the definitions of H and H0. As Dr Hesmondhalgh explains91, this will render Article 4.2 irrelevant.
234.
As Dr Hesmondhalgh explains92, Gazprom has consistently delivered gas with a calorific value in the upper end of or above the permitted range. In 2015, Gazprom supplied gas with a net calorific value above the contractual ceiling of 8,250 kcal/m3 to Ukraine93. This higher calorific value is of no benefit to Naftogaz, and consistently increases the purchase costs of gas above what Naftogaz reasonably expected when the Contract was concluded94. As Mr [REDACTED]explains95, Gazprom appears to have increased the calorific value of the gas delivered in order to increase the monetary benefits received from Naftogaz, in particular after April 2014. Not using a normative conversion factor is therefore likely to allow Gazprom to artificially inflate the revised Contract Price, making it de-facto higher than the market price in Germany.
235.
The Parties now agree that the relevant conversion factor for a net calorific value of 8,050 kcal/m3 is 10424 kWh/m3.96
236.
Naftogaz maintains that the [REDACTED] to be used in the revised price provisions shall be converted from MWh GCV to 1000m3 NCV with the fixed, normative, conversion factor of 10424, and not be subsequently adjusted for the calorific value of the Contract Gas actually delivered for the reasons explained.97
237.
Gazprom's counterarguments have no merit:
238.
The argument that Naftogaz has not requested an amendment of Article 4.2 previously, and cannot do so now, has been rejected from a procedural perspective. Naftogaz raised the issue of Gazprom consistently delivering Contract gas in the upper end of or even exceeding the permissible calorific value range and hence imposing additional and unjustified increases in the price payable by Naftogaz prior to the Separate Award, in front of the Tribunal as well as directly to Gazprom. However, Naftogaz was prevented by its own strict literal reading of the reference to the Contract Price in Article 4.1 in Article 4.4 of the Contract from claiming any amendment of Article 4.2 to deal with the issue. Then, the Tribunal agreed [REDACTED] It cannot then be a surprise or inconvenience for Gazprom that Naftogaz now relies on the Tribunal's findings of a wider jurisdiction for itself, as argued by Gazprom prior to the Separate Award, to seek redress on this point.
239.
Gazprom's argument that Naftogaz should pay the same price per unit of energy as buyers at the NCG is equally unconvincing. First, it relies on a misinterpretation of the formulation [REDACTED] Second, the point is not that Naftogaz shall pay a price per unit of energy which essentially corresponds to the price per unit of energy at the NCG. Naftogaz shall pay a price per 1000m3 which essentially corresponds to the price at NCG. As previously explained, the entire Contract is built around volume rather than energy units. A higher calorific value is of no value to Naftogaz99.
240.
Gazprom's somewhat opportunistic argument that the reference to Article 4.1 in Article 4.4 prevents a revision of Article 4.2 is contradicted by the Tribunal's reasoning as referred to above. The [REDACTED] Gazprom's previous arguments that this reference must be read pragmatically, to refer to the price payable.
241.
Gazprom's argument that Naftogaz' claim "effectively ignores the reference in the opening sentence of Article 4.1 to the calorific value of the delivered gas" is mind-boggling. Naftogaz' claim is intended to enforce the Parties' agreement that the subject of sale and purchase is gas with a net calorific value of 8,050 kcal/m3. The present arrangement encourages Gazprom to persistently breach this agreement for its own financial gain and the detriment of Naftogaz, by consistently delivering gas with significantly higher calorific value, even if it is within Gazprom's technical capabilities to stick to the agreed value100.

7.1.2.4.3 Currency conversion

242.
Naftogaz requests to convert the [REDACTED] prices from [REDACTED] to [REDACTED] daily. Gazprom never objected to or commented on this currency conversion earlier in the Arbitration. [REDACTED] currency conversion is consistent with the use of delivery weighted average [REDACTED] prices and will allow the Contract Price to follow the market price [REDACTED] in "real time" unaffected by currency fluctuations, consistently with the reasoning in the Separate Award.
243.
The Parties agree that the [REDACTED] price quotations shall be converted from [REDACTED] to [REDACTED] on a daily basis. Naftogaz' claim for [REDACTED] exchange rate is based on certain recent changes in circumstances, described by Mr [REDACTED],101 including the fact that the [REDACTED] exchange rate from [REDACTED] is now used to calculate regulated prices for the Ukrainian residential sector. Gazprom did not cross-examine Mr [REDACTED] on the issue. Thus, the use of [REDACTED] reflects market practice, which is one of the elements emphasised by the Tribunal as particularly important.102

7.1.2.5 [REDACTED]

244.
For the revised Contract Price to be market reflective, [REDACTED] to Ukraine should be deducted from the [REDACTED] Price. This is not "netback by the backdoor" as alleged by Gazprom, and it is inter alia supported by Dr Moselle's confirmation that costs of bringing gas under a specific contract into the buyer's market have to be deducted for the buyer to essentially pay the hub price.103 Dr Moselle confirmed that if his example of gas purchased on the beach is transferred to a landlocked country, the national border would be equal to the beach in terms of logistics104. He also confirmed that deducting the entry costs from the hub price to get to the beach (or border) price is the way the market works105, effectively confirming that [REDACTED] prices net of entry costs are reflective of actual transactions in the market.
245.
Pursuant to [REDACTED] of the Separate Award Decision, the revised Contract Price shall be [REDACTED] In its reasoning, the Tribunal considers that the revised Contract Price,[REDACTED] but that this does not mean that there shall be [REDACTED] between the market price and the revised Contract Price. Rather, there [REDACTED] and [REDACTED] " The reference market is [REDACTED], and the reference price is the price at the [REDACTED] Naftogaz understands the Tribunal to intend that Naftogaz shall pay a price which essentially corresponds to the price at [REDACTED] as if the [REDACTED] was located in Ukraine.
246.
The Parties apparently agree that if there are costs associated with bringing gas under a specific contract into the buyer's country, these costs have to be deducted for the buyer to essentially pay the hub price in that country. As repeatedly explained by Dr Moselle:

"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

247.
To use the Tribunal's analogy of the prices of Volvo cars in Sweden and Switzerland: If a buyer was entitled to pay essentially the same price for a Volvo car in Sweden as in Switzerland, and there was a delivery surcharge on Volvo cars in Sweden, the seller would have to deduct the delivery surcharge in order for the net price the buyer pays in Sweden to essentially correspond to the Swiss price.
248.
From 1 January 2016, Naftogaz (and the other 35+ gas importers in Ukraine) has to pay entry charges to import gas to Ukraine108. The Contract Delivery Points are in Russian and Belarusian territory, and Naftogaz will have to pay entry charges to import the Contract gas to Ukraine. Naftogaz' obligation to pay entry charges is completely independent of the disputed issues in the Transit Arbitration, which essentially turns on whether Gazprom shall pay the same entry charges (and exit charges) as everybody else in order to transit gas through Ukraine.
249.
The entry charges are also absolutely real109, in contrast to [REDACTED] " As Dr Hesmondhalgh explains110 (and the Tribunal will recall from the Transit Arbitration), the entry charges have been set by the independent Ukrainian Regulator under the scrutiny of inter alia the European Commission, the Energy Community Secretariat and international donors111, and will be paid to a TSO which will be fully unbundled from Naftogaz shortly after the final award in the Transit Arbitration has been rendered112.
250.
Consequently, for the revised Contract Price to [REDACTED] the entry charges will have to be deducted from the [REDACTED] price included in the new Price Formula. The net price payable by Naftogaz in Ukraine will then essentially correspond to the [REDACTED] price. This only affects the revised Price Formula, which should include a deduction for the entry charges. Because Naftogaz only has to pay entry charges from 1 January 2016, and has not taken any Contract gas in 2016 or 2017, Naftogaz' repayment claims are not af-fected.113
251.
Gazprom's argument that the issue already has been decided is incorrect. Naftogaz has shown what the Tribunal has and has not finally and bindingly decided in Decision [REDACTED] and the exact relationship between the relevant [REDACTED] prices and the Contract Price is not among the issues decided. Indeed, Gazprom itself points out that Naftogaz has not previously requested deduction of the entry charges, and so the Tribunal cannot have ruled on it.
252.
Further, Gazprom seems to interpret the Tribunal's reasoning that the revised Contract Price should [REDACTED] " to mean that the revised Contract Price shall equal the relevant [REDACTED] and that there is no basis for imposing a price at the Contract Delivery Points which is less than this price114. This interpretation is incorrect. The Tribunal has explicitly reasoned that the term " [REDACTED] " does not mean "[REDACTED]". In particular, the final two sentences of § 3636 Separate Award are clear:
253.
It then follows from the Tribunal's reasoning that the Contract Price shall essentially correspond to the price at NCG and Dr Moselle's factual explanation of what a price corresponding to the [REDACTED] price but delivered at the beach or border means, that the entry charges must be deducted from the [REDACTED] price to calculate the Contract Price.
254.
Contrary to Gazprom's suggestions, the Tribunal has also not resolved the issue of entry charges by [REDACTED] What Gazprom overlooks is that Naftogaz argued for the deduction of such calculated transport costs based on the reasoning that the reference to market prices in the price revision clause was a reference to the market price for the Contract gas and hence to Gazprom's alternative sales possibility for that gas in Germany, in line with the original setting of the Contract Price. The Tribunal [REDACTED] does not apply at all to the deduction of the regulated entry charges to Ukraine introduced in 2016, which are absolutely real and will apply to gas deliveries under the Contract once resumed.
255.
Gazprom also appears to suggest that Naftogaz' procedural reasoning why it relied on calculated transit costs instead of regulated tariffs, i.e. that the regulated tariff was introduced after the effective date of price revision, precludes Naftogaz from requesting this deduction. That reasoning has, however, been superseded by the Tribunal's decision to grant Naftogaz' request for price revision only with effect from April 2014, and its reasoning on foreseeable changes in circumstances. Thus, in April 2014, Ukraine was a member of the Energy Community, obliged to introduce the Third Energy Package by 1 January 2015, and the introduction of non-discriminatory entry charges within the remaining life of the Contract was therefore foreseeable. This is also a kind of foreseeable change which it is possible to formulate into a price formula or other price mechanism even if the exact point in time when it will occur is not known, exactly by introducing a deduction for such entry charges in the formula which, of course, only will take effect in practice once the charges apply (cf. the formulation "the applicable entry charge" in Naftogaz' requested definition of the deduction). Naftogaz understands the Tribunal's reasoning in § 3601 and 3602 Separate Award that in such circumstances, the Parties should introduce a mechanism to cater for such a foreseeable change.
256.
Finally, Gazprom argues (apparently quoting some unspecified source) that the deduction of entry costs would create an incentive problem, because the Ukrainian regulator could influence the price of gas paid by Naftogaz, a state-owned entity, effectively taking money from Gazprom and give it to Naftogaz. That this concern is real is allegedly evidenced by the much higher entry charges to Ukraine than to Germany.
257.
Also, this argument is incorrect. First, as explained previously, the entry charges have been set by an independent regulator under intense international scrutiny, and applies to all gas imports, not only Naftogaz' purchases from Gazprom. Second, shortly after the rendering of the final award in the Transit Arbitration, the TSO receiving the entry charges will also be fully unbundled from Naftogaz. Finally, Naftogaz has lost its role as the Ukrainian State's monopolist importer and together with the greatly reduced sales and purchase obligations under the revised Contract this removes any incentives the Ukrainian State may have had to directly or indirectly subsidise Naftogaz through political and regulatory means115. Gazprom (and the anonymous source quoted) appear not to have grasped this new reality of the Ukrainian gas market.
258.
In fact, Gazprom is in a unique position to reduce the entry charges and hence increase its own return on market-priced sales to Ukraine. This is because the high entry charges in Ukraine compared to other markets largely are caused by Gazprom's own stated intent to end gas transit through Ukraine after 2019 and its monopoly on pipeline gas exports from and through Russia116. If Gazprom were to enter into long-term capacity reservations in the GTS beyond 2019 or permit other Russian producers or Central Asian producers to export gas to Europe through the GTS, the Regulator would have to reduce the tariff as there would be no basis for accelerated depreciation and/or the costs of the GTS could be divided over larger volumes.
259.
In its opening, Gazprom made the odd argument that the entry costs issue could be looked at from Gazprom's perspective, suggesting that Gazprom's tariffs or taxes should be added to the Contract Price.117 There is one obvious problem with that argument. And that is Article 4.5 of the Contract, which provides that "The Gas price, at which its actual delivery shall be effected, shall include all taxes and charges (including VAT) due and payable in the Russian Federation." So Gazprom's argument is directly contradicted by Article 4.5.

7.1.2.6 Technical and consequential adjustments

260.
The wording of Article 4.4 of the Contract only refers to Article 4.1. However, the Tribunal reasons that [REDACTED]. The underlying intent of Article 4.4 is to function as a corrective for the price payable, and the words "the Contract Price provided in Article 4.1" in Article 4.4 should not exclude an application that comes closest to this intent. Naftogaz understands this to mean that Article 4.4 and item (1) in the Separate Award Decision allow for technical and consequential adjustments of other price provisions than Article 4.1 that affect the price payable. Naftogaz requests two consequential adjustments of other price provisions than Article 4.1:
261.
First, and as indicated in Section 4.2 above, Article 4.2 (Factual Price) will lose its relevance if Naftogaz' principal position on energy conversion in Article 4.1 prevails. Article 4.2 may consequently be deleted.
262.
Second, Article 4.3 (payments for gas taken in excess of the six (6) per cent operational tolerance in Article 3.2), essentially reproduces and refers to the parameters in the prevailing Articles 4.1 and 4.2. As a technical and consequential adjustment that affects the price payable, Naftogaz requests an adjustment of Article 4.3 to reproduce and refer to the parameters of the revised Article 4.1 and omit the references to Article 4.2118.

7.1.3 Revision of Articles 2.2 and 2.2.5

7.1.3.1 Introduction

263.
In items (4) and (5) of the Decision in the Separate Award, the Tribunal has determined with final effect:
264.
[REDACTED]
265.
"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 [REDACTED] of ACQ and where Article 2.2.5. shall include a [REDACTED] the details of the Volume and the 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;"
266.
The Tribunal reasons that Section 36 of the Swedish Contracts Act is applicable in the present case, and also that Article 9.5 cannot be applied in the Separate Award. Thus, the volume provision (Article 2.2) and the Take or Pay provision (Article 2.2.5) shall be revised pursuant to Section 36, without regard to the limitations in Article 9.5.
267.
The Tribunal has therefore taken the approach that the volume provisions [REDACTED] Essentially, the Tribunal's reasoning in the Separate Award implies that a much better protection should be granted to Naftogaz as the Buyer both in relation to the ACQ and to the Take or Pay provisions. In particular, in its reasons for applying Section 36, the Tribunal has placed significant importance on the effects of the invalid Take or Pay provisions, giving Gazprom an advantage in a competitive setting.
268.
Against this background, Naftogaz has adapted the wording of the revised provisions it requests, compared to its Relief Sought submitted with the Post Hearing Brief.119
269.
Gazprom's main approach following the Separate Award is essentially procedural in nature, seeking to curtail or challenge the powers of the Tribunal, without any basis in the Separate Award, the Contract or relevant principles of Swedish procedural law. This approach is perhaps most pronounced in respect of the Tribunal's Decision (5) on the volume and take or pay provisions, where Gazprom's first line of defence is that Decision (5) is ultra petita and cannot stand.
270.
Gazprom concludes this discussion by reserving all its rights, including the right to challenge Decision (5) or any decision in reliance upon Decision (5).
271.
Gazprom, "in the meantime" and subject to its reservations, sets out a proposal for an adjusted take or pay obligation based on the wording of the Tribunal's Decision (5).
272.
This discussion focuses solely on the determination of the ACQ and the consequential determination of the MAQ and reveals a significant difference in the Parties' assessment of Naftogaz' needs for imported gas.
273.
In the following, Naftogaz sets out its position on the contents of the revised provisions based on the findings of the Tribunal, and Naftogaz' assessment of [REDACTED] and in the light of the subsequent discussions between the Parties.

7.1.3.2 Gazprom's procedural objections are untenable

274.
Naftogaz considers Gazprom's procedural objections against Decision (5) untenable for a number of reasons. In summary:

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.

7.1.3.3 Revision of Article 2.2

7.1.3.3.1 The Annual Contract Quantity based [REDACTED]

7.1.3.3.1.1 [REDACTED]

275.
In accordance with the Tribunal's Decision, Naftogaz has estimated [REDACTED] Effectively, as the is not expected before 30 November 2017, this only applies to the full Delivery Years 2018 and 2019.
276.
As [REDACTED] explains in his witness statement,120 in assessing its [REDACTED] for 2018 and 2019, Naftogaz first considered how much of the total gas consumption in Ukraine can be covered by domestic production. Since Naftogaz currently has a 74% market share in the Ukrainian gas market, Naftogaz' [REDACTED] will then be the equivalent of 74% of the outstanding volume that is consumed in Ukraine but cannot be covered by domestic production.121
277.
Naftogaz sets out its estimates of the volumes [REDACTED] in a table directly below:122

Delivery year Volumes needed (bcm)
2018 7.35
2019 5.57

282.
The Annual Contract Quantity (the "ACQ") shall be [REDACTED]123 That results in the following ACQs.

[REDACTED]

287.
In this regard, Naftogaz notes that these figures differ from the volumes that it previously requested to be included in a revised Article 2.2.124 However, the previously requested volumes were based on estimates of Naftogaz' historical actual import needs for 2012 and 2013, not for [REDACTED] 2018 and 2019, as decided in the Separate Award. As previously indicated, the need for gas imports has declined, and[REDACTED] are significantly less than the historical needs.
288.
Lower volumes are also reasonable. The previously requested volumes assumed that Naftogaz would be granted a revised Contract Price taking into account inter alia that:

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.

289.
Since the principles for the determination of the revised Contract Price set out in the Decision, [REDACTED] Naftogaz may quickly end up with marketing the gas purchased under the contract at a loss. Thus, Naftogaz' new volume request is, in short, [REDACTED]" in accordance with the guidelines set out in the premises of the Separate Award, and in the light of the subsequent discussions between the Parties.
290.
The Parties in principle agree that the ACQ should be fixed in advance for each remaining year and not be set at Naftogaz' discretion. However, it seems as if Gazprom is of the view that the ACQ should be the same in both of the remaining years, notwithstanding the Tribunal's Decision that[REDACTED].125 Naftogaz disagrees with Gazprom's apparent approach, which is not consistent with the clear wording of the Tribunal's Decision.
291.
Before addressing the numerical issue of estimating [REDACTED] Naftogaz has to correct Gazprom's misrepresentation of Naftogaz' position on how to set replacement/revised volume provisions prior to the Separate Award. This misrepresentation appears to be part of Gazprom's ultra petita argument, which we have rejected on a principled basis above.
292.
Gazprom alleges that "Naftogaz made no suggestion that in the future Gazprom's supply obligation or Naftogaz's take-or-pay obligation should be set by reference to [REDACTED], nor by reference to [REDACTED] as the Tribunal has decided". This allegation is incorrect. Naftogaz has consistently and from the very beginning argued that Naftogaz' [REDACTED] equal Naftogaz' [REDACTED] and that the replacement/revised take-or-pay obligation should be set [REDACTED] at Naftogaz argues that the Contract, having a term of more than four years, should not be allowed to cover more than 50% of the customer's demand. The same paragraph explains that the ACQ Naftogaz then claimed (14,5 bcm) was derived by selecting the lower figure (29 bcm) of the range for "actual foreign gas demand" of Naftogaz in 2012-2013 as indicated in the Energy Community Secretariat's Preliminary Assessment and dividing it by two. Naftogaz clarifies that "actual foreign gas demand" means "gas imports". The annual take-or-pay obligation then requested by Naftogaz amounted to 80% of the ACQ ("MAQ = 0.8*ACQ - D"126), as it still does.

7.1.3.3.1.2 Gazprom overestimates Naftogaz' [REDACTED]

293.
Gazprom requests that the ACQ volume for both 2018 and 2019 should be adjusted to principally 5.5 bcm, alternatively 4,995 bcm and, further in the alternative, 4.44 bcm.127 Gazprom's proposed ACQ is significantly higher than the ACQ (i.e. 3.68 bcm for 2018 and 2.78 bcm for 2019) put forward by Naftogaz.128
294.
Gazprom's request is based on anticipated Ukrainian imports of 12 to 15 bcm per annum and an assumption that Naftogaz' share of total imports is 74% by reference to Naftogaz' share of imports in 2016. The Parties agree to apply the 2016 74% import share129, but Gazprom's assumptions regarding anticipated Ukrainian gas imports are incorrect and result in Gazprom overestimating Naftogaz' needs.
295.
When estimating gas imports to Ukraine for 2018 and 2019, Gazprom argues that gas demand in Ukraine will increase to between 32 and 35 bcm per annum and that domestic production in Ukraine will stagnate at around 20 bcm per annum. However, as also previously explained in Hesmondhalgh 7130 and [REDACTED]131, it is the opposite trend that is true, i.e. gas demand is likely to decrease and domestic gas production is likely to increase. The evidence shows that thus far in 2017 gas demand has stagnated and domestic gas production has increased - and this pattern seems likely to persist in the future.132
296.
Gazprom argues that "[d]ata on consumption and imports in Ukraine for the first half of 2017 (published by Energobiznes) indicates that consumption and imports are rising".133 However, the data cannot be relied on to draw the conclusions that Gazprom does.

- 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.

297.
Given the stagnant level of gas demand, Dr Hesmondhalgh considers it likely that the increased imports in the first half of 2017 are likely to be outweighed by reduced imports in the second half of 2017, and thus not to be a reliable indicator of increased imports in 2018 or later.135 She expects that Naftogaz' overall imports for 2017 will be broadly comparable to those in 2016136, as Naftogaz plans to import only 2.1 bcm between September and December, i.e. 55% less than it imported in the same period in 2016.137
298.
Contrary to what Gazprom alleges, the expected economic growth in Ukraine does not translate into increased gas demand and thus gas imports. Industrial gas demand in Ukraine fell between 2015 and 2016 despite the fact that there was some recovery in industrial output.138 At the same time, the World Bank's April 2017 projection, to which Gazprom refers, shows that the expected modest growth in the overall Ukrainian economy comes from the agriculture, manufacturing, construction, domestic trade and transport sectors, the majority of which does not consume a lot of gas.139 In contrast, Ukraine's energy-intensive industries (such as mining) are shrinking.140 Household gas demand is also likely to decrease, partly because gas prices for households generally no longer are subsidized and partly due to extensive investments in energy efficiency measures.141
299.
According to Gazprom, the report "Adversity and reform: Ukrainian gas market prospects" by Simon Pirani (the "Pirani Report") supports an "upward trend" in consumption and imports.142 However, the Pirani Report does not support Gazprom's view: While the Pirani Report says that Ukrainian gas production has stabilised at around 20 bcm per year in recent years, it also states that the Ukrainian government aims to increase the production in the coming years.143 As explained by Dr Hesmondhalgh and Mr [REDACTED] domestic production has already increased144 and is expected to increase further due to investments being undertaken and the development of additional gas production by private gas producers145.
300.
In its closing, Gazprom argues that the Parties have adopted a "common methodology" in calculating Naftogaz' needs, and concluded that the Tribunal should be concentrating on "the rival figures by each side for projected consumption and projected production".146 Naftogaz agrees with this conclusion, subject to the reservations set out below.
301.
However, Gazprom's figures do not stand scrutiny, because they are exclusively based on a broad brush estimate by Mr Pirani, whilst Gazprom has opted not to ask for an analysis of the data by its own expert.147 And from the range broadly estimated by Mr Pirani, Gazprom picks the highest number for its principal request for relief.
302.
In general, as explained elsewhere, Mr Pirani's report does not fully take into account developments in the Ukrainian market since 2015.148
303.
Further, whilst Gazprom refers to the Pirani Report to corroborate a purported "trend", Mr Pirani himself admits that the changes described in his paper "may not reflect underlying trends".149
304.
The data provided by Mr Pirani are not weather-corrected, and Naftogaz recalls that Dr Hesmondhalgh explained that "[d]ata that are not temperature-corrected do not, however, provide a reliable basis for projecting gas demand".150 Dr Moselle confirmed that weather is "the biggest determinant of gas demand"151.
305.
In any event, contrary to Gazprom's assertions, Mr Pirani himself concludes that "Ukraine's gas demand met from its own resources will continue to increase"152. One significant indicator of this trend is the fact that domestic production has not decreased "despite the loss of Cher-nomorneftegaz volumes"153 due to the Russian Federation's occupation of Crimea, as confirmed also in the October Hearing.154
306.
Thus, Gazprom essentially argues that the Tribunal should prefer its figures on the unfounded assumption that corruption155 and government interference in Ukraine will result in a slow pace of government reforms and therefore a slow increase in gas production. As explained in Section 1.2.4 above, however, the cross-examination of Mr [REDACTED] clarified that Gazprom's assumption is factually incorrect. Mr [REDACTED] confirmed the information in the sources he refers to in support of his statements (including actions required to stimulate domestic production), and explained that many legislative actions have already been put in place.156 He also explained that the whole industry had outperformed the plan for domestic gas production in the first nine months of 2017, thereby exceeding Naftogaz' expectations.157
307.
In contrast to Gazprom's approach, Naftogaz has relied on an analysis of two scenarios developed with input from reputable independent consultants. As explained by Mr [REDACTED] Naftogaz took a prudent approach, by basing its estimates on the average of these scenarios. One scenario assumes that reforms in Ukraine proceed as planned the other that, in the words of Mr [REDACTED], "the Government will keep dragging its feet"158. Thus, Naftogaz' estimate is conservative and includes the probability of delayed reforms.
308.
For the reasons above, and as explained, Naftogaz' estimate of its own import needs should be preferred. Naftogaz' estimate is supported by objective sources which take into account the latest developments in the Ukrainian gas market, and is, in this sense, more "robust" than Gazprom's broad brush estimate lifted from one single, not fully up-to-date source and maximised based on Gazprom's own outdated view of the Ukrainian State and energy industry.
309.
To sum up, in light of the available evidence the ACQs proposed by Naftogaz for 2018 and 2019 are more reasonable than the range of ACQs proposed by Gazprom and should be preferred by the Tribunal. Gazprom's proposed range for the ACQ is too high, would likely amount to significantly more than [REDACTED] (in particular in 2019) and thus not comply with the Tribunal's Separate Award.159

7.1.3.3.1.3 Naftogaz should only be obliged to pay for gas made available at the points of delivery adjacent to areas subject to Ukrainian government control

310.
The Parties essentially agree on the wording and structure of the revised Article 2.2.160 The important difference between the Parties' proposed wording for Article 2.2 is that Naftogaz specifies that it is only obliged to take gas at the Points of Delivery adjacent to areas subject to Ukrainian government control.
311.
In a letter to the Tribunal of 17 January 2017, Gazprom submitted its 2016 Take or Pay Claim in the amount of circa USD 5.3 billion. In that letter, Gazprom also alleged that Naftogaz had offtaken circa 1.4 bcm of gas in 2016. In its response to the 2016 Take or Pay Claim,161 Naftogaz explained that it had not offtaken any volume in 2016, and that the offtaken volumes referred to by Gazprom were therefore most likely volumes that have been delivered to the temporarily occupied areas of Ukraine at the request of unauthorised third parties.
312.
In its subsequent submission on take or pay of 29 March 2017,162 Gazprom stated that "no claim for payment for supplies under Contract KP of the approximately 1.4 BCM referred to above has been made by Gazprom in these arbitration proceedings nor has Gazprom otherwise received payment for such supplies. (The subject of what party is responsible for offtaking the 1.4 BCM is the subject of dispute between the parties, but this question does not form the basis of a claim in these arbitration proceedings)".
313.
Gazprom has since continued to invoice Naftogaz for volumes delivered to unauthorised third parties in the temporarily occupied territories in Eastern Ukraine. As of August 2017, Gazprom has invoiced Naftogaz for 5.58 bcm of gas allegedly offtaken.163 Gazprom has however not made any claims in respect of this gas in the Arbitration.
314.
It should be clear that Naftogaz is neither obliged to take nor to pay for gas made available to unauthorised third parties at Points of Delivery in the temporarily occupied territories in Eastern Ukraine, which are not under Naftogaz' control.
315.
For this reason, Naftogaz requests that a provision to this effect be included in the revised Article 2.2, as set out below.
316.
Gazprom confirms that "Naftogaz ceased purchasing gas from Gazprom" after December 2015. Dr Moselle also confirms that there were no volumes delivered to Naftogaz in the months of July, August and September 2015.164
317.
The fact that Gazprom now accepts (Sw. vitsordar) that no volumes were delivered to Naftogaz in the above periods serves to further justify Naftogaz' request for a provision specifying that Naftogaz is neither obliged to take nor to pay for gas made available at Points of Delivery adjacent to areas subject to Ukrainian government control. The Tribunal should also for similar reasons grant Naftogaz' request for declaratory relief, that, as of the date of the Final Award, there are no further payment claims against Naftogaz.165
318.
Below, Naftogaz makes some remarks on Gazprom's response to Naftogaz' and the Tribunal's requests for clarification:
319.
Gazprom still does not clarify its position.166
320.
Gazprom argues that Naftogaz' Request 4) is an attempt by Naftogaz to introduce a new issue into the Arbitration "at the very last moment".
321.
However, Gazprom's description of the aim of Naftogaz' Request 4) is misleading. Gazprom argues that Naftogaz seeks a declaration concerning the "issues of what volumes of gas were delivered to the Donetsk and Luhansk regions after February 2015".167 This is not correct. Naftogaz does not seek a declaration on volumes supplied to unauthorised third parties; Request 4) is for a confirmation of volumes supplied to Naftogaz.
322.
Request 4) covers all the volumes of gas supplied to Naftogaz under the Contract, from the date of the Contract to the date of the Final Award, which Naftogaz has offtaken but not fully paid for (i.e. those in the period November-December 2013 and April-June 2014). E contrario, Request 4) means that there are no other volumes which Naftogaz has offtaken but not fully paid for from the date of the Contract to the date of the Final Award.
323.
This Request would not require any factual assessments for the period up to the date of the Separate Award as long as Gazprom does not change its previously held agreement on volumes for that period (as reflected in the Separate Award) and would not necessitate any factual assessment for the period between the Separate Award and the Final Award unless Gazprom would change its view - as communicated in this Arbitration after the Separate Award - that Naftogaz ceased purchasing gas after December 2015.168 It should be stressed that it is irrelevant whether or not Gazprom outside this Arbitration may have taken different positions as it is the procedural positioning in this Arbitration that is relevant to the Arbitration. This is a sufficient basis for the Tribunal to grant Naftogaz' Request 4). In addition, we note the following:
324.
Gazprom refers to the Tribunal's Decisions (8) and (11), arguing that they do not address volumes, and that they do not address the volumes of gas delivered after February 2015. However:

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

325.
Also, Gazprom still accepts that the volumes delivered to third parties in the Donetsk and Luhansk regions are not volumes "purchased by Naftogaz under Supplementary Agreements 33, 34 and 35 under the prepayment scheme",170 but incongruously argues that Naftogaz may somehow still be responsible for payment of these volumes.
326.
The first and main issue is quite simply this. Naftogaz has made a request for declaratory relief.171 Gazprom has responded that the request for relief shall be dismissed (Sw. avvisad) but has not positioned itself as to whether it rejects (Sw. bestrider) or accepts (Sw. medger) Naftogaz' request for relief if it is not dismissed (which it shall not be, see below). An arbitral tribunal cannot issue an award before the respondent has positioned itself in respect of the request for relief and must in such case use procedural guidance (Sw. processledning) to determine the respondent's position. The Tribunal has sought to do so but Gazprom keeps refusing to answer the question. Gazprom's various arguments cannot relieve Gazprom from its basic duty to position itself on the merits of the request for relief irrespective of whether its arguments are correct or not (they are not).
327.
Moreover, as Gazprom refuses to position itself vis-á-vis the request for relief it simultaneously creates ambiguity as to a material factor in the application of Article 25 of the SCC Rules. That is because it would be evident that Naftogaz' request for relief should be entertained if Gazprom's position is that it accepts (Sw. medger) the request for relief as a matter of substance. If it does, ruling on that request can of course never cause any delay in the proceedings and is evidently to be allowed under Article 25 of the SCC Rules already for that reason.
328.
Since Gazprom's position as to substance is relevant for the Tribunal to rule on Gazprom's request for dismissal, Gazprom's position must be made clear. Naftogaz respectfully requests the Tribunal to ask Gazprom the binary question whether it accepts (Sw. medger) or rejects (Sw. bestrider) Naftogaz' Request 4), allowing Gazprom no other choices as there legally are no other choices.
329.
If Gazprom accepts the request on the merits, Request 4) shall not be dismissed and shall simply be awarded. If Gazprom states that it does not accept the request for relief this would be a consequence of Gazprom adopting a different position as to what volumes have been offtaken by Naftogaz than it has previously taken. The Tribunal would then conclude that the time it may take to litigate this issue is a function of Gazprom's choice to deviate from its previous position as to volumes. The request for relief shall therefore not be dismissed pursuant to Article 25 of the SCC Rules. In that case, the Tribunal would also have to address the issue whether Gazprom is allowed to adopt inconsistent positions as to the same material fact in the same Arbitration. However, what the reasoning above shows is that there is no scenario in which Naftogaz' request for declaratory relief should be dismissed.
330.
If Gazprom rejects Naftogaz' request for relief, Gazprom should clarify what volumes of gas delivered (and the period(s) in which they were delivered) are relevant to volumes of gas offtaken, but not paid for under the Contract, rather than the 11,538,279,915 m3 for deliveries in November-December 2013 and April-June 2014 asserted by Naftogaz.
331.
Although, Gazprom's various arguments are irrelevant to its obligation to position itself, Naftogaz will comment further on them below.
332.
Gazprom states that it did not mean to "confirm volumes".172 What this is supposed to mean is unclear but the fact of the matter remains that Gazprom did confirm that overpayments and underpayments only have accrued "until the end of December 2015 (after which Naftogaz ceased purchasing gas from Gazprom)." This expressly confirms the volumes purchased by Naftogaz after December 2015, i.e. nil. Obviously, the fact that Gazprom previously in this Arbitration had agreed with Naftogaz on the volumes supplied to Naftogaz and for which Naftogaz was responsible to pay per se and then in § 98 adds a statement as to the volumes supplied after December 2015 is a clear confirmation of all volumes relevant to Naftogaz' Request 4). Had Gazprom at this time wanted to retract what it had previously accepted, it would have said so in this paragraph.
333.
Secondly, Gazprom argues that volumes delivered to the Donetsk and Luhansk regions are not material to the Take or Pay issues in this Arbitration, because in respect of the "Take or Pay obligation following the Final Award, both parties have based their proposals for the ACQ (and consequently the MAQ) on data as to past imports which excludes the volumes delivered to the Donetsk and Luhansk regions" (emphasis in original).173 This misses the point entirely. The point of course is the volumes of gas for which Naftogaz has a payment obligation under the Contract. This is a material issue to the take or pay and for setting the ACQ. Accordingly, whether or not Naftogaz has a payment obligation also for the volumes delivered to the Donetsk and Luhansk regions is material. The fact that the Parties agreed that these volumes should be excluded for the purpose of the calculation of the ACQ and take or pay (i.e. that Naftogaz has not offtaken and is not liable to pay for them) does not make the issue less material than if they had agreed to include the volumes.
334.
Thirdly, Gazprom's contention that the Tribunal has not ruled on volumes is simply incorrect.
335.
As regards Naftogaz' request for relief concerning Article 2.2, Naftogaz notes that the Tribunal's Question 4. did not reflect Naftogaz' amendments of 9 October 2017 to its Relief Sought. In particular, Naftogaz clarified its request to include a provision that Naftogaz only is obliged to take and pay for volumes of gas delivered "at the Points of Delivery adjacent to areas subject to Ukrainian government control".174 Naftogaz thereby addressed Gazprom's criticism that the Prokhorovka and Platovo GMSs are actually located in Russian territory, which may therefore not be controlled by the Buyer. Gazprom acknowledges Naftogaz' amendments to Request 2.1).175 Thus, we understand that Gazprom no longer takes issue with the proposed wording per se, but maintains its objections on the merits. In this respect, we note that it is inconsistent of Gazprom to accept that volumes delivered to third parties in Eastern Ukraine should be excluded when calculating the ACQ, but still argue that Naftogaz may somehow be obliged to take and pay for or only pay for such volumes.
336.
Finally, with reference to Gazprom's argument that Naftogaz is able to allocate any payment that it makes to Gazprom pursuant to the Final Award,176 Naftogaz' concern is primarily related to any pre-payments Naftogaz will make for the purchase of gas when deliveries under the Contract resume following the Final Award. Gazprom's argument may not apply to pre-payments.
337.
This uncertainty essentially means that Naftogaz may not be able to take deliveries from Gazprom, whilst at the same time being subject to take or pay obligations.177 This would effectively imply that the Final Award cannot be implemented as intended.

7.1.3.3.1.4 The revised Article 2.2

338.
Based on the volumes identified above, and the principles laid out in [REDACTED] in the Separate Award, Article 2.2 should be revised to read as follows:

[REDACTED]

7.1.3.3.2 Consequential adjustment of Article 2.2

339.
As explained by Dr Hesmondhalgh,178 there is an inherent uncertainty concerning Naftogaz' for [REDACTED] imported gas volumes to supply its customers in 2018 and especially 2019, in particular as a result of the increasing domestic production and decreasing domestic consumption of Natural Gas in Ukraine and other key drivers.179
340.
Naftogaz requests that this uncertainty be taken into account when deciding on the revised volume provisions pursuant to Section 36 of the Swedish Contracts Act, and that Article 2.2.3 be consequently adjusted to read as follows:

"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."

341.
The very fact that the Parties disagree as to what Naftogaz' estimated future needs should be confirms the uncertainty and the need for an adjustment of Article 2.2.3.

7.1.3.3.3 Reduction clause

342.
The Tribunal is not bound by the limitations in Article 9.5 of the Contract when revising the volume provisions, as "Section 36 [of the Swedish Contracts Act] itself [...] gives the Tribunal a wide discretion to partly rewrite an agreement when needed".180 Further, the Separate Award implies that a [REDACTED]
343.
By its nature, a take or pay obligation will put the buyer's ability to market his gas volumes at risk in the event that the seller was to enter the buyer's market directly or indirectly. In turn, the seller would be given an unjust advantage as it would almost always be able to undercut a buyer in price competition over the same customers. This could also lead to a saturated market where the buyer is unable to sell the gas it has undertaken to offtake under its take or pay obligation.
344.
For this reason, in the event that the buyer enters the buyer's market directly or indirectly, take or pay provisions in line with market practice and allowed under competition law should provide for a reduction of the buyer's take or pay obligation equal to the amount of gas that the seller directly and/or indirectly sells into the buyer's market.
345.
Similar arrangements have been entered into inter alia between Gazprom Export and RWE Transgas.181 The relevant part of the agreement between the two companies was described in a public decision from the Austrian Supreme Court as a result of a dispute where RWE Transgas had invoked such a reduction clause under its contract with Gazprom Export in response to Gazprom Export initiating direct gas sales in the Czech Republic.182
346.
The Austrian Supreme Court rejected Gazprom Export's allegations that the award should be set aside based on public policy (competition law).
347.
Naftogaz therefore requests that the Tribunal include a clause to the same effect when revising the volume and take or pay provisions under the Contract.183 To make sure that such an arrangement is efficient, a sentence on Gazprom's duty to notify Naftogaz about other contracted volumes to Ukraine should be included.
348.
The reduction clause under the Contract, which should be inserted after the last paragraph in Article 2.2.3, as revised, should be worded as follows, consistent with the reduction clause referred to above:

" 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".

7.1.3.3.4 The quarterly breakdown

349.
Article 2.2.2 of the Contract stipulates that the ACQ shall be broken down in quarterly deliveries. Such quarterly breakdown of the volumes to be delivered shall be agreed by 1 November in the year preceding the Delivery Year in question. If the Parties do not agree on a quarterly distribution, the distribution shall be made in accordance with the distribution in the year preceding the Delivery Year.
350.
As shown, the revised Article 2.2 will imply a substantial change in the ACQ. As the Final Award which will determine the ACQ will not be rendered before 1 November 2017, it is necessary that the Final Award also determine a new quarterly breakdown for Delivery Year 2018.
351.
Pursuant to Decision (5) in the Separate Award, the new ACQ is to be determined as a function of "Naftogaz' estimated annual actual needs". It is therefore reasonable that also the quarterly breakdown be set in accordance with Naftogaz' needs. According to its needs, Naftogaz has therefore identified the following quarterly breakdown for 2018,184 and requests that Article 2.2.2 be revised as follows:

"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:

IIIIIIIV
[REDACTED] [REDACTED] [REDACTED] [REDACTED]

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."

7.1.3.3.5 Daily volumes

360.
Currently, the Contract regulates the daily volumes only indirectly. It refers to the "Average daily delivery rate" ("DADR"185) within a quarter, which forms the basis for calculating the monthly volumes.186 Thus, the daily volumes are essentially the quarterly volumes divided by the number of days in each quarter.187 Article 3.2(4) provides that the daily volumes shall be distributed evenly with an allowed deviation from the Average daily delivery rate of +/- 6%.
361.
Dr Hesmondhalgh explains that in order to ensure that Naftogaz can take only the MAQ188 in a year without breaching the terms of the Contract, it has to be allowed the possibility to reduce the daily delivery volumes.189 This is typically done by fixing a Minimum Daily Quantity ("MDQ"), as a percentage of the DADR which the buyer is obliged to offtake.
362.
In this respect, Dr Hesmondhalgh concludes that it is reasonable and in line with market practice to include the possibility to reduce the MDQ to 50% of the DADR. She also concludes that introducing variability in daily deliveries would also require the introduction of daily nominations which are, in any case, required by Ukrainian legislation.190 Daily nominations are also an accepted practice between the Parties.191
363.
Thus, Naftogaz requests that Article 2.2 be revised to include a new Article 2.2.4,192 which should read as follows:

"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."

364.
The issue of daily volumes is not addressed by Gazprom. However, Naftogaz notes that Gazprom's proposed revised Article 2.2.5 effectively presupposes the possibility to reduce daily volumes. In order to be able to avail itself of the allowed annual offtake to [REDACTED] Naftogaz has to be allowed to vary its nominations of the daily delivery volumes beyond the +/6% daily operational tolerance in Article 3.2(4) of the Contract. If not, it would not be able to take only the MAQ in a year without breaching the Contract's terms on daily deliveries. Naftogaz refers to its reasoning in §§ 94-95 Implementation Pleading and Section II.B.2 Hesmondhalgh 7.
365.
If Naftogaz was allowed only to reduce its daily offtake by 6%, even if it reduced its offtake by the maximum allowed percentage every day, it would still effectively be obliged to offtake annually at least 94% of the ACQ.193 This would effectively render the take-or-pay provisions unworkable and would directly contradict Decision (5) fixing the MAQ at 80% of the ACQ.
366.
Gazprom appeared to suggest that Naftogaz should have to take more gas than the MAQ.194 However, to implement its final decision on the MAQ, the Tribunal must adjust the Contract to allow for higher daily volume variations than 6%. In fact, at the very minimum, the Tribunal must allow for 20% daily variations; this, however, would effectively entail that Naftogaz would have no variation possibility at all if it wished to only take the MAQ. Indeed, in order to only take the MAQ, Naftogaz would have to consistently reduce its daily off-take by exactly 20% on each and every Day of the Delivery Year. Consequently, the Tribunal should rely on Dr Hesmondhalgh's unrebutted195 evidence that it is common for a buyer in a long-term contract to be able to reduce its daily nomination to around 50% of the daily average delivery rate.196 The adjustment mechanism, which forms a part of the request for relief, is therefore derived from the Separate Award's findings on the MAQ, and is in line with the Tribunal's findings on the importance of market practice.197

7.1.3.4 Revision of Article 2.2.5

7.1.3.4.1 Introduction

367.
The Tribunal has decided with final effect that [REDACTED]
368.
Naftogaz has described the concept and elements [REDACTED]. Below, Naftogaz will explain in further detail the elements of the revised Article 2.2.5 which Naftogaz claims based on the Tribunal's guidelines in the Separate Award. The complete wording of the revised Article 2.2.5 is set out in Naftogaz' updated Relief Sought.

7.1.3.4.2 The Minimum Annual Quantity (MAQ)

369.
Pursuant to the Tribunal's decision that [REDACTED]

7.1.3.4.3 The payment [REDACTED]

370.
The original Article 2.2.5 lacked certain essential elements of a take or pay clause. In particular, to function properly and minimize the room for subsequent disputes, a take or pay provision should regulate:

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.

371.
In respect of a) above, Naftogaz believes that a payment of 75% of the take or pay gas, i.e. the portion of MAQ it did not take, at the end of the Delivery Year reflects the industry standard. The remaining 25 per cent should be paid when the gas is offtaken in (a) subsequent Delivery Year(s).
372.
In respect of b) above, as consistently argued through these proceedings, the price of the take or pay volumes (which then become make up gas) should be calculated based on the arithmetic average Contract Price in the debit year. Under this approach, one simply sums up the Contract Prices for each of the days in the relevant period and divides by the number of days in the period. This way the take or pay volumes are paid for as if they had been offtaken equally over the whole year. This is a balanced approach, and makes no assumptions as to when the gas should have been offtaken.
373.
In respect of c) above, an obligation to claim the make-up gas within a five-year period is reasonable. However, in light of the relatively short remaining contract period, Naftogaz considers that a three-year period may suffice.
374.
Finally, in respect of d) above, it is important to Naftogaz that the take or pay provisions explicitly regulate which make up gas volumes are considered to have been taken and which remain outstanding. The industry standard (and logical) approach is that the oldest make up volumes are deemed to be taken first.
375.
In updating the wording of its request regarding the revised Article 2.2.5, Naftogaz has taken into account the Tribunal's Decision in the Separate Award, the issues addressed here, as well as the discussions which have taken place between the Parties subsequent to the Separate Award.
376.
The Parties agree on both the main structure, the contents and to a significant extent also the wording of the payment and make-up gas provisions.
377.
Following up Decision (5) of the Separate Award and the Tribunal's request for a joint text,198 the Parties have exchanged draft make-up gas provisions.199 The Parties have not agreed a complete common text for the make-up provisions. However, Naftogaz has accepted the text proposed by Gazprom on 15 September 2017, subject to the following material exemptions:200

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).

378.
In its 8 November 2017 proposal Gazprom introduced new formulations compared to its previous draft of 15 September 2017201, as well as its previous Relief Sought, with no accompanying explanation. The controversial addition is set out below in red:

[REDACTED]

379.
Gazprom now accepts that Naftogaz' take or pay liability does not extend to gas which Naftogaz could not offtake due to Force Majeure. However, the final passage in item 2 of "D", ("any volumes nominated by the Buyer but not delivered by the Seller within two Days, except where any such shortfalls are a result of Force Majeure or agreed between the Parties' respective representatives.") is contrary to basic principles for take or pay and are unacceptable to Naftogaz. The proposed wording would imply that:

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.

380.
The second new addition by Gazprom concerns adjustment of the price for make-up gas volumes for calorific value. Naftogaz claims a fixing of the calorific value for pricing purposes.203 Thus, the adjustment is redundant on Naftogaz' case.

7.1.4 The monetary claims

7.1.4.1 Introduction

381.
In items (8) and (9) of the Decision in the Separate Award, the Tribunal has determined with final effect:

"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;"

382.
In addition, and with regard to the claims for interest, the Tribunal has decided:

"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;"

383.
Thus, from the Separate Award, it follows that Naftogaz owes certain amounts to Gazprom for gas delivered but not paid for, and Gazprom owes the amounts paid in excess of the revised Contract Price to Naftogaz.
384.
As the adjusted Price provisions have not yet been determined, Naftogaz will address certain outstanding issues in relation to the amounts owed by the Parties in the following sections. These relate in particular to (i) the calculation of the price for the volumes offtaken in the second quarter of 2014 (April-June), and (ii) the offset of the amounts owed between the Parties.

7.1.4.2 Amounts owed to Gazprom for gas off-taken but not paid for

7.1.4.2.1 The Parties' position in the Arbitration and the Tribunal's decision and reasoning

385.
Earlier in the Arbitration, Gazprom submitted a payment claim, divided into two sub-claims, which concerned the alleged outstanding balance for gas delivered in November and December 2013 in the amount of circa USD 1.5m, and for gas delivered in April, May and June 2014 in the amount of circa USD 2.2 billion.
386.
As noted by the Tribunal, [REDACTED].
387.
Further, the Parties are in agreement that Naftogaz has made two payments in respect of gas delivered in the aforementioned periods, for a total of USD 3.1 billion.
388.
Thus, the only point in dispute was the price applicable for gas supplied during these periods.
389.
As the Tribunal has granted Naftogaz a price revision with effect from 27 April 2014, the amount owed by Naftogaz shall be calculated on the basis of the factual price as invoiced by Gazprom up until 26 April 2014, and on the basis of the revised Contract Price for the period from 27 April 2014 onwards. In this respect, Naftogaz notes that the factual price should be determined taking into account the application of [REDACTED] up to and including 1 April 2014,204 as [REDACTED]
390.
In the table below, Naftogaz summarises the volumes of gas delivered in the relevant periods, as well as the price and amount invoiced by Gazprom:

Month Volume delivered (m3) Invoiced price (USD/1000 m3) Invoiced amount (USD)
November 2013 1,819,966,720 389.88 709,568,624.79
December 2013 1,905,586,980 389.36 741,959,346.53
April 2014 2,585,525,955 491.52 1,270,837,717.40
May 2014 3,527,576,158 492.28 1,736,555,191.06
June 2014 1,699,624,102 492.86 837,676,734.91
Total 5,296,597,614.69

7.1.4.2.2 Naftogaz' position following the Tribunal's decision and reasoning

415.
Following the Decision by the Tribunal in the Separate Award, the prices invoiced by Gazprom in November and December 2013, as well as for the month of April 2014 up to and including 26 April 2014, are not subject to revision.
416.
Consequently, Naftogaz accepts that its payment of USD 1.45 billion on 5 November 2014 did not settle in full the invoices by Gazprom for gas delivered in the months of November-December 2013, for which the outstanding amount is USD 1,527,971.32.205
417.
Further, Naftogaz accepts that its payment of USD 1.65 billion on 24 December 2014 did not settle in full the invoices by Gazprom for gas delivered in the months of April-June 2014. In respect of the latter period, however, the amount owed is subject to the determination of the adjusted Price provisions with effect from 27 April 2014 in accordance with the Separate Award.
418.
As regards the allocation of Naftogaz' 24 December 2014 payment, Naftogaz refers to what has been stated previously regarding this issue and makes the following additions. Gazprom made the argument that "there is nothing [REDACTED] that constitutes an agreement between the parties regarding allocation".206 Gazprom then goes on to state that "[o]ne particular point to note is there is no agreement here between Naftogaz and Gazprom to depart from the normal rule of Swedish law that allocation should be made to interest first".207 The argument seems to be that since the Parties did not expressly state that they deviated from Chapter 9 Section 5 of the Swedish Commercial Code (Sw. Handelsbalken), they did not deviate. However, there is no requirement that the Parties expressly agree to opt out of the Swedish Commercial Code (or any other non-mandatory rule of law either for that matter). It is quite sufficient that they in fact regulate the issue in a different manner. Addendum No. 33 evidently contains a regulation of how the payment shall be allocated and that it is to be allocated against the specified capital amounts.
419.
Gazprom also makes a reference to [REDACTED] and argues that the [REDACTED] was not to be used in the Arbitration and furthermore that [REDACTED] is relevant in the "context of it being suggested that this was a binding agreement which affects the parties' rights and obligations".208 As regards issue, [REDACTED] the following.

[REDACTED]

420.
Obviously, [REDACTED] does not exclude that [REDACTED] contains an agreement as to allocation of payment. The only concerned [REDACTED] which is an issue separate from allocation of payment against various debts. As regards the Parties' acknowledgment that they will not make use the [REDACTED] it be the [REDACTED] as such and the agreements that it contains is a fact and it is what it is. The Parties obviously did not mean that they should pretend that what was in fact agreed (on topics other than price and payment terms) was not agreed. What the Parties agreed in the second paragraph was simply not to use the Addendum as evidence for their gas pricing arguments. In fact, at this time there were not even any allocation issues in dispute.
421.
Moreover, in respect of allocation, there are two paragraphs in which each Party states what the payment means in its own view, each formulated by the relevant Party. It is peculiar, to put it mildly, that Gazprom now seeks to distance itself from its own carefully formulated statement as to how the payment was to be allocated.
422.
Incidentally, it is noted that in fact both Parties make use of the [REDACTED] Gazprom itself invokes the [REDACTED] in support of the correctness of Dr Moselle's calculations.209 In any event, therefore, the Parties have by their actions agreed to abandon any prohibition against relying on [REDACTED] in matters regarding allocation of payments (regardless of what legal effect, if any, such a provision could have).
423.
Naftogaz' position regarding adjustment of the Price provisions following the Tribunal's decision is set out above. In the table below,210 we have indicated the amounts due to Gazprom for gas delivered but not paid for, based on Naftogaz' principal claim for a revised Contract Price:211

Month Volume delivered (m3) Adjusted price (USD/1000 m3) Amount due (USD)
November 2013 1,819,966,720 389.88 709,568,624.79
December 2013 1,905,586,980 389.36 741,959,346.53
April 2014 2,585,525,955 453.13 1,171,579,376
May 2014 3,527,576,158 276.59 975,692,290
June 2014 1,699,624,102 246.15 418,362,473
Total 4,017,162,110.32

448.
Thus, under Naftogaz' principal price revision claim, the total amount owed to Gazprom for gas delivered but not paid for is approximately [REDACTED] i.e. the amount calculated in the table above (about USD 4,017m) less the amount already paid by Naftogaz (USD 3.1m). In addition, in accordance with Decision (11), Naftogaz owes late payment interest on this amount pursuant to Article 6.2. of the Contract.

7.1.4.2.3 Gazprom overestimates the amounts owed by Naftogaz

449.
Gazprom overestimates the amounts owed by Naftogaz for gas delivered but not paid for. This is primarily due to the Parties' disagreement on the revised price, and to some extent due to errors in Gazprom's and Dr Moselle's calculation.
450.
The Tribunal should reject Gazprom's calculations and base its decision concerning amounts owed by Naftogaz to Gazprom for gas offtaken but not paid for on Naftogaz' calculations, subject to the adjustment that follows from Naftogaz' acceptance of Gazprom's confirmation that [REDACTED] applied on both 1 and 2 April 2014. As Dr Hesmondhalgh explains in her Eighth Expert Report, "[t]his has the impact of reducing Naftogaz's under-payments by approximately USD 12 million", to USD 995m as opposed to USD 1,007 billion212 as assumed in Hesmondhalgh 7.
451.
As noted by Dr Hesmondhalgh in her Eighth Expert Report, all of Gazprom's positions in respect of the calculation of the revised Contract Price increase the net payment owed by Naftogaz to Gazprom, except its position that Addendum No 3 applied on 2 April 2014, as well as on 1 April 2014.213
452.
Gazprom has presented two arguments why [REDACTED] should not be applied on 2 April 2014 namely (i) that the language of Resolution of Russian Federation Government No 260214 is not ambiguous and (ii) that Gazprom's experts made a mistake when calculating the April 2014 price which explains the change of position between Gazprom's Implementation Pleading of 15 September 2017 and its Implementation Reply of 2 October 2017 so "no inference needs to be drawn about this and there is no issue of burden of proof".215
453.
As to the first argument, Naftogaz maintains that it is not clear from the wording of Resolution of Russian Federation Government No 260 that the resolution applies from and including 2 April 2014. But more importantly, that question is the wrong question. The correct question is whether - irrespective of what may be the better reading of the Resolution - Gazprom in fact received the reduction also on that date. As to the second argument, mistake or not, it is certainly not the case that there is "no issue of burden of proof". Under Swedish law there is always an issue of who has the burden of proving a particular disputed material fact. in casu, Gazprom clearly bears the burden of proof as it is the party which is in a position to present evidence regarding the factual circumstance, whether it in fact received the reduction or not.216 Since Gazprom who certainly could have produced evidence has failed to provide any evidence even when challenged to do so by Naftogaz, the Tribunal must conclude that Gazprom in fact received the reduction also on 2 April 2014 and that [REDACTED] therefore operated also on 2 April 2014.
454.
In addition to the Parties' disagreement on the revised Contract Price, Dr Hesmondhalgh criticises Dr Moselle's calculation methodology for the outstanding debt on several independent counts. In particular, she points out that Dr Moselle does not take into account the actual payments by Naftogaz in December 2014, but instead assumes that Naftogaz would have paid a lower amount if it had known that the price was going to be revised.217 The consequence is that Dr Moselle applies his late payment interest calculations on a higher unpaid amount than what was actually paid. This unsupported assumption would alone account for an increase of Naftogaz' outstanding amount owed of USD 26m.218 As pointed out by Dr Hesmondhalgh in Section II B of her Eighth Expert Report, in his memo of 27 June 2017, Dr Moselle appears to interpret the Separate Award on this issue in the same manner as she does, and has not explained why he has changed his approach, which she considers unreasonable.
455.
Dr Moselle's approach, i.e. that he calculates the claims for overpayments and underpayments as a function of what should have been paid and what he speculates would have been paid, is of course also legally quite incorrect. The claim for overpayment or underpayment is under Swedish law simply a function of what should have been paid and what was actually paid.
456.
Further, Dr Moselle includes late payment interest in respect of February and March 2014 in his underpayment calculations.219 This is, however, contradicted by the Separate Award. Decision (11) is the relevant decision by the Tribunal with respect to interest in favour of Gazprom. It refers back to Decision (8), whereby the Tribunal awarded Gazprom payment for [REDACTED].220 Thus, the Tribunal's decision must be interpreted as rejecting all other claims for payment and/or interest Gazprom may have for any period outside the abovementioned months.
457.
Dr Moselle's inclusion of late payment interest in respect of February and March 2014 is therefore unsupported and should be rejected.
458.
Dr Moselle calculates overpayments "assuming that Naftogaz has paid in full for a portion of the gas delivered in the respective month at the Unrevised Factual Price".221 To support this strange approach Gazprom made two arguments during the October Hearing. Firstly, Gazprom stated the following.

"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.

459.
Gazprom's second argument is this.

"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."

460.
Firstly, Naftogaz did make a specific allocation pursuant to [REDACTED] namely (first) against the capital amounts owed for specific months based on the revised price, see above, and Gazprom itself agreed to allocate against capital (first).
461.
Secondly, even if no allocation had been made, Gazprom's position that allocation should be made against the invoiced price for the gas delivered in April, May and June 2014 rather than the applicable price makes no sense whatsoever. A payment is allocated against the amount that the debtor has to pay, not an amount that happens to be invoiced.
462.
Thirdly, Swedish law prescribes that when it is clear what the debtor wants to allocate against, even if not expressly stated, that allocation is applied.223 In this case, it is quite clear from [REDACTED] what Naftogaz wanted to allocate against, namely the capital amounts for the specified months calculated based on the price determined to be applicable, not the invoiced amounts. This is also clear from how Naftogaz in fact allocated in its Implementation Pleading.
463.
Fourthly, even if Naftogaz' right to allocate would be deemed not to have been utilized, expressly or implicitly, Gazprom itself in fact allocated the amounts just as Naftogaz did,224 but subsequently changed its mind, which it cannot.
464.
Fifthly, Gazprom's second and revised, purported, allocation was made after the Separate Award. At that time, it was already decided that Naftogaz did not owe Gazprom the invoiced amounts. Hence, Gazprom's purported allocation against invoiced amounts is simply ineffective and irrelevant as a matter of law for that reason too.
465.
Sixthly, even if Gazprom would have received the right to allocate the payment (which it has not), and it can revise its previous allocation (which it cannot) and it could legally allocate against a higher amount than it is in fact entitled to receive (which it cannot), it would not have an unlimited right to allocate anyway. As Lindskog explains in Betalning at p. 584, the creditor must observe the debtor's allocation interest (Swedish: avrakningsintresse) where this is worthy of protection.225 It is difficult to even invent a situation where it is more obvious that the creditor is limited by this principle than a situation where the creditor (a) partially allocates against a claim which an arbitral tribunal at that time has already found not to exist, (b) does so contrary to the allocation principles in an agreement between the two Parties (Addendum No. 33) (c) does so after the debtor has shown (as Naftogaz did in its submission before Gazprom's purported allocation) that it wants to allocate against the actual amount owed not the amounts invoiced and (c) does so in order to create artificial and simultaneous unpaid and overpaid amounts in respect of the same month (!) to benefit from a difference in interest rates.
466.
In sum, Dr Hesmondhalgh's calculations of overpayment in Hesmondhalgh 7 are entirely correct and Dr Moselle's are wrong and based on incorrect assumptions/instructions as to law.
467.
As regards the allocation of Naftogaz' 24 December 2014 payment, Naftogaz makes the following additions. Gazprom made the argument that "there is nothing [REDACTED] that constitutes an agreement between the parties regarding allocation".226 Gazprom then goes on to state that "[o]ne particular point to note is there is no agreement here between Naftogaz and Gazprom to depart from the normal rule of Swedish law that allocation should be made to interest first".227 The argument seems to be that since the Parties did not expressly state that they deviated from Chapter 9 Section 5 of the Swedish Commercial Code (Sw. Handels-balken), they did not deviate. However, there is no requirement that the Parties expressly agree to opt out of the Swedish Commercial Code (or any other non-mandatory rule of law either for that matter). It is quite sufficient that they in fact regulate the issue in a different manner. Addendum No. 33 evidently contains a regulation of how the payment shall be allocated and that it is to be allocated against the specified capital amounts.
468.
Gazprom also makes a reference to [REDACTED] and argues that the Addendum was not to be used in the Arbitration and furthermore that [REDACTED] is relevant in the "context of it being suggested that this was a binding agreement which affects the parties' rights and obli-gations".228 As regards this issue, [REDACTED], provides in relevant parts the following.

[REDACTED]

469.
Obviously,[REDACTED] does not exclude that [REDACTED] contains an agreement as to allocation of payment. The section is only concerned to state that it is not to be interpreted as a "change" of [REDACTED] ", which is an issue separate from allocation of payment against various debts. As regards the Parties' acknowledgment that they will not make use of the Addendum [REDACTED] it should be noted that the Addendum as such and the agreements that it contains is a fact and it is what it is. The Parties obviously did not mean that they should pretend that what was in fact agreed (on topics other than price and payment terms) was not agreed. What the Parties agreed in the second paragraph was [REDACTED] In fact, at this time there were not even any allocation issues in dispute.
470.
Moreover, in respect of allocation, there are two paragraphs in which each Party states what the payment means in its own view, each formulated by the relevant Party. It is peculiar, to put it mildly, that Gazprom now seeks to distance itself from its own carefully formulated statement as to how the payment was to be allocated.
471.
Incidentally, it is noted that in fact both Parties make use of the Addendum. Gazprom itself invokes the Addendum in support of the correctness of Dr Moselle's calculations.229 In any event, therefore, the Parties have by their actions agreed to abandon any prohibition against relying on [REDACTED] in matters regarding allocation of payments (regardless of what legal effect, if any, such a provision could have).

7.1.4.2.4 There cannot be any further claims by Gazprom for payment for gas taken

472.
As explained above, Gazprom has alleged that Naftogaz offtook circa 1.4 bcm of gas in 2016, and has subsequently invoiced Naftogaz for a total of 5.58 bcm allegedly offtaken. At the same time, Gazprom submitted no claim for payment for these supplies "in these arbitration proceedings".
473.
Whilst it should be clear that Naftogaz is not obliged to pay for gas delivered to and offtaken by unauthorised third parties, we note that the subject of the present Arbitration is inter alia precisely a dispute as to amounts owed by Naftogaz to Gazprom for gas delivered under the Contract. The Tribunal has already finally resolved that dispute, and has found that there is no dispute as to the volumes of gas delivered but not paid for, but only as to the price to be applied to those volumes.
474.
The fact that Gazprom has not made any claims as to amounts owed for any other volumes than the ones set out in the tables above, must be seen as a waiver of any further claim by Gazprom against Naftogaz as to other volumes delivered but not paid for.
475.
In other words, Gazprom has effectively waived any further claim against Naftogaz as to volumes delivered but not paid for other than in the months of November-December 2013 and April-June 2014.
476.
In this respect, Naftogaz recalls that Gazprom in these proceedings has submitted a claim for interest for an alleged "late payment of Naftogaz of overdue sums due in relation to gas deliveries in July 2015".230 Naftogaz notes that by Decisions (8) and (11) in the Tribunal has effectively rejected Gazprom's claim for delay interest for July 2015. Further, Gazprom now apparently also agrees that there were no gas deliveries in either July 2015 or August-September 2015, as previously alleged.
477.
In addition, Gazprom explicitly accepts (Sw. vitsordar) that "Naftogaz ceased purchasing gas from Gazprom" after December 2015.
478.
Consequently, there is agreement between the Parties as to volumes delivered to Naftogaz. The Tribunal should accordingly proceed to grant the declaratory relief requested by Naftogaz, confirming what the Tribunal has already decided (in respect of 2015) and Gazprom has admitted (in respect of later years), i.e. that, as of the date of the Final Award, there are no (and there cannot be) further payment claims by Gazprom against Naftogaz for gas taken. As discussed above, the Tribunal should also for similar reasons grant Naftogaz' request in relation to the revised Article 2.2 that Naftogaz should only be obliged to pay for gas made available at the Points of Delivery adjacent to areas subject to Ukrainian government control.

7.1.4.3 Amounts owed to Naftogaz due to payments in excess of the revised Contract Price

479.
Similarly, to the issue of amounts owed to Gazprom for gas off-taken but not paid for, the quantification of amounts owed to Naftogaz for payments at a price in excess of the revised Contract Price may only be finally made once the latter Price is determined.
480.
Dr Hesmondhalgh has calculated Naftogaz' overpayments by applying the revised Contract Price under Naftogaz' principal pricing claim (as well as certain options under the alternative pricing claim) to the volumes delivered on and after 27 April 2014.
481.
Based on Naftogaz' principal position regarding adjustment of the Price provisions following the Tribunal's Separate Award, Dr Hesmondhalgh has calculated the amounts owed by Gazprom in the amount of circa USD 284m, plus interest.
482.
As explained in further detail below, the difference between the amounts owed by Naftogaz for gas offtaken but not paid for and the amounts owed by Gazprom for payments in excess of the revised Contract Price, results in a net amount owed by Naftogaz to Gazprom231, which should be set off against the amounts owed by Gazprom to Naftogaz under the Transit Contract.
483.
If the Tribunal finds that the Price provisions should be adjusted as requested by Naftogaz, the Tribunal should reject Gazprom's calculations and base its decision concerning amounts owed to Naftogaz on its calculations.
484.
As pointed out by Dr in Hesmondhalgh in her Seventh Expert Report,232 the Separate Award does not say that Naftogaz shall make additional payments in respect of months when the adjusted Contract Price exceeds the Contract Price that Naftogaz has actually paid, a situation which only arises if quarter ahead prices are used to set the Contract Price, as claimed by Gazprom. She has consequently not included any such offsets to the overpayments in her calculations.
485.
It appears that Dr Moselle and Gazprom have made such an offset for gas delivered after June 2014. However, as indicated by Dr Hesmondhalgh, there is no basis for this in the Separate Award. As also discussed above, underpayments by Naftogaz are conclusively dealt with in Decisions (8) and (11). Decision (9) only provides for repayment to Naftogaz of amounts paid for gas at a price that is in excess of the Contract Price.

7.1.4.4 Interest

486.
The consequence of the Tribunal's Decision as to the amounts owing to Naftogaz is that Naftogaz has overpaid during a shorter period than Naftogaz had argued, that each overpayment amount is lower than argued, and that no interest starts accruing on any amounts until the first overpayment. These consequences have been taken into account by Dr Hesmondhalgh in her Seventh Expert Report where she has calculated new partial capital amounts that result from Naftogaz' overpayments based on alternative applicable price formulas. She has also calculated the interest which accrues under each of these alternative scenarios up until 30 September 2017.
487.
The facts, grounds and arguments relating to the interest claim and its calculation, including for instance as to start dates for interest calculation and applicable interest rates from time to time remain as previously argued to the extent not rejected in the Tribunal's Decision.
488.
Naftogaz rejects Dr Moselle's and Gazprom's interest calculations for several reasons, most importantly that they arise from a legally incorrect approach under Swedish law relying on hypothetical instead of actual payments.

7.1.4.5 Set-off

489.
Pursuant to Decision (9), Naftogaz is entitled to repayment of amounts paid for gas at a price that is in excess of the Contract Price as revised. Additionally, Naftogaz is entitled to interest on such amounts based on Decision (12). In Naftogaz' view, its capital claim pursuant to (9) amounts to USD 283,579,009.80 and its interest claim under Item 12 as per 30 September 2017 amounts to USD 57,548,384.36. As per 30 September 2017 the claims thus aggregate to USD 341,127,394.16. This assumes that Naftogaz' principal position as to adjustment of the Price Provisions is fully accepted. In her Seventh Expert Report, Dr Hesmondhalgh has calculated alternative lower capital and interest claims for Naftogaz as per 30 September 2017 based on alternative and for Naftogaz less favourable adjustments of the Price Provisions.
490.
On the other hand, pursuant to Decision (8), Naftogaz owes amounts to Gazprom relating to gas delivered to, but not fully paid by Naftogaz. Gazprom is also entitled to interest on such capital amounts in accordance with Decision (11). In Naftogaz' view, Gazprom's capital claim amounts to USD 917,162,109.56 and its interest claim as per 30 September 2017 amounts to USD 430,724,613.19. As per 30 September 2017, the claims thus aggregate to USD 1,347,886,722.75. In her Seventh Expert Report, Dr Hesmondhalgh has calculated alternative higher capital and interest claims for Gazprom as per 30 September 2017 based on alternative outcomes.
491.
Naftogaz hereby makes a declaration of set-off (Sw. kvittningsforklaring), 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 described above. Hence, already on this basis, the amount which Gazprom may be awarded in the Sales Arbitration is reduced.
492.
In the view of Naftogaz, the foregoing means that the remaining capital claim of Gazprom as per 30 September 2017 amounts to USD 633,583,099.77 and its remaining interest claim as per 30 September 2017 amounts to USD 373,176,228.83. As per 30 September 2017, the claims thus aggregate to USD 1,006,759,328.60. If the Tribunal determines a lower capital and/or interest claim owing to Naftogaz and/or a higher amount capital and/or interest claim owing to Gazprom, the residual Gazprom claims would be increased accordingly. In all its calculations of this set-off, Naftogaz has applied the principles of Swedish law under which Naftogaz' set-off is first applied against Gazprom's interest claim and then against Gazprom's capital claim, cf. Chapter 9 Section 5 of the Commercial Code (Sw. Handelsbalken).
493.
Naftogaz also has capital and interest claims under the Transit Contract that are the subject of the Transit Arbitration. In Naftogaz' view, the capital claim amounts to maximum USD 10,565,742,543.27. The interest claim as per 30 September 2017 amounts to maximum USD 1,745,978,368.03. The basis for these Naftogaz' capital and interest claims and their calculation have been explained thoroughly in the submissions and pleadings in the Transit Arbitration, to which Naftogaz refers.
494.
Naftogaz hereby makes a second and independent declaration of set-off (Sw. kvittningsforklar-ing), with effect as of 30 September 2017, pursuant to which it sets off Naftogaz' 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 above, which on Naftogaz' assumptions completely extinguishes Gazprom's remaining interest and capital claims. To the extent the Tribunal should find that Gazprom's interest and/or capital claims are not completely extinguished by set-off against Naftogaz' 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 the Sales Arbitration are extinguished (up to summa concurrens). Hence, Naftogaz' remaining claims in the Transit Arbitration after these set-offs are to be awarded to Naftogaz in the Transit Arbitration.
495.
It is noted in this regard that Naftogaz' request is not a new request for relief but a defence against Gazprom's request for monetary relief.
496.
Naftogaz notes that the Parties are in agreement that the Tribunal should set-off all amounts owing between the parties pursuant to the Sales Arbitration (although the Parties of course disagree as to the relevant amounts on each side). As for the second set-off, Naftogaz is theoretically advancing a new defence (ground) against Gazprom's payment claim in the Sales Arbitration. However, this ground could not have been raised previously because Naftogaz had not then made a declaration of set-off (Sw. kvittningsforklaring). Naftogaz also notes that Gazprom has also argued that the amounts owing between the parties in the Sales Arbitration and the amounts owing between the Parties in the Transit Arbitration should be set-off. Moreover, there is no detriment to Gazprom or to the procedure by allowing Naftogaz to raise this set-off defence now. Finally, in this context, we recall our proposal for simultaneous final awards in the two Arbitrations.
497.
The foregoing means that Naftogaz' existing claims for capital and interest in this Sales Arbitration would be rejected by the Tribunal because Naftogaz' claims have been extinguished through the set-off against Gazprom's claims in this Sales Arbitration.
498.
Therefore, Naftogaz is in a position to simplify its request for relief by changing its requests for executory relief as to capital and interest into declaratory relief in which the Tribunal is asked to declare that as of 30 September 2017, prior to the set off, Naftogaz had a capital claim of USD 283,579,009.80 and an interest claim of USD 57,548,384.36.This request for declaratory relief (Claim 3) in Annex 1) shall be understood to be a series of requests for relief in falling order of one (1) USD from the maximum aggregate capital amount and the maximum aggregate interest amount down to zero USD (although zero amounts obviously cannot be arrived at by the Tribunal given its Separate Award). The aggregate capital amount and the aggregate interest amount declared by the Tribunal under this relief would be those which the Tribunal would then utilize for the first set off above.
499.
Naftogaz notes that there is no dispute between the Parties that there should be a set-off between amounts owing between the Parties in the Sales Arbitration. However, there are some differences in approach that need to be addressed. Without expressly stating so, Gazprom appears to request the intra Sales Arbitration set off to be made as per 15 September 2017, whereas Naftogaz has made a declaration of set-off as per 30 September 2017. However, this chronological difference has no economic significance given that the set-off will always result in Naftogaz owing Gazprom both the gross capital amount and certain interest.
500.
As regards the set-off between amounts owing in the Sales Arbitration, Naftogaz chose 30 September 2017 rather than 15 September 2017 as the effective date simply because it already had available calculations of capital amounts and the accrued interest amounts as of that date and did not want to do calculations also for 15 September 2017. Such a set-off will always result in Naftogaz owing Gazprom both a certain capital amount and a certain interest amount irrespective of what date one would chose as the effective date for the set-off. The capital amount would be the same irrespective of what date for set-off Naftogaz would have chosen, but there is an economic difference as to interest. Even if the two Parties owe each other corresponding capital amounts, that continued gross position results in a loss to Naftogaz because interest accrues on its capital claim at a lower rate than on Gazprom's capital claim. In the netted position, this negative carry is terminated. So, in fact, the earlier the set-off is made, the more beneficial it would be for Naftogaz. Hence, Naftogaz would benefit economically if it had chosen 15 September 2017 as the set-off date.
501.
Naftogaz therefore proposes that the Parties align their dates for this set-off in order to simplify for the Tribunal such that Gazprom agrees that the set-off occurs as per 30 September 2017. Naftogaz cannot legally realign its set-off to 15 September 2017 as set-offs cannot be made retroactively.
502.
In addition, Gazprom's claims following set-off should be reduced by approximately USD 12m as a consequence of Naftogaz' acceptance of Gazprom's confirmation that Addendum No 3 applied on both 1 and 2 April 2014.
503.
The other difference in approach is that Naftogaz has made a second declaration of set-off, as per 30 September 2017, namely between Naftogaz' claims in the Transit Arbitration and Gazprom's remaining claim in the Sales Arbitration. Since Naftogaz has made this second set-off, it disputes that it shall be ordered to pay any sum whatsoever in the Sales Arbitration. All of Gazprom's monetary claims shall therefore be rejected.
504.
The Tribunal informed via e-mail dated 29 October 2017 that it has decided that Naftogaz may not amend its defence in the Sales Arbitration by making the declaration of set-off between amounts awarded in the Sales Arbitration and the Transit Arbitration.
505.
Gazprom's set-off is simply a request for a netting in, and as per the date of, the Award. That request for netting however becomes moot as the Tribunal must first apply Naftogaz' civil law set-off declaration (Sw. kvittningsforklaring), after which there are no gross claims standing against each other to be netted on the date of the award as Gazprom's request envisages.

7.1.5 Summary of Naftogaz' claims

7.1.5.1 Naftogaz' claims follow directly from the Separate Award

506.
As indicated and demonstrated above, Naftogaz' claims are derived from the Separate Award in conformity with Swedish principles of interpretation of separate awards.
507.
Notably, as explained above, the Tribunal directs the Parties (or itself) to find price quotations which correspond as closely as possible to the level of prices in the reference market on 27 April 2014, and which will closely track market developments going forward. Contrary to the allegation by Gazprom's counsel in the procedural telephone conference on 6 September 2017, the prevailing oil-indexed Contract Price provides no guidance for the selection of price quotations.
508.
Similarly, in respect of the volume and take or pay provisions, Naftogaz has relied directly on the findings in the Separate Award, including the assumption that they shall be based on Naftogaz' estimated annual actual needs for imported gas, and that they should offer Naftogaz reasonable protection in the light of relevant market practice and principles of competition law. The detailed wording has also taken into account the discussions which have taken place between the Parties subsequent to the Separate Award.
509.
Gazprom ignores the clear wording of [REDACTED] in respect of what was actually decided by the Tribunal, effectively substituting its own assessment of [REDACTED] for the wording of the decision, cf. § 15 Submission. Accordingly, Gazprom's claims are contradicted by the Separate Award in important respects. And Gazprom's approach in respect of Decision (5) takes this approach to its logical conclusion. Here Gazprom simply rejects the decision altogether.

7.1.5.2 Naftogaz' Relief Sought

510.
Naftogaz' Relief Sought is structured closely along the lines of the Tribunal's Decision in the Separate Award concerning (i) pricing, (ii) volumes and take or pay, and (iii) monetary claims. Naftogaz requests the Arbitral Tribunal to dismiss or reject Gazprom's claims in their entirety.233

7.2 Gazprom's case

7.2.1 Introduction

7.2.1.1 Reservation of rights

511.
Gazprom's submission on outstanding issues arising from the Separate Award, including the proposed contractual wording and calculations, is made without prejudice to Gazprom's position as set out in all pleadings submitted prior to the issue of the Separate Award.234
512.
For the avoidance of doubt, Gazprom reserves all its rights to challenge the Separate Award and any final or other award issued by the Tribunal. Neither Gazprom's 15 September 2017 Submission, Gazprom's participation in without prejudice negotiations with Naftogaz regarding the outstanding issues from the Separate Award, nor Gazprom's participation in this final stage of the proceedings arising further to the issue of the Separate Award, should be taken as a waiver of Gazprom's rights to challenge either the Separate Award or any final or other award issued by the Tribunal in these proceedings.

7.2.1.2 The Separate Award

513.
The Separate Award addressed all legal and factual issues between the parties save those relating to specific matters identified in the Separate Award for determination. Clearly, the Separate Award was not and is not a basis for a Party re-arguing issues on which it has lost, or raising new claims going beyond those previously stated in its requests for relief, or advancing arguments on issues which the Tribunal has not specifically left open for determination in its Final award.
514.
Naftogaz' submissions and requests for relief after the Separate Award include a large number of new issues and claims placed before the Tribunal for potential adjudication. For example:

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.

515.
These are all new claims raising new issues. Gazprom objects to the introduction of these new claims.
516.
Naftogaz is not entitled to raise these new claims and new issues. These new claims and new issues are not derived from the Separate Award. The Separate Award was intended to dispose of the principal issues on price revision and take or pay, leaving to be determined only those matters identified in the Separate Award being (most importantly) the remaining issues. Those "remaining issues" fall to be identified by reference to the pleadings and requests for relief before the Tribunal as at the date of the Separate Award (or, as the Tribunal puts it, these are "derived from" the Separate Award).235
517.
Gazprom has two principal arguments in this respect:

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.

518.
Further, with respect to some of the new claims and new issues raised, there is a subsidiary argument that Naftogaz is precluded from advancing these on the grounds of res judicata. These arguments are addressed in turn below.

7.2.1.3 Naftogaz is precluded from raising new claims and new issues which are not derived from the Separate Award

519.
The Separate Award was intended to dispose of the principal issues on price revision and on take or pay, leaving to be determined those issues identified in the Separate Award, being the "remaining issues". The Tribunal's decision to render a Separate Award was delivered on 8 May 2017. The final paragraph provided as follows:

"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.)

520.
Those "remaining issues" necessarily fall to be identified by reference to the pleadings and the requests for relief as they stood before the Tribunal at the date of the Separate Award, and as further identified by the Tribunal in the Separate Award where it specified in the relevant Decisions the matters that still needed to be determined.
521.
This is also reflected in paragraph 342 of the Separate Award, which provides:

"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 [...]"

522.
That this is the meaning and intent of the decision of 8 May 2017 is also fully borne out by the correspondence between the Tribunal and the Parties that preceded that decision.
523.
It is clear that Naftogaz accepts that an issue that has not been identified in the Separate Award or which is not consequential from the findings of the Tribunal cannot be pursued.
524.
The following new claims and new issues raised by Naftogaz are neither identified as "remaining issues" in the Award nor are they consequential on findings of the Tribunal. Thus, even Naftogaz must accept that it is precluded from now advancing these new claims and new issues:

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.

7.2.1.4 Alternatively, it is inappropriate to allow Naftogaz to amend or supplement its claims at this late stage of the proceedings

525.
Even if the Tribunal decides that Naftogaz' new requests for relief are not precluded for the reasons given above, Naftogaz can only advance its new claims and new issues if it is permitted to amend its claim under Article 25 of the SCC Rules. Pursuant to Article 25, provided that the proceedings are not closed, a party may amend or supplement its claim if it is still comprised by the Arbitration agreement, unless the Tribunal considers it inappropriate to allow such amendment or supplement having regard to the delay in making it, the prejudice to the other party and/or any other circumstances.
526.
The Tribunal should not allow such amendment for the following reasons:

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.

7.2.1.5 Further and in any event, Naftogaz is re-opening issues that are res judicata

527.
In addition to the raising of new claims and new issues, Naftogaz seeks to re-open issues which have already been decided by the Tribunal. It is precluded from doing so on the grounds of res judicata. Accordingly:

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.

7.2.1.6 The Tribunal's decision [REDACTED]

528.
The Parties' have not been able to reach agreement on a new formula to give effect to the Tribunal's Decision (2), in which the Tribunal declared:

"(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."

7.2.1.7 Gazprom's proposal

529.
Gazprom's proposal is set out below. For ease of reference, this is reflected in redline against the relief that Naftogaz sought with additions reflected in underlined text and deletions reflected in strike through text.

[REDACTED]

7.2.1.8 Naftogaz' proposal

539.
Naftogaz' proposal was set out in the Hesmondhalgh Memorandum of 27 June 2017 and is set out below:

[REDACTED]

540.
Naftogaz’ proposal, set out above, bears little resemblance to the relief sought by Naftogaz in the Arbitration. There is no basis upon which the Tribunal should find for such a price formula; to do so would be to decide something that is inconsisttent with the decision on Naftogaz’ price revision claims that the Tribunal already rendered.
541.
Gazprom's Proposal followed closely Naftogaz' proposal for the revised price formula as set out in its request for relief of 15 November 2016. That request sought a Contract Price based on quarter ahead NCG hub prices, revised prospectively on a quarterly basis. The only adjustments from that proposal in the Gazprom Proposal were, and remain, limited to reflecting (i) the rejection by the Tribunal of Naftogaz' submission as to the deductions that should be made from the [REDACTED] prices, namely deductions [REDACTED] and the Tribunal's decision to use [REDACTED] If the Tribunal had ruled in favour of Naftogazthen [REDACTED] then the starting Contract Price (Po) would have been that sought by Naftogaz in its request for relief, namely USD [REDACTED]
542.
As explained in Dr Moselle's Report of 15 September 2017 ("Moselle Report 1"), if Naftogaz had maintained its request for relief of 15 November 2016 and adjusted only to reflect the Tribunal's decisions on the matters identified in the previous paragraph, the result would have been a starting Contract Price of USD [REDACTED] exactly the price now proposed by Gazprom. The Tribunal is referred to paragraphs 2.2 and 2.3 of Moselle Report 1 as reproduced below.

Table 2-1: Calculation of P0 in Naftogaz's April 2014 price revision claim

[REDACTED]

543.
Having failed to win on these points Naftogaz [REDACTED], the proposal contained in the Hesmondhalgh Memorandum to make changes (not previously sought) to both the proposed new formula and other terms of Article 4.1 so as to get as close as possible to the P0 it had sought in its request for relief before the issuance of the Separate Award.
544.
Naftogaz' excuse for its change is that this is required to reflect the Tribunal's rejection of "Naftogaz's reasoning for the application of [REDACTED]238. As explained below, this is a fiction. The Tribunal did not reject the use of [REDACTED] it did not reject averaging prices over a three-month period (as Naftogaz' request for relief sought) and it did not reject the principle of the Contract Price continuing to be revised at quarterly intervals (a point that was not at issue). What the Tribunal did reject [REDACTED]. The consequences of that decision on the formula and the calculation of P0 are obvious.
545.
As far as the base price is concerned, in giving evidence, Dr Hesmondhalgh confirmed that her reports reflected, in the context of a contract that provides for [REDACTED] pricing, i.e., where the price is set, [REDACTED] that (1) a [REDACTED] price averaged over the previous quarter is the representative market price at the relevant dates, and (2) the only adjustments that were sought to that market price by Naftogaz (being the representative market price, [REDACTED] the reference market for which Naftogaz contended and which the Tribunal accepted), were the adjustments in relation to [REDACTED] Both such adjustments were [REDACTED] in the Separate Award. The consequence of those decisions, together with the change from bid to mid prices, is that the base price is increased to the level of 351.62.239
546.
Dr Hesmondhalgh changed her approach to pricing which became unclear at the October Supply Hearing, when she revealed that she was given a change of instruction by Naftogaz' counsel. The change of instruction was that the contract "is no longer relevant" and in particular that she should not assume that the quarterly pricing provisions in the contract remain in place.240 Taking those pricing provisions, she then worked on the assumption that pricing could be carried out at different intervals than that in the current contract, and that the Contract Price could be determined retrospectively rather than prospectively. She then engaged in a whole new exercise of deriving a different market price and different provisions as to when pricing should take place. She presented several different options in her report, one of which is reflected as Naftogaz' primary claim, which uses [REDACTED] prices determining the price at [REDACTED]
547.
The Tribunal will have to decide:

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.

548.
Gazprom respectfully submits that, for the reasons explained in further detail below, there is no basis for Naftogaz to argue that the Tribunal has made any such finding.

7.2.1.9 Naftogaz' New Proposal

7.2.1.9.1 The key differences between the Parties

549.
In the light of the changes made by Naftogaz to its proposal, Gazprom's updated list of key issues is therefore as follows:

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").

550.
In addressing these issues in turn below, Gazprom has confined itself to addressing points raised in Naftogaz' Submission, referring the Tribunal where appropriate to matters raised in Gazprom's Submissions.

7.2.1.10 The Tribunal's decision [REDACTED] has already resolved Naftogaz' Request for Relief

551.
The Tribunal's [REDACTED] is to be interpreted as finally resolving all issues relating to Naftogaz' price revision claims, and the Parties should not be permitted to raise new issues or requests in relation to such claims. This is consistent with the Tribunal's indications in its Decision on the Separate Award dated 8 May 2017 that the Separate Award would:

"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."

552.
Each of Naftogaz' proposals in relation to price is either different from what it sought in its request for relief prior to the Separate Award,241 is entirely new, or has already been decided by the Tribunal:

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.

553.
Naftogaz seeks to justify these new demands on the erroneous basis that the Tribunal decided in the Separate Award that "[REDACTED]"244, and that unless [REDACTED]
554.
Naftogaz' reasoning is inherently flawed:

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.

555.
It is clear from [REDACTED] that the Tribunal decided the following questions:

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".

556.
It is also clear from the reasoning in the Separate Award that, in reaching its decision, the Tribunal also decided several additional questions, including, amongst others, the following:

[REDACTED]249

[REDACTED]250

[REDACTED]251

[REDACTED]252

[REDACTED]253

557.
The word invoked by the Tribunal in Decision (2) - "formula" - reflects the wording of Article 4.1, namely the formula for the Contract Price, Pn: "The Contract Price for the natural gas having the basic net calorific value of 8,050 kcal/m3 and delivered hereunder shall be calculated on a quarterly basis according to the following formula: [...]" It is thus the constituent elements of the formula for the Contract Price that fall for determination - nothing else.
558.
It appears from various passages of the Separate Award to have been the Tribunal's understanding that the changes sought by Naftogaz were limited to the price formula, and nothing else.254 It is notable that, in rejecting Gazprom's argument that the Tribunal could revise the Contract Price at a particular date but could not revise the elements of the price formula which would fix that price at quarterly intervals going forward, the Tribunal decided [REDACTED] the Tribunal's decision went no further than that.255
559.
At paragraph 3582 of the Separate Award, the Tribunal concluded that "[REDACTED]" emphasis added). Importantly, the Tribunal concluded, at paragraphs 3724 - 3727, that [REDACTED] is clearly a reference to the remaining elements of the formula. Gazprom therefore respectfully submits that it is the formula that was left to be determined in the final award and that is the scope of the matters that are open to be determined in the final award, and nothing else.
560.
And indeed, nothing else was ever discussed or even raised as an argument by Naftogaz prior to the Separate Award. Consequently, all that is left to be determined by the Tribunal in the Final Award are the remaining elements of the formula.
561.
Naftogaz argues that "[REDACTED] does not only refer to the formula as such, but also to its remaining constituent elements".256 This only serves to emphasise that the elements to be determined - the "remaining constituent elements" - are the elements of the price formula. Naftogaz goes on to extrapolate that "[t]he reasoning in 3724 to 3727 of the Separate Award" - considered above - "makes clear that the remaining elements of the price formula, including (but not limited to), [REDACTED] are subject to revision. Hence it is within the Tribunal's powers to define the new [REDACTED]effectively replacing the current G 0, G, M 0 and M."257 Gazprom does not disagree with this. However, Naftogaz then goes on to state that "[t]he current reference periods and recalculation dates are part of the definitions of Pn, G and M, and setting another reference period and recalculation date for H which reflects the level of market prices is within the Tribunal's powers."258
562.
A distinction needs to be made between the reference period - which is the period over which prices are used for the purposes of determining G and M - and the dates on which the price falls to be recalculated under the price formula. The former is part of the formula, the latter is not. The Contract provides specifically, in the opening two lines of Article 4.1 - that "the Contract Price... shall be calculated on a quarterly basis, according to the following formula". After setting out the Pn formula, Article 4.1 then goes on to state that "[t]he Contract Price shall be determined as at 1 January, 1 April, 1 July and 1 October of each year of delivery and shall be valid within the corresponding quarter of the year of delivery." The contractual provisions thus make a distinction between the formula - which gives you Pn and which was the subject of Naftogaz' request for price revision and of the Tribunal's decision - and the provisions of Article 4.1, which require that the price is determined quarterly in advance. That is a very important distinction and is reflected in the fact that the only changes to the Contract Price that were sought by Naftogaz prior to the Separate Award were changes to the formula for the Contract Price.
563.
A very significant element of Naftogaz' new claims is for Article 4.1 to be changed so that the price is determined retrospectively and on a monthly basis. This is significant because, prior to the Separate Award, Naftogaz maintained the position that if the price is set prospectively and on a quarterly basis, then it makes perfect sense to have a quarter ahead price. So, in order to depart from that argument, Naftogaz needs to argue for a very different Article 4.1.
564.
Naftogaz consequently argues for a much wider interpretation of the words [REDACTED] in the Tribunal's Decision [REDACTED] contending that it "applies to all of the [REDACTED] elements that are disputed between the parties"259. Gazprom respectfully submits that it is clear from the Separate Award - as cited above - that the words [REDACTED] are limited to the [REDACTED] elements of the formula.
565.
Naftogaz argues, referring to paragraph 3724 of the Separate Award, in which the Tribunal states that [REDACTED] (emphasis added), that, in addition to the price formula, the Tribunal is here indicating that the other "price provisions" referred to by Naftogaz (including Articles 4.1, 4.2 and 4.3) may be adjusted.260 That is not case. The argument by Gazprom that the Tribunal was disposing of in this paragraph was the argument that the Tribunal could only change P0 but not the indexation element. There was no need for Gazprom to argue that Article 4.4 did not allow the Tribunal to amend provisions other than the formula for the Contract Price - and Gazprom advanced no such argument - as no claim for adjustment of the other "price provisions" had been advanced by Naftogaz in its price revision claims.
566.
In a section titled, "The Tribunal's findings require consequential adaptations", Naftogaz argues that "the Tribunal's findings against Naftogaz on some points, notably in respect of [REDACTED]261 This argument has been included by Naftogaz as an open-ended means to introduce new issues and claims allowing it to focus on some word,[REDACTED] or sentence in the Separate Award as a pretext for making its new claim. This approach is impermissible.

7.2.1.11 Issue [REDACTED]

567.
Naftogaz seeks to amend the provision in Article 4.1 that expressly provides that the Contract Price will be fixed at quarterly intervals and that it will be fixed prospectively. These are not issues left over for determination by the Separate Award and it is not open to Naftogaz to request this adjustment. Even if it was theoretically open for Naftogaz to amend its claim, it is far too late in the proceedings to do so.
568.
Until issue of the Separate Award, it was common ground that the price under Article 4.1 is set, and should continue to be set, not just quarterly but prospectively. However, in its submissions after the Separate Award, Naftogaz has repeatedly wrongly asserted that under the existing Contract the Contract Price is not set prospectively but in fact is determined monthly, retro-spectively.262 It is clear from reading Article 4.1 that the price is fixed every quarter for the next quarter, and the reconciliation process under the invoicing regime, (carried out on a monthly basis), is not a determination of the Contract Price retrospectively. Other provisions of the Contract also make this clear:

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.

569.
There is consequently no doubt that the price is fixed prospectively. The changes to Article 4 which Naftogaz now proposes be made would not fit in with those provisions of the contract that are designed to work with the quarterly, prospective price.
570.
Naftogaz has sought to justify its change of position on the basis of its highly surprising submission that it "understands that the Tribunal has rejected Naftogaz's reasoning for the application of [REDACTED] prices averaged over a significant reference period to determine the level of market prices, which essentially relied on alternative sales of the Contract Gas, a netback logic and hence the recalculation dates of the prevailing Contract Price."264 Nowhere in the Separate Award did the Tribunal reject the reasoning for the application of [REDACTED] prices averaged over a reference period, for the simple reason that that issue had not been raised in any submissions made by either party prior to the Separate Award. Naftogaz relies on paragraphs 3632, 3637 and 3657 of the Separate Award. There is nothing in the reasoning set out in those paragraphs to suggest that the Tribunal has rejected the use of quarter-ahead prices averaged over a reference period. [REDACTED].265
571.
Under a heading titled [REDACTED]266 Naftogaz explains that "[REDACTED] and "[f]or that reason, Naftogaz realized that its previous request for [REDACTED] prices was incorrect, and amended its request accordingly to correspond with the Tribunal's reasoning".
572.
The specific reasoning quoted by Naftogaz for this purpose is the single statement in paragraph 3657 of the Separate Award that, [REDACTED].267 This paragraph was somehow supposed to represent a finding by the Tribunal that the Contract Price is not relevant and that this meant that the provisions of Article 4.1 for quarterly pricing in advance could be changed or ignored.
573.
The context in which this paragraph of the Separate Award appears is important. It appears in relation to the issue of whether the Tribunal should apply a delta-delta or end-of-period approach, and the Tribunal made those observations as part of its reasoning in deciding in favour of the end of period approach, which of course was Naftogaz' primary claim before the Tribunal. This statement cannot possibly be said to be a rejection of the fundamental basis on which Naftogaz was advancing its claim for [REDACTED] prices, let alone of the applicability of the provisions in Article 4.1 for the price to be fixed quarterly in advance. There was no such rejection, and the issue did not even come up for debate. The Tribunal's rejection of the claim for netback had nothing to do with whether or not [REDACTED] prices were appropriate, let alone whether or not pricing under the Contract should remain quarterly in advance.
574.
Thus, the reasons put forward by Naftogaz to justify a change from quarterly, prospective pricing to monthly, retrospective pricing do not bear scrutiny and frankly are absurd; there is consequently no justification for the change. Naftogaz has explained that it had advanced its claim for the price to be set on the basis of [REDACTED] prices on the basis that it would succeed on its arguments in respect of netback.268 Naftogaz provided no references to any pleadings where this was made explicit. That is, no doubt, because there are none. The explanations that were given by Naftogaz for using QA prices were very different from those being advanced now: all were concerned with the fact that if a contract sets the price every quarter, the appropriate measure to use for the market price is the quarter-ahead price.
575.
There is not a single suggestion anywhere in the submissions that were made by Naftogaz prior to the Separate Award that if Naftogaz' [REDACTED] That is significant, as when post hearing briefs were submitted in November 2016, at which time Naftogaz submitted amended requests for relief, the parties did not know there would be a Separate Award and indeed the assumption was that there would be only a final award. [REDACTED] one would have expected Naftogaz to have spelled that out, and to have sought an alternative relief on that basis. It did neither of those things. The reason it did not do so is because this is a pretext that Naftogaz conjured up only after the Separate Award.
576.
The change now sought by Naftogaz is not a change to the price formula for the Contract Price; it is a change to the separate requirement that that Contract Price be determined on a quarterly basis in advance. Gazprom's position is that it is not open to Naftogaz to change their relief sought in this manner.
577.
Naftogaz states that, "Mr [REDACTED] confirms that G and M, including their recalculation dates and reference periods, are constituent prices of the price formula under Article 4.1"269[REDACTED] statement says nothing of the sort. What is said in his witness statement is that "G and M are calculated for each quarter of the relevant year by reference to the arithmetic mean of prices published by Platts for nine months preceding the relevant date. They consequently change over the life of the contract."270 That is not an acceptance by [REDACTED] that the requirement to recalculate the Contract Price every quarter is part of the formula; it is a reference to the requirements of Article 4.1 as a whole, which provides for the Contract Price to be recalculated every single quarter prospectively, in accordance with the formula. It describes when to apply the formula, not what is in the formula.
578.
Naftogaz goes on to argue that "[c]ommon sense says that Gazporm's interpretation must be incorrect. Simply amending the formula in a narrow sense by deleting the letters "G" and "M" and replacing them by the letter [REDACTED] is defined in the revised text of Article 4.1".271 There is no dispute that the constituent elements of the formula need to be defined. That is what Naftogaz did in its requests for relief submitted, and is what Gazprom agrees the Tribunal should do in the final award. However, that does not have any impact on the other provisions of Article 4.1 concerning the determination of the price prospectively and at quarterly intervals; those do not form - howsoever much Naftogaz seeks to argue it - a part of the formula.
579.
The Tribunal cannot make that adjustment because (a) it is not an issue left over for determination (it is not a claim "derived from" the Separate Award272), and (b) Article 4.4 does not extend to changes other than to revise the Contract Price as defined.

7.2.1.12 [REDACTED]

580.
Naftogaz’ proposal is that at each price determination date the Contract Price for the relevant period should be determined on the basis of [REDACTED]
581.
Naftogaz’ proposal should be rejected for the reasons set out below.
582.
First, in all of its requests for relief Naftogaz sought a quarterly price set by reference to quarter ahead NCG prices.273 Naftogaz’ current proposal is, therefore, flatly inconsistent with what it requested prior to the Separate Award in these proceedings.
583.
This fact, by itself, suffices to reject Naftogaz' proposal. As noted above, the Tribunal cannot rule in favour of Naftogaz because it would effectively grant relief which deviates from the Parties' requests for relief.
584.
Second, Naftogaz' rationale for using [REDACTED] None of the reasons that Naftogaz now advances deals with this basic point (that the Contract provides for a quarterly price and using [REDACTED] quarter ahead prices allows for the derivation of a "reliable" quarterly price).
585.
Third, Naftogaz presents no cogent rationale for altering the Contract to provide for [REDACTED] prices rather than a [REDACTED]

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]

586.
For all these reasons, Naftogaz' new requests in respect of both the formula for the Contract Price and the changes to Article 4.1 in respect of the timing for price changes should be rejected.
587.
Naftogaz is wrong to say that the Tribunal rejected the use of [REDACTED] or the adoption of a [REDACTED] period.
588.
Further and in any event, there is no cogent rationale for [REDACTED]
589.
With respect to Naftogaz' [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.

590.
Naftogaz advances alternative submissions involving a range of different pricing measures and reference periods. They are not reflected in any revised formulation of Article 4.1, appear to be complex (for example, suggesting a reference period of the last 5 or 10 days of deliveries, presumably even in the case where the price is being fixed for the following quarter) and are not justified. As Dr Moselle observes in Moselle Report 2, paragraph 3.6:

"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

591.
In the course of giving evidence, Dr Hesmondhalgh admitted that a number of the arguments made in her reports were given on the basis of instructions from the Naftogaz legal team. These instructions are not reflected in her reports. Indeed, Dr Hesmondhalgh indicated that she did not see a distinction between her "understanding" of the how elements of the Separate Award should be interpreted and "being instructed" by the legal team as to what interpretation to adopt.281
592.
[REDACTED]

1. [REDACTED]282

2. [REDACTED]283 or

3. [REDACTED]284

593.
Indeed, Dr Moselle confirmed that quarter-ahead, month-ahead and day-ahead prices are all "market prices" that reflect different aspects of the NCG. He further explained that, [REDACTED] are less sensitive to short term changes affecting levels of gas consumption, such as the weather, and that this feature makes it appropriate for a longterm contract such as the Sales Contract.
594.
The "smoothing of prices" that Dr Moselle describes is appropriate given the relatively "flat" delivery profile provided for under the Contract, and in particular, as a result of Article 3.2, which provides that deliveries are to be conducted "evenly", with a permitted deviation from the average daily delivery rate of no more than +/- 6%. It is clear from the express wording of the contract that the parties did not intend for delivery volumes to fluctuate considerably from day to day.

7.2.1.13 Fixing P0

595.
[REDACTED]
596.
This is the base price which Naftogaz sought in its request for relief prior to the Separate Award (the average Q1 2014 QA hub price), as adjusted for three items: [REDACTED]. Given that [REDACTED].286
597.
Table 2-1 of Dr Moselle's fifth report sets out the calculation by Naftogaz of the base price, P0, that Naftogaz was seeking in its post hearing submissions in November 2016.287 That base price was [REDACTED] and is comprised of [REDACTED] (with an adjustment to convert [REDACTED]) and [REDACTED] Before the stated adjustments and deductions, [REDACTED]. That base price [REDACTED] is precisely the figure that Gazprom has proposed in its submissions following the Separate Award: these are shown in yellow and tracked changes to reflect the amendments to Naftogaz' previous claims for relief.288

7.2.1.14 1.4% deduction on account of "calorific value"

598.
This relates to Naftogaz' proposed change both to Article 4.1 and, by deletion, Article 4.2, so as to adjust calorific value, in particular by removing the fixing of the Contract Price by reference to product with a calorific value of 8,050 kcal/m3 and removing the price adjustment under Article 4.2 where the delivered product has a higher or lower value.
599.
Article 4.1 expressly provides in its opening sentence that the commodity to which the contract price relates is "Natural gas having the basic net calorific value of 8,050 kcal/m3". Article 4.2 then provides for an adjustment to the Contract Price to arrive at the factual price Px dependent on the calorific value of the gas delivered: Px = Pn x Qact / 8050, where Qact is the weighted
600.
In Naftogaz' requests for relief on price revision prior to the Separate Award, it did not seek to change the reference in Article 4.1 to the Contract Price relating to the gas with a calorific value of 8,050 kcal/m3, nor did it seek to change Article 4.2.
601.
In contrast, in its post-award proposal, as explained in Hesmondhalgh Memorandum, Naftogaz does seek change. It proposes that the [REDACTED], which is a price per MWh, should be converted into a price per 1000 m3 using a conversion factor that is equivalent to an assumed net calorific value of 8,050 kcal/ m3. That in itself is unobjectionable, since it is in accordance with the provision in Article 4.1 (referred to above) that the commodity to which the contract price relates is "Natural gas having the basic net calorific value of 8,050 kcal/m3".
602.
However, what is objectionable is Naftogaz' proposal that the base price, P0, be multiplied by 8050 / Qfact, or 8160, (being the average calorific value of gas delivered during April 2014), the effect of which would be largely to cancel out the adjustment provided for by Article 4.2. Dr Hesmondhalgh switches the denominator (Sw. namnare) in the calculation under Article 4.2 to the numerator (Sw. taljare) in this calculation of the base price (Po). The effect of this is substantially to "undo" the calorific value adjustment provided for in Article 4.2.
603.
This is a new request for relief and for the reasons given above is impermissible. There is no finding in the Separate Award that the calorific value provision should be adjusted, let alone deleted.
604.
Even if the request had been raised before the Separate Award, the Tribunal would not have been able to make this change.289
605.
Further and in any event, for the reasons given below, there is no commercial justification for the adjustment sought.
606.
A calorific value adjustment is a standard term in natural gas contracts under which natural gas is sold by volume (cubic meters) instead of energy units (MWh). It is of course entirely logical that natural gas should be priced by reference to its energy content and not just volume; the higher the calorific value of the natural gas, the higher its energy content. NCG hub prices are in MWh and can only be converted into a price per 1000 cubic metres by reference to the energy content of the gas.290
607.
Dr Hesmondhalgh attempted to support Naftogaz' request that the calorific value adjustment provided for under Article 4.2 of the Contract be eliminated and the price formula be amended to reflect a fixed calorific value of 8050 kcal/m3: "[…] gas in Ukraine is always - and indeed in fact in all the markets with which I am familiar, if you are a residential customer you have a meter that measures volume. In Ukraine you then get charged directly on the volume; if you're in the United Kingdom you get charged - it's converted into an energy content, but it's done at a fixed calorific value. So everyone in a sense gets charged on the basis of volumes and not on energy."291 When asked again whether it was the case that in the UK market everyone pays more for gas when its energy content or calorific value is higher, Dr Hesmondhalgh replied, incorrectly, "no".292
608.
Dr Moselle (a former Managing Director of Ofgem, the UK energy regulator) addressed the pricing of gas by energy content in some depth during his presentation:

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

609.
Whatever the true position is with regard to the pricing of gas to Ukrainian end consumers, it is irrelevant to the determination of the price under the Contract. The issue of whether or not Ukrainian end consumers are charged for the actual energy content of the gas supplied is a matter for the Ukrainian authorities, not this Tribunal. There is no justifiable reason why Gazprom should not be paid by Naftogaz for the actual energy content of the gas delivered to it, and Article 4.2 was included in the Contract for that specific purpose.
610.
For example, since April 2014, the average delivered net calorific value under the Contract has been 8,207 kcal/m3. Without the adjustment of the Contract Price (which assumes a net calorific value of 8,050 kcal/m3), under Naftogaz' April 2014 price revision claim it would have ended up paying around 1.4% less than NCG prices per unit of energy delivered (again leaving aside Naftogaz' other deductions from NCG prices).296
611.
In any event:

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.

612.
This is effectively a new request for relief and is impermissible. Naftogaz' requests for relief as at the date of the Separate Award sought no such adjustments.
613.
The proposal by Naftogaz to delete Article 4.2 is described by Naftogaz as a "technical and consequential" adjustment. It does not even begin to explain on what basis it is entitled as part of the price review to seek (let alone to seek at this late stage) deletion of this Article, nor does it address the obvious problems it has as to jurisdiction.
614.
Naftogaz addresses briefly its reason for seeking the adjustment, which in short is the contention that gas of the higher calorific value is of no benefit to Naftogaz. In this regard, it is to be noted that:

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.

7.2.1.15 Re-entry costs

615.
Naftogaz seeks a further deduction for re-entry costs paid to its wholly owned subsidiary "Ukrtransgaz" (the term "Em" in its proposed formula). Naftogaz explained, in the context of its netback calculation, that it had elected to deduct a "calculated transit cost" in place of regulated 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 [REDACTED]298 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. What Naftogaz is proposing is essentially netback through the back door.
616.
Again, this proposal must be rejected because: (1) the issue has already been decided: the Tribunal rejected Naftogaz' claim for a [REDACTED] (2) no request for a deduction for entry charges was made by Naftogaz (or Gazprom) prior to the Separate Award and, as a result, the Tribunal cannot grant such a deduction, and (3) in any event, the request for such a deduction is not justified.
617.
With respect to the third reason for rejecting the proposal, the Tribunal's instruction [REDACTED] at a formula which reflects the" [REDACTED]" (see Separate Award, para. 3724). The Tribunal determined that [REDACTED]. Nothing in the Separate Award supports any further deduction from these prices. Contrary to what Naftogaz asserts, the fact that the contractual delivery points are on the Russian and Belarussian sides of relevant Ukrainian borders does not justify imposing a price at the delivery point which is less than the [REDACTED]
618.
Furthermore, this proposal would give rise to an incentive problem because "the Ukrainian energy regulator could influence the price of gas paid by Naftogaz, a state-owned entity, when setting entry tariffs. Setting a higher entry tariff would in effect take money from Gazprom and give it to Naftogaz". That this concern is a real one is evidenced by the fact that Ukrainian entry tariffs are around four times higher than 2015 German entry costs.299
619.
Naftogaz says that it understands the Tribunal to have intended "that Naftogaz shall pay a price which essentially corresponds to the price at the [REDACTED] was located in Ukraine". None of the passages from the Separate Award which it cites supports that understanding. On the contrary:

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.

620.
Further, none of the passages cited by Naftogaz formed a part of the Tribunal's reasoning directly relevant to the revised price, but rather to its decisions on retroactivity and whether the trigger condition under Article 4.4 is satisfied.
621.
Dr Hesmondhalgh confirmed that there were no actual transactions going on in [REDACTED] where the price is [REDACTED]300
622.
The adjustment to the Contract Price sought by Naftogaz in respect of Ukrainian entry charges (which are very high relative to German ones301) represents a renewed attempt by Naftogaz [REDACTED] This should be rejected as inconsistent with the Tribunal's findings that, for the purposes of Article 4.4 the market in the phrase "level of the prices in the market" should mean the German market.302

7.2.1.16 Naftogaz' changed position on exchange rates

623.
In the proceedings to date, both Parties have used the exchange rates published by the European Central Bank ("ECB").303 Further, in its request for relief earlier in the Arbitration, Naftogaz' proposed formula included use of [REDACTED] exchange rates.
624.
Now, Naftogaz seeks for the first time to advance a formula using [REDACTED]exchange rates. It is pretty obvious that the reason for this change is that Naftogaz has found that by switching to these rates it will reduce its liability for past deliveries by around USD 10m.304
625.
The graph below shows that the difference in the sources has been both positive and negative since 2014 - there is no systematic bias in the data, although the differences can be large in a given month. However, the effect of switching to [REDACTED] is to reduce the claim, in favour of Naftogaz, by around USD 10m (under Gazprom's claim).

[REDACTED]

626.
Naftogaz puts forward the excuse that this is due to a "recent change in circumstances" of Naftogaz, namely the fact that since April 2015 Naftogaz has been using [REDACTED] data in many of Naftogaz' operational processes.305 No explanation is given as to why, if that be the case, the change did not feature in its previous requests for relief, nor is any explanation given as to why the fact that Naftogaz has for some purposes used [REDACTED] exchange rates since April 2015 would justify the inclusion of those rates in the formula, particularly a formula being revised with effect from 27 April 2014.
627.
Further to the 9-10 October 2017 hearing, Dr Hesmondhalgh and Dr Moselle have conferred and agreed that, "[s]witching [REDACTED] leads to a decrease in Gazprom's claim under Naftogaz’s position but an increase under Gazprom's position due to differences in timing of trading under the quarter ahead and day ahead". Regardless of the impact on the monetary amounts owing between the Parties, Gazprom's position is that this is an impermissible amendment of Naftogaz' request for relief, for the reasons set out above. In any event, there is no reason to alter the use of exchange rates published by the [REDACTED] the proposed switch to which was, as Dr Hesmondhalgh admitted, for the sole reason of "Naftogaz's convenience".306 That is not a justifiable reason for the change.

7.2.2 Outstanding issues arising from the Tribunal's findings in respect of Articles 2.2 and 2.2.5 of the Contract

7.2.2.1 The Tribunal's decision

628.
The Tribunal in its Decisions (4) and (5) [REDACTED] The Tribunal makes clear in the reasoning to its Decisions that the replacement provisions are to be based on a [REDACTED]
629.
Reference is made to the Tribunal's Decision (5), in which the Tribunal declared:

"(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."

630.
The Tribunal correctly identified that only the wording of Article 2.2 needs to be modified in order to implement the Tribunal's decision that [REDACTED] as the existing wording of Article 2.2.5 already provides that the MAQ is to be determined as 80% of the ACQ. Accordingly, the only revisions to the Contract that are required as a consequence of the Tribunal's Decision (5) are that:

[REDACTED]

631.
No other revisions are required to be made to the Contract as a consequence of the Tribunal's Decisions (4) and (5).

7.2.2.2 Decision (5) is not in accordance with either of the Parties' requests for relief

632.
The Tribunal decided that, from the date of the Final Award, Gazprom's take or pay obligation, the "MAQ" [REDACTED] and that the ACQ [REDACTED] The Tribunal's Decision (5) therefore appears to be that [REDACTED]
633.
Whilst the journal Energobiznes publishes total imports to Ukraine, what proportion of this total figure comprise imports by Naftogaz is not a matter of public record or verifiable. Import figures that Naftogaz has provided in these proceedings (for the purposes of providing an alternative valuation of Gazprom's Take or Pay Claims based on 100% of its imports) are as follows:
634.
Naftogaz' imports, 2012 to 2016307

2012 2013 2014 2015 2016
Naftogaz' imports, in bcm 24,956 13,773 19,258 15,385 8,169

641.
If the Tribunal's Decision (5) was applied retrospectively, using actual, historical import data from Naftogaz (i.e. in the final row of the table above), calculated as 80% of 50% of Naftogaz' imports, then the resulting "MAQ" for each relevant year would be as follows:

2012 2013 2014 2015 2016
80% of 50% of Naftogaz' imports 9.9824 5.5092 7.7032 6,154 3.2676

648.
These figures are all very significantly below the MAQ of 11.6 bcm that Naftogaz requested in its claims for relief.
649.
In all its claims for relief - from those submitted in its Statement of Claim until those reflected in its Post Hearing Submissions, Naftogaz requested that the Tribunal amend the ACQ to [REDACTED] Whilst Naftogaz sought certain revisions to the take or pay provision (Article 2.2.5), it did not seek to adjust the level of take or pay: the replacement provision put forward by Naftogaz stipulated that that MAQ should comprise [REDACTED] The replacement provisions sought by Naftogaz are as follows:

[REDACTED]

Emphasis added.)

650.
At the time of filing its Post Hearing Submissions on 15 November 2016, Naftogaz was well aware of its import needs in 2016 and going forward. Naftogaz did not amend its claims for relief at that time and instead maintained its request that the Tribunal adjust the take or pay figure to the level of 11.6 bcm.
651.
Thus, the Tribunal has awarded something that is significantly lower than what Naftogaz formally requested in its claims for relief.
652.
The Tribunal's Decision (5) does not represent a compromise between the positions put forward by both parties. Its effect is to award something much lower than both Parties' requests. It is also different in character to what Naftogaz requested. Neither party requested that the take or pay obligation be adjusted by reference to Naftogaz' future imports, which change over time. Naftogaz requested that the annual volume be adjusted to a defined figure.
653.
As for Gazprom's position, Gazprom argued that, if its primary position (that the volume and take or pay provisions be upheld) was not accepted, Articles 2.2 and 2.2.5 of the Contract should be adjusted as little as possible and Gazprom noted in this regard that Naftogaz had accepted that under European competition law a volume obligation (i.e. MAQ) which comprised "50% of Naftogaz's needs" would be of an acceptable level.308 Gazprom submitted that "Naftogaz's needs" were represented by total Ukrainian consumption (not imports), since until very recently Naftogaz had a monopoly on supplying Ukraine's gas needs. Naftogaz itself advanced, as a defence to Gazprom's Take or Pay Claims, an alternative valuation of such claims which was based on reducing the take or pay obligation retrospectively to a level equivalent to 100% of Naftogaz' imports in the relevant years. Naftogaz made no suggestion that in the future Gazprom's supply obligation or Naftogaz' take or pay obligation should be set by reference to its imports, nor by reference to 80% of 50% of its imports, as the Tribunal has decided.
654.
Thus, the Tribunal appears to have awarded something that is very different, both in quantity and character, from what either party had requested.
655.
The Tribunal's reasoning [REDACTED]is not based on the Parties' submissions.
656.
Gazprom considers that the take or pay obligation should only have been adjusted in accordance with the Parties' respective requests for relief, and that the Tribunal's Decision (5) is clearly ultra petita, and cannot stand. Gazprom reserves all its rights in this regard, including the right to challenge Decision (5) on grounds for excess of mandate and/or procedural irregularity, as well as the right to challenge on the same basis any decision that the Tribunal may make in the Final Award in reliance upon Decision (5).
657.
In the meantime, and subject to Gazprom's express reservations as set out above, in light of the Separate Award, Gazprom sets out a proposal below for an adjusted take or pay obligation based on the wording of the Tribunal's Decision (5).
658.
Furthermore, the effect of the Tribunal's Decision (5) is to render both Gazprom's obligation to supply, and Naftogaz' obligation to take, invalid until such time as the Tribunal issues a final award. Naftogaz requested that the volume and take or pay provisions be declared invalid or ineffective and "replaced with a new provision" "with effect from the date of the award".309 Neither party requested that the supply provisions be invalidated for an interim period. Every day in which the take or pay obligation under the Contract remains invalid represents a day of lost revenue for Gazprom.
659.
Even once a Final Award is issued, the combined effect of the Tribunal having awarded a [REDACTED] and having reduced the take or pay obligation to such a low level is that the bargain entered into between the parties has been fundamentally altered, to the detriment of Gazprom.

7.2.2.3 Gazprom's position with respect to Naftogaz' requests for revision of the Contract

7.2.2.3.1 Naftogaz' proposals

660.
What Naftogaz now seeks is an extensive list of revisions, which go far beyond what the Tribunal decided in the Separate Award. In summary, Naftogaz seeks the following revisions to the Contract:

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.

661.
Of the above requested deletions and revisions, only Revisions 1 and 7 can be argued by Naftogaz to be required and/or permissible as a consequence of the Tribunal's Decisions (4) and (5) of the Separate Award. No relief of the nature now claimed by Naftogaz in its proposed Revisions 2 to 6 was ever claimed by Naftogaz prior to the Separate Award. The Tribunal must therefore reject outright Naftogaz' requests for relief in respect of Revisions 2 to 6.

7.2.2.4 The Tribunal should not amend provisions of the Contract beyond the specific adjustments it identified in Decision (4) of the Separate Award

662.
The Tribunal found that it was appropriate to [REDACTED] Articles 2.2, 2.2.5, 3.10 and 9.7 of the Contract, and [REDACTED] Articles 2.2 and 2.2.5, on the basis of Section 36 of the Swedish Contracts Act ("Section 36").
663.
The reasoning according to which the Tribunal found that Section 36 should be applied to adjust the Contract is set out in paragraphs 3859 and 3860 of the Separate Award:
664.
The Tribunal found that it was appropriate to apply Section 36 to adjust the Contract in order [REDACTED]
665.
Naftogaz fails to explain why the adjustments specifically identified by the Tribunal in Decision (5) and in its reasoning at paragraph 3864 of the Separate Award, namely, the adjustment of the ACQ in Article 2.2 and the addition of a make-up clause in Article 2.2.5, are insufficient to cure [REDACTED] by the Tribunal in reaching its decision to apply Section 36.
666.
Naftogaz in fact avoids referring to the specific reasoning of the Tribunal, and instead latches on to the Tribunal's comment in the preceding paragraphs, that [REDACTED]"317 as the basis for arguing that [REDACTED]. The authority cited by Naftogaz for this proposition is [REDACTED]318. In other words, the Tribunal has rejected the very reasons now cited by Naftogaz as a basis for making further amendments to the Contract pursuant to Section 36.
667.
The Tribunal did agree with Naftogaz' argument that [REDACTED]319 However, this also did not form the basis upon which the Tribunal found that it was appropriate to adjust the Contract pursuant to Section 36.
668.
[REDACTED]320
669.
It is this concern, and only this concern, that the Tribunal's [REDACTED]"321 Those provisions of the Contract that the Tribunal found to have raised concerns were Articles 2.2, 2.2.5, 3.10 and 9.7.[REDACTED].322 Because the Tribunal [REDACTED]
670.
The Tribunal must limit itself to making the contractual adjustments that it specifically identified in the Separate Award as having given rise to the application of Section 36. For this purpose, the Tribunal need only consider the merits of Naftogaz' proposals in respect of Revisions 1 and 7 ([REDACTED]) as against the corresponding proposals of Gazprom. As regards Naftogaz' proposal in respect of Revisions 1 and 7, Gazprom submits that these revisions go far beyond what is necessary to address the [REDACTED] concerns which underlie the Tribunal's application of Section 36, and that the proposals of Gazprom should be adopted as adequately addressing those concerns.
671.
Gazprom submits that the Tribunal should go no further than to address this concern. It is not for the Tribunal to rewrite the Contract in a manner that suits Naftogaz. The aim of the adjustments must be, in accordance with paragraph 3859 of the Separate Award, to amend the Contract only to the extent that the [REDACTED] concern that the Tribunal identified in the Separate Award is remedied.
672.
Moreover, the Tribunal does not have jurisdiction to make amendments that go further than this. The Tribunal's Decision (4) is final and has res judicata effect; it is not open to Naftogaz to seek new revisions to the Contract that it did not raise prior to the Separate Award. Accordingly, the only issues left over for determination by the Tribunal in the Final Award as a consequence of Decision (5) are:

[REDACTED]

7.2.2.5 Revision 1: Naftogaz' proposed adjustment of the ACQ does not reflect likel [REDACTED]

7.2.2.5.1 The Parties' respective proposals for implementing the Tribunal's Decision (5) to adjust the ACQ

673.
Gazprom requires certainty with respect to its future contractual obligations to supply and, equally, the obligations of its counterparties to take, natural gas. Gazprom's position is therefore that its supply obligation, and similarly Naftogaz' take or pay obligation, must be established as a set figure, and that this figure should be set on the basis of independent estimates. [REDACTED] is consistent with this interpretation. The opposite interpretation - that the figure should be variable and set at Naftogaz' discretion - would render the take or pay provision unclear, uncertain and commercially unworkable.
674.
Further, there are currently no publicly available forecasts of the Ukrainian gas balance, there being no requirement under current Ukrainian legislation for a forecast gas balance to be prepared or published.323

7.2.2.5.2 Projected imports to Ukraine

675.
Gazprom refers to a recent report published by the Oxford Institute of Energy Studies and authored by a long-term commentator on the Ukrainian gas market, Simon Pirani,324 entitled "Adversity and reform: Ukrainian gas market prospects" (the "Pirani Report").325
676.
The Pirani Report arrives at the following conclusions, which are relevant for the purpose of estimating the level of Naftogaz' imports over the next two years until the end of 2019 (when the Contract is due to expire):

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

2009 2010 2011 2012 2013 2014 2015 2016
21,345 20,463 20,614 20,539 21,441 20,510 19,896 19,987

677.
The difference between total demand (consumption) and domestic production is equivalent to the volume of gas that Ukraine must import from other sources in order to satisfy total demand. Thus, based on the projection in the Pirani Report that gas demand will stabilise at around 32 to 35 bcm per annum, total Ukrainian imports can be estimated to comprise between 12 and 15 bcm per annum.

7.2.2.5.3 Naftogaz' imports as a percent of total imports

678.
Since the entry into force of the 2015 Gas Law of Ukraine, under which a license is not required for the import of gas, parties other than Naftogaz have begun importing gas into Ukraine. Naftogaz' actual imports (as separate from total imports to Ukraine) are not a matter of public record in Ukraine - they are not published by Naftogaz, in Energobiznes or elsewhere. Data on Naftogaz' imports over the period 2012 to 2016 were submitted together with Dr Hesmondhalgh's 4th Expert Report dated 6 February 2017 (for the purpose of calculating an alternative valuation of Gazprom's take or pay claims based on 100% of Naftogaz' imports). According to the data provided, Naftogaz' imports over the period 2012 to 2016 were as follows:

Naftogaz' imports, 2012 to 2016331

2012 2013 2014 2015 2016
Naftogaz' imports, in bcm 24,956 13,773 19,258 15,385 8,169

685.
Total imports into Ukraine in 2016 comprised 11,078 bcm,332 of which Naftogaz imported 8,168, or 74%.

7.2.2.5.4 Moderate economic growth of the Ukrainian economy is expected, which will cause consumption and imports to increase

686.
Data on consumption and imports in Ukraine for the first half of 2017 (published by Energo-biznes) indicates that consumption and imports are increasing: in the first six months of 2017, consumption comprised 17.7 bcm, an increase over the level in the first six months of 2016, when consumption was 17,153 bcm. Imports in the first half of 2017 were 7.0 bcm, more than twice the volume imported in the first half of 2016 - 3.08 bcm.333 The indications are therefore that the decline in consumption and imports in Ukraine that was experienced over the past few years as a result of severe contraction of the Ukrainian economy has now reversed. This upward trend is consistent with the projections in the Pirani Report334 and with recent projections of a return to modest economic growth in Ukraine made by international financial institutions and analysts. For example, the World Bank's Ukraine Economic Update, issued in April 2017, projects that GDP will grow from 2.0% in 2017, to 3.5% in 2018, and to 4.0% in 2019.335 It is therefore reasonable to assume that consumption and imports to Ukraine will increase.

7.2.2.5.5 Gazprom's proposal for an adjusted take or pay obligation based on Decision (5)

687.
Set out below a table illustrating [REDACTED]
706.
Gazprom submits that [REDACTED]
707.
The Parties' respective proposals of an adjusted ACQ in line with the Separate Award are set out in the table below.

ACQ proposed by the parties (in bcm)

[REDACTED]

708.
As is self-evident, Naftogaz' proposal is for volumes lower than all of Gazprom's proposals. Naftogaz further sets different levels for each of 2018 and 2019, on the basis of its apparent expectation that imports by Naftogaz are set to decline over the following two years, whereas Gazprom proposes that one volume be set to apply for both years.
709.
Naftogaz' explanation for why it now requests an [REDACTED] having, prior to the Separate Award, sought an [REDACTED], is that Naftogaz' request prior to the Separate Award was based on estimates of Naftogaz' historical actual import needs for 2012 and 2013, not Naftogaz' actual needs for 2018 and 2019. That explanation fails to account for why Naftogaz elected to use 2012 and 2013 data when it amended and updated its request for relief in November 2016. At that time, Naftogaz was fully aware of its actual level of imports for 2014, 2015 and 2016. Naftogaz consequently should not be permitted to amend its case at this very late stage in the Arbitration.
710.
Naftogaz argues that it is "reasonable" to set lower volumes on the basis that the [REDACTED] and that as a consequence of those decisions, Naftogaz "may end up marketing the gas purchased under the contract at a loss". The Tribunal's decision to award a price revision is based on the application of Article 4.4 of the Contract, not on Naftogaz' alternative claim for price revision based on alleged right to economically market the gas. The Tribunal's decision does not allow for any such right. In fact, Naftogaz' alternative claim for price revision based on an alleged right to economically market the gas was expressly rejected by the Tribunal in its Decision (1).338
711.
None of the reasons cited by Naftogaz are relevant nor do they provide sufficient grounds for adjusting the provisions of the Contract.
712.
To repeat, the basis upon which the Tribunal found that it was appropriate to adjust the ACQ was that the [REDACTED] together with the [REDACTED] and [REDACTED] gave Gazprom [REDACTED] The Tribunal sought, in making such an adjustment, to "[REDACTED]339 [REDACTED] Whether or not Naftogaz ends up marketing the gas purchased at a loss is irrelevant, as there is no reason to expect that such a result would put suppliers from EU countries such as [REDACTED]
713.
Gazprom submits [REDACTED]340 Therefore, in adjusting the take or pay obligation to a level representing 40% of Naftogaz' import needs, the Tribunal has gone well beyond what is considered an acceptable purchase obligation under [REDACTED] laws which the Tribunal sought to implement utilising its discretion under Section 36. The Tribunal should not allow itself to be persuaded to yet further reduce the take or pay obligation.

7.2.2.5.6 The parties largely agree as to the method of calculating an adjusted ACQ

714.
Naftogaz has confirmed that its share of imports comprises 74% of total imports to Ukraine. Naftogaz interprets the Tribunal's reference to [REDACTED] as being "the equivalent of 74% of the outstanding volume that is consumed in Ukraine but cannot be covered by domestic production."341 In other words, Naftogaz confirms what Gazprom has said, which is that [REDACTED] can be calculated as [REDACTED]
715.
Consequently, here is common ground between the parties that [REDACTED]

7.2.2.5.7 The parties disagree as to whether consumption and domestic production will grow or decline

716.
The parties disagree on expected levels of consumption and domestic production in 2018 and 2019.
717.
Where the Parties differ is in relation to whether consumption and domestic production will increase or decrease over the next two years.

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.

7.2.2.5.8 Imports to Ukraine are no longer in decline but are increasing: Imports in August to July 2017 exceeded imports over the same period in 2016

718.
Naftogaz has stated that "Mr [REDACTED] explains that Naftogaz has previously relied on market projections rather than actual past data, but because projections for Ukraine's import show a steady decrease in import needs for Ukraine, Naftogaz's current estimate is conservative" (emphasis added). In fact, what Mr [REDACTED] bases his assessment on is not a "projection" at all. It is merely an extract from Naftogaz' Annual Report for 2016, which reflects imports to Ukraine over the period 2011 to 2016 (Annex 1 to [REDACTED]). The fact that imports declined over this period is not in dispute. The question is what will happen to imports in 2018 and 2019.
719.
What the extract from Naftogaz' Annual Report in fact reflects is that the rate of decline decreased significantly in 2016 as compared to preceding years. Whilst it is correct that imports to Ukraine experienced a sharp decline in the years leading up to 2016, it is not correct that such a decline is projected to continue.
720.
On the contrary, the conclusion in the Pirani Report (published as recently as March 2017) was that the decline in Ukrainian gas demand had "reached its limit in 2016".345 This conclusion is supported by the fact that, in the period January to August 2017, in all but one month, imports

Total imports to Ukraine by month in 2016 and 2017346

Month 2016 2017 Change from 2016 to 2017
January 914,644 1,453,099 538,455
February 1,253,657 1,366,700 113,043
March 478,424 1,402,900 924,476
April 245,046 539,900 294,854
May 96,412 1,190,300 1,093,888
June 19,715 1,008,300 988,585
July 409,616 1,180,900 771,284
August 1,414,484 1,235,100 -179,384

721.
Over this period imports to Ukraine constituted 9,416 bcm, an increase of 4.5839, or 49%, over last year's level of 4.8321 bcm.347 An increase of that magnitude over the first eight months of 2017 does not by any measure indicate that projections reflect a "steady decrease". Whatever projections Mr [REDACTED] may be referring to are clearly wrong and should not be relied upon.

7.2.2.5.9 Naftogaz' expectations with respect to increases of domestic production in Ukraine are overly optimistic and unrealistic

722.
Naftogaz states, referring to Mr [REDACTED] witness statement, that "in assessing its import needs of 2018 and 2019, Naftogaz first considered how much of the total gas consumption in Ukraine can be covered by domestic production". In estimating the level of Naftogaz import needs in 2018 and 2019, the task is not to consider how much gas Ukraine "can" in theory produce, but rather how much it is likely to produce over the next two years.
723.
In paragraph 7 b) of his witness statement, Mr [REDACTED] states that "[w]e expect further in crease in production - as indicated in the table from the Government's Decree #1079-p adopted on December 28, 2016 (see Annex No. 4 hereto), total gas production is expected to increase to more than 27 bcm in 2020 from nearly 20 bcm in 2016 (if 1.4 bcm production by PJSC "Ukrnafta" in 2016 is included, which is not taken into account in row "total" of the table in Annex no. 4". The governmental decree referred to by Mr [REDACTED] cannot be said to represent a "projection". The title of the law - "On the approval of the Concept for the Development of the Gas Production Industry of Ukraine"348 - which was omitted from Annex 4 to Mr [REDACTED] witness statement, makes clear that it is by nature an aspirational target set by the Ukrainian government, and does not represent a realistic "projection" by industry analysts. As such, it should not be relied upon in calculating an appropriate ACQ for 2017 and 2018.
724.
The government's target of domestic production reaching 27 bcm by 2020 has been considered by industry analysts. For example, the Pirani Report specifically commented that industry participants see this target as "extremely optimistic". It observes that "gas production has now been stabilised at around 20 bcm / year" and that "the extent to which progress can be made towards [reaching the government's target] will be determined largely by regulatory reform", in particular, reform of price regulation in Ukraine:

"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

725.
Price regulation has long been a key obstacle to profitability in the Ukrainian gas sector; artificially low domestic prices for gas, and the requirement of private producers to sell their production to Naftogaz at regulated prices deprives Ukrainian producers of the revenue needed to invest in increasing production. Reform of price regulation means increases in domestic tariffs, and are consequently politically difficult to implement by Ukrainian politicians.
726.
Whilst Mr [REDACTED]may be sincerely optimistic with respect to regulatory reform in Ukraine, those who have worked closely with the management of Naftogaz have expressed a different view. Price regulation can only be implemented through legislative reform led by the political establishment. From all appearances, progress on reforms in the Ukrainian gas sector appear to have stalled.
727.
Consequently, there is little to suggest that Ukraine will succeed in raising levels of domestic production to the targets set by the government, and as the Pirani Report concludes, domestic production has stabilised at around 20 bcm per annum and is unlikely to experience significant growth over the next two years.
728.
As demonstrated by the table below, over the period 2009 to 2016 the level of domestic production has demonstrated no substantial growth, having fluctuated between 19.9 to 21.4 bcm. From 2013, domestic production has been in decline, and in 2016, annual domestic production was at its second lowest level in the past eight years:

Domestic production in Ukraine, 2009 to 2016, in bcm (Energobiznes)350

2009 2010 2011 2012 2013 2014 2015 2016
21,345 20,463 20,614 20,539 21,441 20,510 19,896 19,987

729.
When monthly data for 2017 is compared to last year's levels, there are only very modest signs of improvement. Over the period January to August 2017 as compared to the same period last year, domestic production has increased by approximately only 0.5 bcm.

Month 2016 2017 Change from 2016 to 2017
January 1,727,919 1,720,014 -7,905
February 1,612,256 1,597,800 -14,456
March 1,720,905 1,780,400 59,495
April 1,646,416 1,699,000 52,584
May 1,671,320 1,759,500 88,180
June 1,614,765 1,702,900 88,135
July 1,666,176 1,745,800 79,624
August 1,660,438 1,736,000 75,562

730.
In respect of Naftogaz' claims relating to the alleged expected growth of domestic produc-tion,351 Mr [REDACTED] accepted in his oral evidence352 that the information on which he based his claim that total gas production is expected to increase by about 7 BCM from 2016 to 2020 was the figures set out in a table from the Resolution of the Cabinet Ministers of Ukraine No 1079-p dated 28 December 2016 On the approval of the Concept for the Development of the Gas Production Industry of Ukraine353 ("Resolution No 1079"), which table he annexed to his Fifth Witness Statement (see Annex 4). When taken to the entirety of the text of Resolution No 1079, Mr [REDACTED] also accepted that that table reflected a projection which, in order to be achieved, required the implementation of the concept (or "plan" or "strategy") set out in Resolution No 1079:

"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

731.
In fact, Mr [REDACTED] agreed that, in order for that concept to be implemented, for the results set out in the table annexed to [REDACTED] to be achieved, and, essentially for Ukrainian domestic production to increase, a number of matters would first need to be addressed:

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

732.
Mr [REDACTED] agreed that "all these matters […] are going to need to be addressed in order to reach the levels [of Ukrainian production set out in Resolution 1079]".359
733.
As regards the "concept" set out in Resolution 1079 itself, this is split into 11 "measures" set out in the "Plan" at pages 8 to 10 of the Resolution.360 As [REDACTED] accepted, a number of these measures have yet to be implemented,361 and, in order for the plan set out in Resolution 1079 to be implemented, "several billions of US dollars per year" of investment would be re-quired.362
734.
As is abundantly clear from the above, Mr [REDACTED] and Naftogaz' assertion that domestic production in Ukraine will increase over the next four years is based entirely on overly optimistic projections of the results of a "concept" which has yet to be implemented. Whether or not that concept will in fact be implemented in time for those projections to be realised before the expiration of the Contract in 2019 depends on a number of significant factors which must be overcome, many of which require the involvement of the Ukrainian government and which, in total, will cost Ukraine several billions of US dollars per year. Gazprom's position is that these projections simply cannot be relied on as objective or realistic estimates of the levels of domestic production in Ukraine during the remainder of the life of the Contract. In contrast, Gazprom relies on objective evidence to establish that domestic production has in fact been in decline since 2012, with only small levels of growth over the course of the current year.
735.
However, the problems do not stop there. Ukrgazvydobuvannya, a 100% subsidiary of Naftogaz which is responsible for "73% of total gas production in Ukraine"363 has come across a number of obstacles in its attempts to achieve its goal of increasing gas production. Given the high proportion of domestic production for which Ukrgazvydobuvannya is responsible, implementation of its plans is clearly critical to the ability of Ukraine to increase domestic production to the levels projected set out in Resolution No 1079.
736.
In particular:

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
Problems 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

Source: Naftogaz's Annual Report 2016, Exhibit EPR_23.2.

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

737.
As accepted by Mr [REDACTED] the ability of Naftogaz and/or Ukrgazvydobuvannya to meet the targets set out in Resolution 1079 is "dependent on both the implementation of reforms by the Ukrainian Government and improvements in Naftogaz's corporate governance".369 In particular, Mr [REDACTED] also accepted that, as of 19 September 2017, "increasing political meddling [was] becoming increasingly evident and, unfortunately, the norm" at Naftogaz.370
738.
In his fifth witness statement, referring to an extract from Naftogaz' Annual Report 2016 (reproduced below) Mr [REDACTED] stated that, "[n]atural gas consumption in Ukraine has been falling for the last five consecutive years, with an average reduction of 11% per year"371:
739.
Mr [REDACTED] conceded during his oral evidence that what this diagram shows is that, since 2015, "the decline is very small".372 It is clear from the diagram that the rate of decline in gas consumption in Ukraine decreased significantly in 2016 as compared to preceding years. It therefore cannot reasonably be suggested that a decline of "11% per year" will continue.
740.
In fact, as Mr [REDACTED] was further forced to accept, there has been an increase in gas consumption in 2017 as compared to 2016.373 Mr [REDACTED] sought to explain this increase by reference to what he has called "non-recurring" factors, including the following:

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.

741.
Further, there is no reason to expect that the volumes of natural gas transited through Ukraine, or the volumes of fuel gas required for that transit, will decline over the next two years. Transit volumes through Ukraine have in fact increased in the first 10 months of 2017 as compared to the first 10 months of 2016 from 65.3 bcm to 77.4 bcm. There is no reason to expect that this level of transit volumes through Ukraine will not continue over the next two years.
742.
Furthermore, Mr [REDACTED] expectation that there would be significant reductions of consumption in the residential sector is not supported by evidence. As explained in Naftogaz' Annual Report 2016:

"[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

743.
Mr [REDACTED] accepted that, as at the date of the 2016 Annual Report (sometime in June or July 2017), the system of subsidies in place in Ukraine had the effect of maintaining, if not increasing consumption by households.378 As a result, Naftogaz assumed, in its Annual Report 2016, that "the Government will keep dragging its feet when implementing those measures the way they do now".379
744.
Accordingly, Mr [REDACTED] assertion that consumption of natural gas is expected to decrease, and therefore that imports of natural gas will also decrease over the remaining term of the Contract is not supported by the evidence. On the contrary, publicly available data shows that the decline in imports has not continued past 2016 and that over the course of 2017 imports have in fact been increasing.380

7.2.2.5.10 Gazprom's proposal is a more objective and fair method of determining the ACQ

745.
In contrast to Naftogaz' proposed ACQs, which rely entirely on Naftogaz' questionable (and in some cases wrong) interpretation of its own historical data, Gazprom's calculation of its proposed take or pay levels are based on independent analysis and published, verifiable data.
746.
Furthermore, Naftogaz' proposal gives it too much discretion to set the ACQ at a level of its own choosing. When combined with Naftogaz' other proposals, as described in further detail below, Naftogaz is seeking to obtain almost total discretion unilaterally to reduce the take or pay obligation.
747.
The data published by Energobiznes generally accords with Naftogaz' data. There are only very minor discrepancies between Energobiznes data and the data submitted into evidence by Naftogaz. Naftogaz has never disputed Energobiznes data, and Naftogaz has never disputed Energobiznes data.
748.
The Energobiznes data excludes volumes supplied to Eastern Ukraine (through the Platovo and Prokhorovka GMSs / entry points) and therefore is a suitable basis for setting take or pay levels. This is evident from the following:

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.

749.
Naftogaz has argued that the Tribunal should prefer Naftogaz' evidence with respect to domestic production and consumption because (a) Naftogaz' evidence is based on "official" Ukrtransgaz data, (b) the parties agreed to rely on Ukrtransgaz data in the Transit Arbitration, and (c) the data used by Gazprom, i.e. from Energobiznes, is "preliminary" business data.381
750.
The data relied upon by Gazprom consists of a full set of publicly available data published by Energobiznes on a monthly basis over the period 2009 to August 2017.382 Such data includes, in any given month, all sources of supplies to Ukraine, broken down by categories of suppliers (e.g. imports and domestic production), and all sources of consumption, broken down by categories of consumers. It is consequently capable of being scrutinised by industry analysts. Such data can by its nature only have originated from Ukrtransgaz, the Ukrainian TSO and Naftogaz' wholly owned subsidiary.
751.
Whilst Gazprom has submitted and relies upon a comprehensive set of published data that is publicly available and open to scrutiny, Naftogaz has produced only selected figures from selected time periods. Because such data has not been produced as a comprehensive data set (in a similar form to the Energobiznes data), it is impossible for Gazprom to verify and/or evaluate the reasons for any discrepancies.
752.
Naftogaz' attempt to discredit the data relied upon by Gazprom does not bear scrutiny. Naftogaz relies upon statements by Dr Hesmondhalgh that "Energobiznes data are based on preliminary information".383 She explains this by reference to a line in the Energobiznes publication describing the data as "operational".384 Dr Hesmondhalgh explains that she "understands" that "a more accurate translation would be "operative data", meaning preliminary or not yet finalized data".385 In light of Dr Hesmondhalgh's explanations regarding her use of the word "understand" (see above), this should be taken to mean that Dr Hesmondhalgh was instructed by counsel for Naftogaz to make this statement. Whilst Dr Hesmondhalgh appears to see fit to give evidence as to the reliability of the Energobiznes data upon which Gazprom relies, nowhere in Dr Hesmondhalgh's reports is there any suggestion or evidence that she has scrutinised the data provided to her by Naftogaz.
753.
In any event, for the purposes for which data is now being used, namely to project future levels of consumption and domestic production based on historical data so as to produce a figure in bcm that is rounded to 2-3 decimal points, Energobiznes data is almost identical to the "official" Ukrtransgaz data used by Naftogaz and Dr Hesmondhalgh. A chart comparing the Parties' respective datasets relating to domestic production exchanged in the Transit Arbitration demonstrates this. As is clear from the chart, there are very few discrepancies between the two datasets, and where discrepancies do exist, they are very minor.
754.
Finally, Naftogaz relies upon misleading characterisations of the data upon which it relies.

7.2.2.6 Revision 2 : Naftogaz' proposals with respect to replacement wording for Article 2.2

755.
Naftogaz proposes the following replacement wording for Article 2.2:

[REDACTED]

756.
Naftogaz' intention is clear: Naftogaz wishes to bar Gazprom from bringing any claim against it in the future in relation to gas that has been supplied by Gazprom to the Donetsk and Luhansk regions of Ukraine, which, as the Tribunal is no doubt aware, have been affected by civil conflict since 2014.
757.
The Tribunal has asked the parties to confirm that the Parties agree that no deliveries of gas to Naftogaz took place in July 2015.
758.
In July 2015, Gazprom delivered 58,399,261 1000ms to Ukraine via the Prokhorovka and Platovo GMSs, i.e. to the Donetsk and Luhansk regions of Ukraine.
759.
Such volumes have been supplied via the Prokhorovka and Platovo GMSs after supplies to those regions by Naftogaz stopped, and with the aim of avoiding a humanitarian crisis. As Gazprom has previously explained, no claim for payment for such supplies has been made by Gazprom in these Arbitration proceedings (nor has Gazprom otherwise received payment for such supplies).386
760.
Similarly, at no time prior to the Separate Award did Naftogaz seek any adjustment of the Contract in relation to supplies by Gazprom through the Prokhorovka and Platovo GMSs.
761.
The subject of which party is responsible for offtaking and paying for supplies through such GMSs is the subject of dispute between the Parties, but it did not, prior to the Separate Award, form the basis of any claim by either party. It is therefore not open to Naftogaz to now raise new claims during this final stage in the proceedings.
762.
In paragraphs 13 and 14 of his fifth witness statement, Mr [REDACTED] refers to the Prokhorovka and Platova GMSs as being "in the areas suffering military upheaval". He further claims that Naftogaz "does not have authorized representatives at these sites in order to not put its employees' lives at severe risk" and that "Naftogaz is not able to get data from these metering stations since Russia-backed terrorists have captured them".
763.
These matters are irrelevant to any claims brought by the Parties prior to the Separate Award. Nevertheless, to set the factual record straight:

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).

7.2.2.7 Revision 3 : Naftogaz' proposed revision of Article 2.2.2 - Quarterly distribution

764.
Naftogaz has requested that the Tribunal replace the existing wording of Article 2.2.2 with the following provision:

[REDACTED]

765.
Prior to the Separate Award, Naftogaz did not seek revision of Article 2.2.2. This is therefore an entirely new claim by Naftogaz.
766.
Naftogaz argues that revision of Article 2.2 (i.e. adjustment of the ACQ) "will imply a substantial change in the ACQ. As the Final Award which will determine the ACQ will not be rendered before 1 November 2017, it is necessary that the Final Award also determine a new quarterly breakdown for Delivery Year 2018."
767.
Naftogaz' only justification for the change appears to be that "it is necessary" as a consequence of the adjusted ACQ. It is not.
768.
There is no reason why, once the Tribunal has adjusted the ACQ, the Parties will not be able to reach agreement on an appropriate quarterly distribution. That issue is largely a practical and operational matter on which the Parties must together agree. Gazprom has no objections in principle to the approximate distribution of the annual volume proposed by Naftogaz in its proposed Article 2.2.2 when expressed in percentage terms and provided that such distribution reflects, when added together, the total adjusted ACQ, and Gazprom therefore anticipates that once the Tribunal has set the annual volume, it will be possible for the Parties to agree between themselves an appropriate distribution.
769.
In any event, the existing Article 2.2.2 already makes provision for the Parties to agree such a quarterly distribution, and in the event of a failure to agree such distribution, provides that the quarterly distribution (not volumes) in the preceding year of delivery389 should apply:

"... 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.)

770.
Naftogaz argues in its 15 September 2017 Submission at paragraph 92 that "it is necessary that the Final Award also determine a new quarterly breakdown for the Delivery Year 2018" on the basis that "the Final Award which will determine the ACQ will not be rendered before 1 November 2017."
771.
The date of 1 November in Article 2.2.2 is an arbitrary one and there is no reason why a quarterly distribution cannot be agreed after that date. Indeed, the parties have never in fact agreed a quarterly distribution before 1 November of the year preceding the year of delivery. They have, however, on several occasions agreed quarterly volumes or adjustments to such volumes after 1 November of the year preceding the year of delivery, and even in the course of the year of delivery: see Addendum No. 1 dated 24 November 2009, Addendum No.3 dated 21 April 2010, Addendum No. 4 dated 27 November 2010, Addendum No. 8 dated 18 May 2011. And in the period 2012 to 2015, supplies to Naftogaz took place in spite of there having been no agreement on quarterly volumes in respect of that year. There is consequently no pressing need or commercial justification for the Tribunal to revise Article 2.2.2. It is just not necessary.
772.
Gazprom has no objections in principle to the approximate distribution of the annual volume proposed by Naftogaz in its proposed Article 2.2.2 when expressed in percentage terms and provided that such distribution reflects, when added together, the total adjusted ACQ, and Gazprom therefore anticipates that once the Tribunal has set the annual volume, it will be possible for the parties to agree between themselves an appropriate distribution.

7.2.2.8 Revision 4 : Naftogaz' proposed replacement of Article 2.2.3

773.
Naftogaz has requested that the Tribunal replace Article 2.2.3 of the Contract - a provision which simply allows the parties to agree changes to the MAQ - 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 downward revision of the ACQ in the event it [REDACTED], and an obligation upon Gazprom to agree such revision in good faith.
774.
There is nothing objectionable or "uncertain" about the existing Article 2.2.3, which simply provides that the parties may amend the ACQ by agreement:

"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."

775.
However, Naftogaz' proposed replacement clause is objectionable, as it only operates in Naftogaz' favour and to the detriment of Gazprom:

[REDACTED]

776.
Naftogaz' proposal is objectionable for the following reasons:

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.

777.
Gazprom's position is that the take or pay volumes should be set and not subject to further revision. The take or pay obligation will apply only until the end of 2019, and it is perfectly reasonable for an offtaker to undertake to purchase a set volume of gas over a two-year period. Even if the ACQ is higher [REDACTED] (which is unlikely given projections that imports will grow), Naftogaz can do one of three things:

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.

7.2.2.9 Revision 5 : Naftogaz' proposed further addition to Article 2.2.3 of a "reduction clause"

778.
Naftogaz further proposes that the following additional wording - what it calls a "reduction clause" be inserted after the last paragraph of its adjusted Article 2.2.3:

[REDACTED]

779.
Naftogaz' proposed wording is objectionable for the following reasons:

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.

780.
In summary, the clause is wholly one-sided, and its aim appears to be to give Naftogaz the ability unilaterally by notice to Gazprom to reduce the ACQ, and thereby its take or pay obligation.
781.
Naftogaz argues that "take or pay provisions in line with market practice and allowed under competition law should provide for a reduction of the buyer's take or pay obligation equal to the amount of gas that the seller directly and/or indirectly sells into the buyer's market." Naftogaz provides no legal or other authority for this statement. Gazprom is not aware of any particular provision of competition law - EU or otherwise - which requires take or pay provisions to contain a "reduction clause" of the sort proposed by Naftogaz.
782.
Naftogaz' proposed "reduction clause" appears to be in part based on a clause extracted from that decision of the Supreme Court of Austria.
783.
Whatever the reasoning or conclusions of the Austrian Supreme Court were in that case, they are irrelevant to a competition law analysis of the Sales Contract. Any competition law analysis needs to be conducted by reference to the specific market concerned, and the particular factual circumstances affecting that market.
784.
In any event, the Tribunal found that it lacks jurisdiction to apply either EU competition law, EnCT competition provisions, or Ukrainian competition law.391
785.
Under the guise of seeking to make the proposed reduction clause "efficient", Naftogaz also seeks to impose upon Gazprom a wholly new and entirely unreasonable obligation "to inform [Naftogaz] about all the contracts [Gazprom] has signed for the sale of natural gas to Ukraine".
786.
In conclusion, Naftogaz' replacement wording should be rejected because (1) there is no commercial justification for it, (2) it is unfairly advantageous to Naftogaz and detrimental and unfair to Gazprom, (3) it was not an issue left over for determination by the terms of the Separate Award, and (4) it deviates from Naftogaz' request for relief at the date of the Separate Award.

7.2.2.10 Revision 6 : Naftogaz' proposed new Article 2.2.4

787.
Naftogaz has requested that the Tribunal include an entirely new provision - what it calls Article 2.2.4 - in the Contract. Naftogaz' proposed text of Article 2.2.4 is as follows:

[REDACTED]

788.
Naftogaz' proposal seeks to do two things:

1. to allow Naftogaz greater flexibility under the Contract to vary the level of gas that it offtakes from day to day; and

2. to subject the long-standing nomination process between the Parties to Ukrainian legislation.

789.
Naftogaz argues, relying on the evidence of Dr Hesmondhalgh in her Seventh Expert Report, that the addition of the entirely new Article 2.2.4 is required "in order to ensure that Naftogaz can take only the MAQ in a year without breaching the terms of the Contract" and that to achieve this, Naftogaz "has to be allowed the possibility to reduce the daily delivery volumes" (emphasis added).
790.
Naftogaz goes on to argue again relying on the evidence of Dr Hesmondhalgh that "it is reasonable and in line with market practice to include the possibility to reduce the MDQ to 50% of the [Average Daily Delivery Rate]" and that "introducing variability in daily deliveries would also require the introduction of daily nominations which are, in any case, required by Ukrainian legislation."
791.
Dr Hesmondhalgh's views as to what is "reasonable" and "in line with market practice" are beside the point. They do not address the problem that Naftogaz' proposal that on each day it "offtake at least fifty per cent of the Average Daily Delivery Rate" is inconsistent with the existing provisions of the Contract, which require (i) Naftogaz to offtake at least the MAQ, i.e. 80% of the ACQ, and (ii) gas deliveries to be effected evenly over the course of a month. Article 3.2 of the Contract provides that the average daily delivery rate is to be derived by reference to the agreed monthly volume, and that "Gas delivery during a month shall be effected evenly, with the permitted deviation of daily volumes from the Average daily delivery rate by not more than six (6.0) percent". If deliveries are effected evenly in accordance with this clause, then if Naftogaz only offtakes 50% of the average daily delivery rate over the course of the delivery year, Naftogaz will not meet its take or pay obligation to offtake 80% of the ACQ. Naftogaz' proposal that on each day it "offtake at least fifty per cent of the Average Daily Delivery Rate" is therefore inconsistent with its take or pay obligation to offtake 80% of the ACQ over the course of the delivery year.
792.
Giving evidence, Dr Hesmondhalgh supported Naftogaz' requested wording by reference to Article 3.2 of the Contract, which provides that deliveries during a month must be effected evenly with a permitted deviation from the average daily delivery rate of not more than +/-6%:

"[…] 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

793.
Dr Hesmondhalgh's interpretation of Article 3.2 appears to be based on a mistaken understanding that the average daily delivery rate is set by reference to the total ACQ. Nothing in the Contract requires this. The Average daily delivery rate is defined in Article 1.9 of the Contract as meaning "the Gas delivery volume determined by dividing the planned quarterly delivery volume by the number of days in the corresponding Quarter of Delivery". There is nothing in Contract KP to prevent the parties from "planning" quarterly delivery volumes, which, over the course of a year together equate to the MAQ, and not the ACQ.
794.
Varying the level of gas delivered to Ukraine by Gazprom from day to day would cause Gazprom to incur costs associated with the injection and withdrawal of gas from storage, and increased transportation costs.
795.
Both Parties' proposed replacements for Article 2.2 provide that gas is to be delivered by Gazprom to the Delivery Points on the border "DAF", Incoterms 2000,393 which is an abbreviation for "Delivery at Frontier" and means that Gazprom is to incur all costs associated with transporting the gas to the Delivery Points on the border of Ukraine. For this reason, the provisions of gas supply contracts typically provide for the addition of a flexibility premium to the price to reflect the level of flexibility granted to the purchaser to vary the quantities of deliveries from day to day. Thus, a hub-based market price would typically be set by reference to the hub prices plus a flexibility premium.
796.
As Dr Moselle explained:394 "Flat hub products do not provide the flexibility common in many LTCs. Such flexibility has a value to buyers, and thus LTCs generally attract a premium relative to hub contracts". Naftogaz now seeks to dramatically increase the flexibility of the Contract, which should have a consequential effect on the Contract Price. However, Dr Moselle has been given insufficient opportunity to consider how the value of this increased flexibility might be incorporated into the Contract Price formula. Naftogaz is seeking to price an entirely new product (a more flexible Sales Contract) at the price it has claimed for the current limited flexibility in the contract.
797.
Gazprom did not request the inclusion of a flexibility premium in the price awarded by Naftogaz on the basis that the Tribunal's Decisions do not allow it. Naftogaz itself argues that a "flexibility premium" would be outside the scope of the Separate Award: "the Separate Award makes no provision for adaptation of the Contract Price to the specifics of other long-term contracts. There is consequently no basis for any addition to the NCG price based on such specifics, like a "flexibility premium" or similar." Naftogaz' proposal is consequently not commercially justified.
798.
Further, Naftogaz' proposal seeks to subject the daily nomination process between the parties to Ukrainian law. There is no basis for doing so and Naftogaz' proposal is totally unacceptable. The Contract is not performed in Ukraine: pursuant to the wording of Article 2.2 (under both Gazprom's and Naftogaz' proposals), title and responsibility for the gas, as well as all the costs and risks associated with the deliveries of the gas are transferred from Gazprom to Naftogaz at the Delivery Points, which are defined in Article 1.10 as being "on the border of the Russian Federation and Ukraine and/or the border of the Republic of Belarus and Ukraine". Gazprom and Naftogaz jointly agreed to subject the Contract to a neutral law: Swedish law.

7.2.2.11 Revision 7 : Naftogaz' proposals with respect to replacement wording for Article 2.2.5

799.
At the close of the October Supply Hearing, the Chairman requested that the parties should "in good faith, best efforts [...] produce a joint text,.."395 as regards the make-up provision to be included in the revised Article 2.2.5 of the Contract, in accordance with Decision (5) of the Separate Award.
800.
Accordingly, Gazprom's counsel provided Gazprom's proposal for a revised make-up provision to counsel for Naftogaz by email.396 Naftogaz responded,397 rejecting Gazprom's proposed make-up provision since, according to Naftogaz, Gazprom's proposal "implies, unlike Gazprom's previous proposal, inter alia, that Naftogaz would be liable for take or pay if Gazprom fails to deliver gas due to force majeure."398 Naftogaz also provided a counter-proposal.399 A redline comparison of the parties' proposals is set out at Exhibit R-200:

[REDACTED]

801.
Gazprom maintains that the proposal of 8 November 2017 should be accepted by the Tribunal. Naftogaz' objection to that proposal makes no sense. [REDACTED] This provision applies equally to both parties, and not just to Naftogaz, as is implicit from their proposal.
802.
Furthermore, Gazprom submits that Naftogaz' proposal dated 10 November 2017 must be rejected for the following reasons [REDACTED]

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]

803.
[REDACTED] vision is intended to protect Naftogaz against. If, for any reason, Naftogaz is unable to take the entirety of the MAQ over the course of a delivery year, then it is entitled to exercise its rights under the make-up provision and, subject to its terms, off-take any shortfall volumes at any time in the three years following the delivery year. Finally, Naftogaz asserts that the changes proposed by Naftogaz "are necessary to align the provision with industry practice".401 Naftogaz has provided no evidence to support this assertion, and Gazprom does not agree that the changes proposed by Naftogaz reflect industry practice.

7.2.3 Gazprom's claims for payment of unpaid invoices for gas delivered and interest

7.2.3.1 The Tribunal's decision

804.
Reference is made to Decisions (8) and (11), in which the Tribunal declared:

"(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."

7.2.3.2 Amounts outstanding from Naftogaz to Gazprom in respect of unpaid invoices

805.
The total amount owing from Naftogaz to Gazprom in respect of gas delivered in December 2013, and April, May and June 2014, but not paid for, is USD 2,196,597,614.69.402 According to Gazprom's calculations, the effect of the Tribunal's Decisions (2) and (8), i.e. revising the contract price as from 27 April 2017, is to reduce this sum by USD 473,707,890.28 to USD 1,722,889,724.41.
806.
The total amount owing from Naftogaz to Gazprom in respect of gas delivered in December 2013 is USD 1,527,971.32.
807.
The total amount owing from Naftogaz to Gazprom in respect of gas delivered in May and June 2014 is USD 1,732,160,565.04.
808.
The sum of the amounts is USD 1,733,688,536.36,

7.2.3.3 Interest owing from Naftogaz to Gazprom

809.
The amount owing from Naftogaz to Gazprom in respect of interest accrued 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, is USD 13,076,056.27, accrued from 8 March 2014 until and including 30 May 2014.
810.
The amount owing from Naftogaz to Gazprom in respect of interest accrued 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, is USD 526,403,595.72, accrued until and including 30 September 2017.
811.
The amount owing from Naftogaz to Gazprom in respect of interest accrued on the amount of USD 1,732,160,565.04403 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, is USD 519,648.17 per day accruing from and including 1 October 2017 until full payment has been made.

7.2.3.4 Effect of Naftogaz' payment dated 24 December 2014

7.2.3.4.1 Introduction

812.
Pursuant to Addendum No. 33, on 24 December 2014, Naftogaz paid to Gazprom USD 1.65 billion in respect of invoices for gas delivered in the months April - June 2014.
813.
It is apparent from the calculations submitted by the Parties on 15 September 2017 that the Parties disagree as to the method for allocating this partial payment as against the sums owed by Naftogaz to Gazprom as ordered by the Tribunal in its Decision (8). In particular, Naftogaz has changed the way in which it allocates the 24 December 2014 payment made pursuant to Addendum No. 33. Whilst the allocation has no effect on the net capital amounts owing, it has a significant effect on the sums of interest which accrue thereon, as set out further below.

7.2.3.4.2 Allocation of the 24 December 2014 payment as between underpayments owed to Gazprom and overpayments owed to Naftogaz

814.
Prior to the Separate Award, Dr Hesmondhalgh404 assumed that a) the 24 December 2014 payment was a payment of part of the debt owed for volumes of gas delivered in April, May and June 2014, and b) that the payments made by Naftogaz for part of the gas delivered were made at the invoiced price.
815.
As a result, both Dr Hesmondhalgh and Dr Moselle assumed that, in the event that the Tribunal awarded a revised price applicable during those months, a portion of the 24 December 2014 payment would therefore be treated as an overpayment by Naftogaz of a price higher than the revised price. For example, this was the method applied by Dr Hesmondhalgh in her Fourth Expert Report dated 6 February 2017, and revised on 10 March 2017, supported by Exhibit EPR_20.1.
816.
As Dr Moselle explains,405 Dr Hesmondhalgh has changed her approach, and now a) allocates the 24 December 2014 payment in full against the underpayments owed by Naftogaz, recording no overpayment due to Naftogaz in these months, and b) assumes that payments made by Naftogaz for gas delivered in April to June 2014 (which payments were less than the invoiced price) were made at the revised price proposed by both Naftogaz in its Submission and by Dr Hesmondhalgh in her Seventh Expert Report.
817.
Dr Hesmondhalgh's change of approach has no effect on the net capital payments owing between the Parties. However, interest accrues on the underpayments due to Gazprom at a higher rate than is accrued on the overpayments due to Naftogaz (see Decisions (11) and (12) of the Separate Award). The effect of Dr Hesmondhalgh's new approach is that the higher rate of interest applicable to the underpayments claim now accrues on a smaller sum (a higher proportion of the underpayments claim having been "paid" by way of the 24 December 2014 payment), with an overall monetary impact in Naftogaz' favour of USD 19m.406 In addition, as Dr Moselle explains,407 at the time that the payments in question were made, only the invoiced price existed - the revised price was not in effect. It is therefore the invoiced price which must be used for the purposes of this calculation.
818.
Dr Moselle calculates overpayments "assuming that Naftogaz has paid in full for a portion of the gas delivered in the respective month at the Unrevised Factual Price".408
819.
Gazprom states: "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 SA33. 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."409
820.
Gazprom has reviewed its allocation of the 24 December 2014 payment, an exercise prompted only by Dr Hesmondhalgh's change of approach. In reviewing this allocation, it is apparent that Dr Hesmondhalgh's new allocation is not in line with Chapter 9 Section 5 of the Swedish Commercial Code and the Supreme Court's ruling in NJA 2009 p.64, pursuant to which, in the absence of a designation by Naftogaz at the time of payment, Gazprom is free to allocate the 24 December 2014 payment as against any debt owed to it by Naftogaz.410
821.
Gazprom therefore submits that the Tribunal must select Dr Moselle's method of calculation, as set out at paragraphs 4.4 and 4.5 of the Moselle Report 2.
822.
The position with regard to the application of the discount extended to Naftogaz pursuant to Addendum 3 is that "on […] 2 April 2014, the Russian Government passed Resolution No. 260 "On declaring Resolution No. 291 of the Government of the Russian Federation of 30 April 2010 to be no longer in force", which revoked Resolution 291 [i.e. the resolution which provided for a reduction of customs duties pursuant to Addendum 3], with effect from 2 April.."411
823.
Stated more simply, there was no discount in effect from and including 2 April 2014.

7.2.3.4.3 Allocation of the 24 December 2014 payment pursuant to Chapter 9 Section 5 of the Swedish Commercial Code

824.
Gazprom does not accept Naftogaz' new allocation of the 24 December 2014 payment. Furthermore, in reviewing this new allocation, it is apparent that neither Dr Hesmondhalgh's new allocation, nor the Parties' previous allocations,412 are in line with the requirements of Chapter 9, section 5 of the Swedish Commercial Code, which provides that,413 in the absence of any agreement between the parties as to the allocation of the payment, the 24 December 2014 payment must have been allocated first to the outstanding interest sums due to Gazprom, then to outstanding capital.
825.
Accordingly, the Tribunal must reject Naftogaz' allocation, and allocate the 24 December 2014 payment in accordance with Chapter 9, section 5, as set out in the Moselle Report 2 at paragraph 4.4.414

7.2.3.4.4 Gazprom's claim for interest in respect of February and March 2014

826.
It has become apparent from reviewing Naftogaz' calculations of the sums due to Gazprom in respect of gas delivered and not paid for, that it has excluded Gazprom's claim for interest for late payment in respect of gas deliveries in February and March 2014.415 In the event that the Tribunal does not adopt the approach to the allocation of the 24 December 2014 payment against interest before capital, as set out above, then Gazprom maintains that it is entitled to payment of interest in accordance with Article 6.2 of the Contract in respect of late payment for gas delivered in these months,416 as set out in its requests for relief.417
827.
In Decision (11) of the Separate Award, the Tribunal ordered that Gazprom is entitled to late payment interest in accordance with Article 6.2 of the Contract. Gazprom submits that it is entitled to interest for late payment in respect of gas supplied in February and March 2014, as well as in November and December 2013, and April - June 2014 (to which months the Tribunal specifically refers).
828.
Dr Moselle includes Gazprom's claim for late payment interest in respect of gas deliveries in February and March 2014 in the calculations set out in the Moselle Report 2 submitted in support of this Submission of 2 October 2017.418

7.2.4 Naftogaz' Claims for overpayments and interest

7.2.4.1 The Tribunal's decision

829.
Reference is made to the Tribunal's Decisions (9) and (12), in which the Tribunal declared:

"(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 ;"

830.
Gazprom refers to its proposal of a revised price formula, which is set out above.

7.2.4.2 Overpayments owing from Gazprom to Naftogaz as a result of price revision

831.
Pursuant to the Tribunal's Decision (9), based on Gazprom's calculations, the amount owing from Gazprom to Naftogaz is USD 348,807,494.24. This represents the net total amount of overpayments and underpayments by Naftogaz in respect of gas supplied over the period from 27 April 2014 until the end of December 2015 (after which Naftogaz ceased purchasing gas from Gazprom).

7.2.4.3 Interest owing from Gazprom to Naftogaz on overpayments

832.
Pursuant to the Tribunal's Decision (12), based on Gazprom's calculations, the amount owing from Gazprom to Naftogaz in respect of interest accrued on the sum of USD 348,807,494.24 until and including 15 September 2017 is USD 75,533,425.09.
833.
The total amount outstanding from Gazprom to Naftogaz in respect of overpayments as a result of price revision, including interest accrued until 15 September 2017, is thus USD 424,340,919.33.
834.
Gazprom submits that the revised price P0 and H0 under the Contract should be USD 351.62 per 1,000 m3.419 In October and November 2015, Naftogaz paid a lower price for gas delivered during those months.420 However, Naftogaz' calculations fail to credit Gazprom for this difference in price.421 Naftogaz seeks to take only the upside of the price review, and seeks to ignore any periods in which it benefitted from a price below what the Tribunal has determined to be a "market price"
835.
In paragraph 74 of Hesmondhalgh 7, Dr Hesmondhalgh states that: "the Separate Award does not say that Naftogaz has to make additional payments in respect of months when the adjusted Contract Price exceeds the Contract Price that Naftogaz has actually paid" and therefore she does "not include any such offsets to the over-payments in my calculations". As Dr Moselle points out, Dr Hesmondhalgh's (and Naftogaz') approach is nonsensical - "it ignores actual cash flows and therefore understates the actual effect of the price revision".422
836.
Furthermore, the Tribunal's Decision (2) states simply that [REDACTED] It is clear from Decision (2) that the price paid by Naftogaz from 27 April 2014 is to be no more and no less than the revised price.
837.
As a result of the Tribunal's Decision (2), and Naftogaz' approach in relation to the same as set out in Dr Hesmondhalgh's Seventh Expert Report, Gazprom is entitled to put forward a specific request for relief as follows:

- 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.

838.
Pursuant to Article 25 of the SCC Rules, a party may submit new claims at any time prior to the close of the proceedings "provided its case, as amended or supplemented, is still comprised by the arbitration agreement, unless the Arbitral Tribunal considers it inappropriate to allow such amendment or supplement having regard to the delay in making it, the prejudice to the other party or any other circumstances."423 Since, prior to receipt of Naftogaz' Submission in which it made its position in relation to these months clear, it was not possible for Gazprom to make this claim, it is plainly entitled to bring this claim at this stage. In short, it is only now, following receipt of Naftogaz' Submission, that it has become apparent that this claim is necessary.

7.2.5 The Parties' requests for set-off

7.2.5.1 Background

839.
By an email dated 12 September 2017, in accordance with the Tribunal's decision of 12 May 2017, and following the issue of the Separate Award, Gazprom requested leave to include in Gazprom's submissions on issues arising from the Separate Award, "a short submission in support of Gazprom's request for set off of amounts owing between the parties as a result of the Separate Award".
840.
Naftogaz has confirmed that "[s]ince the Separate Award has now been rendered, [Naftogaz] 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."

7.2.5.2 Request for netting of amounts

841.
Gazprom's request for set off is as follows. In the event that the Tribunal decides, in this Arbitration, that Gazprom should make a payment to Naftogaz and that Naftogaz should make a payment to Gazprom, then the Tribunal should deduct the amounts ordered to be paid against each other, with the result that a single net amount should be ordered to be paid by one party in the final award.
842.
Gazprom does not make its own declaration of set-off (Sw. kvittningsforklaring), either at 15 September 2017 or at any other date.
843.
What Gazprom does seek to achieve, is for the Tribunal to issue a single net monetary award in the Supply Arbitration by setting off the amount owed by the parties against each other.
844.
Gazprom requests that the set off shall be made first against Gazprom's claims for interest and only thereafter, if and to the extent Naftogaz' total claim (capital and interest) exceeds Gazprom's interest claims, against Gazprom's capital claim.

7.2.5.3 Naftogaz' declarations of set off

7.2.5.3.1 Introduction

845.
In its submission of 15 September 2017, Naftogaz has made two declarations of set-off (Sw. kvittningsforklaringar):

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

7.2.5.4 Naftogaz' First Declaration of Set-off is without effect and should be disregarded

846.
As regards Naftogaz' First Declaration of Set-off request, Naftogaz sets off its claims for capital and interest against Gazprom's claims for capital and interest.426 The difference between Naftogaz' declaration of set off (Sw. kvittningsforklaring) and Gazprom's request for set-off (Sw. kvittningsyrkande) is that Naftogaz declares that it makes a set-off now - which means that all requirements for a set off must be fulfilled as of 30 September 2017 - while Gazprom requests that the Tribunal provides for a set off in the Final Award, in which case the requirements for set off need only be fulfilled as of the date of the Final Award.
847.
Gazprom submits that Naftogaz' declaration of set off is without effect and should be disregarded, because the requirements for set off are not fulfilled as of 30 September 2017. In particular, the requirement that there need to be two opposite claims that are clear and due is not met. The ground for Naftogaz' claim for repayment is not yet established, since the new price formula has not yet been decided. Furthermore, and as a consequence of the fact that the price formula is not yet decided, the amount owed by Gazprom to Naftogaz is not yet established. Naftogaz' claim against Gazprom is therefore not yet clear and due, and Naftogaz' declaration of set off as of 30 September 2017 can therefore not be accepted. It can at the most be treated as a request for set off in the Final Award. In particular, Naftogaz' declaration of set off cannot have as an effect that interest on Gazprom's capital claims ceases to accrue as at 30 September 2017.
848.
Gazprom notes in this regard that Naftogaz wrote as follows in the Transit Arbitration, dated 22 December 2016:

"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.".

849.
Naftogaz' criticism of Gazprom's position in the Transit Arbitration is, of course, unfounded, since Gazprom has made a claim for set off (Sw. kvittningsyrkande) in the Transit Arbitration, not a declaration of set off (Sw. kvittningsforklaring). Whereas for Naftogaz' declaration of set off (Sw. kvittningsforklaring) all requirements for a set off must be fulfilled as of 30 September 2017, for Gazprom's claim for set off (Sw. kvittningsyrkande) those requirements must be fulfilled when the Tribunal orders the set off in its Final Award.
850.
However, Naftogaz' criticism is sufficient to dispose of its own declaration of set off (Sw. kvitt-ningsforklaring), which is accordingly legally ineffective (to use Naftogaz' own words).

7.2.5.4.1 Naftogaz' First Declaration of Set-off is contrary to Chapter 9 Section 5 of the Swedish Commercial Code

851.
The parties are in agreement that a single net amount should be ordered to be paid by one party in the Final Award.427
852.
However, Naftogaz has failed to apply Swedish law principles correctly when carrying out its First Declaration of Set-off. Naftogaz claims to be applying Chapter 9, Section 5 of the Commercial Code (Sw. Handelsbalken). According to this provision, a payment of a debt must be allocated to interest before being allocated to the capital itself. This general rule has also been confirmed by legal commentators.428 Naftogaz states that "[i]n all its calculations of this set off, Naftogaz has applied the principles of Swedish law under which Naftogaz's set off is first applied against Gazprom's interest claim and then against Gazprom's capital claim, cf. Chapter 9 Section 5 of the Commercial Code."429 However, this is not what Naftogaz has done when making its First Declaration of Set-off.
853.
Instead, what Naftogaz has done is to set off its interest claim against Gazprom's interest claim and then set off its capital claim against Gazprom's capital claim. This approach is incorrect. Given that the Parties agree that, no matter how the claims are calculated, Gazprom's interest claim will always be greater than Naftogaz' total claim, Naftogaz must set off its total claim against Gazprom's interest claim. Indeed, this is also how Naftogaz' own expert, Dr Hesmondhalgh, has calculated the set-off in her expert report.430 However, Naftogaz has decided to deviate from its own expert's calculation when setting forth its First Declaration of Setoff. As noted above, Naftogaz has instead set off its interest claim against Gazprom's interest claim and then set off its capital claim against Gazprom's capital claim.431 This is a blatant attempt by Naftogaz to put itself in a better position by allocating its set-off to Gazprom's capital claim (on which interest accrues) rather than Gazprom's interest claim (on which interest does not accrue). This approach is incorrect as a matter of Swedish law and should not be accepted by the Tribunal.

7.2.5.4.2 Naftogaz' Second Declaration of Set-off is also without effect and should be disregarded

854.
Naftogaz makes a declaration of set-off (Sw. kvittningsforklaring) pursuant to which it purports to set off Naftogaz' interest and capital claims in the Transit Arbitration432 against Gazprom's claims in this Arbitration. However, as with Naftogaz' First Declaration of Set-off, Gazprom also maintains that Naftogaz' Second Declaration of Set-off is without effect and should be disregarded.
855.
As with Naftogaz' First Declaration of Set-off, the requirements for set off are not fulfilled for Naftogaz' Second Declaration of Set-off as of 30 September 2017. In particular, the requirement that there need to be two opposite claims that are clear and due is not met. The ground for Naftogaz' interest and capital claims in the Transit Arbitration is not established, and the Tribunal has not yet determined those claims in the Transit Arbitration. Furthermore, and as a consequence of the fact that those claims have not yet been determined in the Transit Arbitration, the amount (if any) owed by Gazprom to Naftogaz is not yet established. Naftogaz' claim against Gazprom is therefore not clear and due, and Naftogaz' declaration of set off as of 30 September 2017 can therefore not be accepted.
856.
Accordingly, Naftogaz' Second Declaration of Set-off is legally ineffective (to use Naftogaz' own words).
857.
In particular, Naftogaz' declaration of set off cannot have as an effect that interest on Gazprom's capital claims ceases to accrue as at 30 September 2017.

7.2.5.4.3 Naftogaz' Second Declaration of Set-off cannot be determined in this Supply Arbitration

858.
According to Article 25 of the 2010 SCC Rules, a party may only supplement its case with a set-off if: (i) its case, as supplemented, is still comprised by the Arbitration agreement; and (ii) the Tribunal considers it appropriate to allow such supplement.433 Gazprom submits that neither of these conditions has been met.
859.
Accordingly, first, by reference to the first condition, the Transit Arbitration and this Arbitration are not comprised by the same Arbitration agreement. Consequently, Naftogaz' Second Declaration of Set-off cannot be determined by the Tribunal in this Arbitration. It is also evident from Section 23 of the Swedish Arbitration Act that Naftogaz cannot use its alleged claims in the Transit Arbitration as the basis for setting off the amounts it owes Gazprom in this Arbitra-tion.434 In this regard, Justice Stefan Lindskog has stated that "[o]f particular importance is the fact that a counterclaim invoked as the basis for set off, but which is not covered by the same arbitration agreement as the main claim, cannot be considered in the arbitration."435 Thus, the Tribunal is not in a position to determine Naftogaz' Second Declaration of Set-off in this Arbitration, since the set-off claims invoked by Naftogaz (i.e. Naftogaz' interest and capital claims in the Transit Arbitration) are not comprised by the Arbitration agreement at clause 8.2 of the Supply Contract.
860.
The difficulty here is obvious. The legal effect of Naftogaz' Second Declaration of Set-off is that Naftogaz admits that it will forego its interest and capital claims in the Transit Arbitration up to the amount of Gazprom's payment claims against Naftogaz in the Supply Arbitration. Thus, Naftogaz purports to use its interest and capital claims in the Transit Arbitration as a defence in the Supply Arbitration. However, Naftogaz' interest and capital claims in the Transit Arbitration cannot be determined in this Supply Arbitration.

7.2.5.4.4 It is not appropriate for Naftogaz to amend its defence at this late stage by way of its second declaration of Set-off

861.
Further, by reference to the second condition, Gazprom contends that it would also be inappropriate to allow Naftogaz to amend its defence by way of the Second Declaration of Set-off, meaning that the second condition referred to above has not been met. Naftogaz' interest and capital claims in the Transit Arbitration will not be determined until the Tribunal finalises the Transit Arbitration, which is likely to take some months.
862.
Consequently, it is not appropriate in this case to allow Naftogaz to amend its defence by way of its Second Declaration of Set-off since this would result in delay to these proceedings.
863.
Accordingly, Gazprom asks the Tribunal to rule, pursuant to Article 25 of the 2010 SCC Rules, that Naftogaz is not entitled to amend its defence by way of its Second Declaration of Set-off.

7.2.5.4.5 In any event, Gazprom denies that Naftogaz' Second Declaration of Set-off gives rise to a valid defence by way of a declaration of set-off

864.
Thirdly, and in any event, Gazprom does not accept that Naftogaz' interest and capital claims in the Transit Arbitration could give rise to a valid defence by way of a declaration of set-off. Gazprom maintains its defences to Naftogaz' underpayment, damages and underdeliveries claims in the Transit Arbitration - and thus Gazprom maintains its defences to Naftogaz' interest and capital claims in the Transit Arbitration - as summarised inter alia at paragraphs 286301, 302-310, 479-480 and 487-546 of Gazprom's Post-Hearing Submissions in the Transit Arbitration.

8. RELIEF SOUGHT BY THE PARTIES

8.1 Relief sought by Naftogaz

865.
Subject to further pleas and evidence, the right to amend the claims and any subsequent agreement between the Parties, Naftogaz requests the Arbitral Tribunal to render an award.

8.1.1 Request 1)

866.
In relation to item (2) of the Tribunal's Decision in the Separate Award concerning pricing
867.
1.1) Principally, declaring that with effect as of 27 April 2014, Article 4.1 shall read asfollows:

[REDACTED]

892.
1.2) Principally, declaring that with effect as of 27 April 2014, Article 4.2 [REDACTED]
893.
1.3) Principally, declaring that with effect as of 27 April 2014, Article 4.3 shall read asfollows:

[REDACTED]

894.
1.4) In the alternative to requests 1.1), 1.2) and 1.3) above, based on major includit minor, declaring that with effect as of 27 April 2014,

[REDACTED]

8.1.2 Request 2)

In relation to item (5) of the Tribunal's Decision in the Separate Award concerning volumes and take or pay
895.
2.1) Principally, declaring that with effect as of the date of the final award, Article 2.2 is revised to read:

[REDACTED]

896.
2.2) Principally, declaring that with effect as of the date of the final award, Article2.2.2 is revised to read:

[REDACTED]

897.
2.3) Principally, declaring that with effect as of the date of the final award, Article is revised to read:

[REDACTED]

898.
2.4) Principally, declaring that with effect as of the date of the final award, [REDACTED] shall read:

[REDACTED]

899.
2.5) Principally, declaring that with effect as of the date of the final award, Article2.2.5 shall be revised to read:

[REDACTED]

900.
2.6) In the alternative to requests 2.1), 2.2), 2.3), 2.4) and 2.5) above, based on major includit minor, declaring that with effect as of [REDACTED]formulations setout in requests 2.1), 2.2), 2.3), 2.4) and 2.5) above shall [REDACTED]

8.1.3 Request 3)

901.
In relation to items (9) and (12) of the Tribunal's Decision in the Separate Award concerning amounts paid in excess of the revised Contract Price, and interest

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.

8.1.4 Request 4)

902.
In relation to items (8) and (11) of the Tribunal's Decision in the Separate Award concerning gas offtaken, but not paid for, and interest

Declaring that the volumes of gas delivered relevant to volumes of gas offtaken, but not paid for under the Contract, constitute 11,538,279,915 m3.

8.1.5 Request 5)

903.
In relation to Gazprom's claims for relief arising from the Separate Award

Dismissing or rejecting Gazprom's claims in their entirety.

8.1.6 Request 6)

904.
In relation to requests 1.1) to 3) above

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.

8.2 Gazprom's requests for relief

8.2.1 Gazprom's request for declaratory relief

905.
Gazprom's requests for declaratory relief are as set out in Gazprom's Submission dated 15 September 2017, paragraphs 189 to 192 of Gazprom's Reply Submission dated 2 October 2017 and Appendix 1 thereto, save that Gazprom hereby amends its request, as set out in paragraph 111 of Gazprom's Submission (in relation to Article 2.2.5, i.e. the make-up provision), as follows: Gazprom requests that the Tribunal declare, with effect from the date of its final award, that the Contact be revised to reflect the revised wording of Article 2.2.5 set out in column 1 of the table at Exhibit R-195.

8.2.1.1 Contract price formula

906.
Gazprom hereby specifies its claims for relief further to the Tribunal's Separate Award, and subject to the reservations and protests indicated in the introduction to its 2 October 2017 Submission.
907.
Gazprom requests that the Tribunal declare, with effect from 27 April 2014, that the Contract price formula, Pn, set out in Article 4.1 of the Contract be revised to reflect the following revised wording of Article 4.1 (the original Russian text of which is set out in Appendix 1):

[REDACTED]

8.2.1.2 Article [REDACTED] - Annual Contract Volume ("ACV")

908.
Gazprom requests that the Tribunal declare, with effect from the date of its final award, that the Contract be revised to reflect the following revised wording of Article (the original Russian text of which is set out in Appendix 1):

[REDACTED]

8.2.1.3 Article [REDACTED]- Take or pay provision

909.
Gazprom requests that the Tribunal declare, with effect from the date of its final award, that the Contract be revised to reflect the following revised wording of Article [REDACTED] (set out in column 1 of the table at Exhibit R-195):

[REDACTED]

8.2.1.4 Application of the revised Article [REDACTED]to the price for gas delivered in October and November 2015

910.
Further to the Tribunal's Decision [REDACTED] 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.

8.2.2 Gazprom's claims for monetary sums

8.2.2.1 Gazprom's claims in respect of gas supplied in December 2013, May and June 2014

911.
Further to the Tribunal's Decisions (2) and (8), Gazprom requests that the Tribunal, in its final award, make:

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.

912.
The sum of the amounts is USD 1,733,688,536.36.

8.2.2.2 Gazprom's claims for interest in respect of gas delivered

913.
Further to the Tribunal's Decision (11), Gazprom requests that the Tribunal, in its final award, make:

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.

8.2.3 Gazprom's request for set off of the monetary amounts awarded to the parties as a result of the Separate Award

914.
Gazprom requests that the Tribunal, in its final award, makes a set off (Sw. avrakning) of the amounts owed by Naftogaz to Gazprom in this Supply Arbitration as per the date of the final award, as set out in paragraphs (911) and (913) of Gazprom's Post Hearing Brief of 10 November 2017, and the amounts owed by Gazprom to Naftogaz in this Supply Arbitration as per the date of the final award.
915.
For the avoidance of doubt, Gazprom requests that the set off shall be made first against Gazprom's claims for interest and only thereafter, if and to the extent Naftogaz' total claim (capital and interest) exceeds Gazprom's interest claims, against Gazprom's capital claim.

8.2.4 Gazprom's claims for costs

916.
Gazprom seeks an Order that Naftogaz shall make payment to Gazprom as compensation for all costs incurred by Gazprom in these proceedings, and - as between the parties - all fees and costs of the Tribunal and of the SCC Arbitration Institute, together with interest on all such amounts in accordance with sections 4 and 6 of the Swedish Interest Act from the date of the award until full payment has been made.

9. THE TRIBUNAL'S REASONS

9.1 Introduction

917.
In deciding the Parties' claims, as set out in this Final Award, the Tribunal has carefully considered all of the submissions made and evidence adduced by the Parties, including allegations, witness/expert statements, legal authorities, and arguments not mentioned in the discussion below or otherwise in this Award. The reasoning given below summarizes what the Tribunal considers relevant for its decisions. If and to the extent that facts, witness/expert statements, legal authorities, or arguments advanced by the Parties are not addressed in the reasoning, they would not have changed the Tribunal's conclusions.437
918.
The Tribunal has considered the cross-references to the Transit Arbitration made by the Parties regarding data for domestic production of natural gas and the volumes of natural gas transited through Ukraine, and the consumption of fuel gas.

Jura novit curia

919.
The Tribunal has concluded, and made it clear to the Parties, that it will not apply the doctrine of "jura novit curia" in this Arbitration being an international arbitration between non-Swedish Parties. Needless to say, this does not apply as far as applicable mandatory law is concerned.

The Outstanding Issues

920.
This Final Award shall dispose of issues that according to the Separate Award remain to be resolved because of the parties' failure to agree, the "Outstanding Issues".
921.
The issues, which according to the Decisions of the Separate Award were left to be decided, are those that follow from:

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.

922.
In addition, the Final Award shall decide on quantum, claims for set-off, interest and costs.
923.
Further, Gazprom has raised a number of objections as to the jurisdiction of the Tribunal and also requested dismissals in relation to a number of claims. To the extent that any such objections and requests are relevant to the claims addressed by the Tribunal in its Reasons they are dealt with below, otherwise not. Also, Naftogaz has raised jurisdictional issue; it is dealt with below
924.
The Parties largely rely on findings and conclusions of Dr. Hesmondhalgh and Dr. Moselle regarding factual matters and projections into future years. However, their reports are to some extent based on uncertain assumptions and instructions from the Parties, approximations, and on uncertain or incomplete data, which leads to uncertainties or doubt regarding their conclusions.

Starting point for the Tribunal's Determinations

925.
Before addressing the issues to be determined, the Tribunal finds it appropriate to reiterate how the situation in the proceedings was when the Tribunal, with the concurrence of Naftogaz, but with reservations by Gazprom, rendered the Separate Award.
926.
In March - April 2017, it was clear that the proceedings were about to be closed. Already on 3 March 2017, the Tribunal informed the parties of its intention to close the proceedings in accordance with Article 34 of the SCC Rules, subject to a limited number of remaining issues to be dealt with. After further submissions, on 13 April 2017, the Tribunal summarized what the few remaining issues were. Sometime thereafter, both parties confirmed their agreement with the summary. After consultations with the parties, the decision to render a separate award was made on 8 May 2017. On 12 May 2017, the Tribunal instructed the parties that they should not make any further submissions on the merits, until otherwise decided by the Tribunal. Subsequent to that decision, on 17 May 2017, Gazprom, with leave from the Tribunal, presented a brief submission. This was the last submission before the Separate Award was rendered.
927.
At that time, the parties had pleaded their cases extensively in all respects, whether Outstanding Issues or not, but except for costs. Had the Tribunal not decided to render a separate award, the Tribunal would have rendered a Final Award on the basis of the pleadings of the parties at that time. The decision to render a separate award was based on the concerns expressed by the parties that the Tribunal may need assistance in making the complex and difficult calculations involved in order to ensure accuracy, and on the Tribunal's desire to provide to the parties, without further delay, with answers to some fundamental issues between them, which possibly could have led to settlements.
928.
As spelled out in the Separate Award, the Tribunal left it to the parties to endeavor to agree on the Outstanding Issues, and, failing such agreement, the Tribunal would decide the Outstanding Issues after further proceedings. The issues left over, the Outstanding Issues, were meant to be of a nature that did not involve the Tribunal in considering new legal arguments or new facts. The tasks that remained were, with the assistance by the parties and their experts, to finalize calculations, to determine certain elements of the formula in Article 4.1, and to give precision to the ACQ and the MAQ, and to the Take or Pay clause in Article 2.2.5.
929.
The intent was not that the parties should re-argue issues that had been fully argued, even less issues that had been determined by the Separate Award, or that the parties should be allowed to make new claims. There is no basis in the Separate Award for allowing this. Nor is there any other decision by the Tribunal to that effect. As mentioned, the proceedings were for all practical purposes closed when the Tribunal rendered the Separate Award, subject only to the finalization of the Outstanding Issues.
930.
It is clear that the Relief now sought by Naftogaz regarding Articles 2.2, 2.2.3, 2.2.4, 4.1, 4.2, 4.3 contains elements that have not been pleaded by Naftogaz before the rendering of the Separate Award. Further, Naftogaz' Relief 4), concerning volumes of gas offtaken, is an entirely new Relief requested by Naftogaz. These claims are not mere adjustments; they are significantly different from what Naftogaz has claimed before438.
931.
Naftogaz asserts that only issues that have not been expressly decided in the Separate Award are outstanding. In the opinion of the Tribunal, that is too simplistic. The possibilities to make new claims439 may be restricted by the parties' own pleadings and requests for relief prior to the Separate Award, Article 25 of the SCC Rules, and decisions by the Tribunal, not least, by the Decisions of the Tribunal in the Separate Award of what remains to be resolved.
932.
Gazprom alleges that Naftogaz is precluded from advancing what Gazprom asserts are new issues and new claims on the grounds of res judicata. As far as this Arbitration is concerned, according to the Tribunal, the decisions of the Tribunal in the dispositive part of the Separate Award ("THE TRIBUNAL'S DECISION") as well as the conclusions and findings of the Tribunal made in its reasons ("X. THE TRIBUNAL'S REASONS") are final and not open to review, except in invalidity and setting aside proceedings under the Swedish Arbitration Act.440
933.
Finally, the Tribunal stresses that in the proceedings leading up to the Separate Award, the Parties have had ample opportunity to present, give precision to and develop their cases. The fact that the Separate Award has been rendered, and that issues remained to be resolved, does not entail an opportunity for a party to improve its case or the Contract commercially for its benefit. Nor does it open the door for arguments that there are commercial or reasonable

9.2 A New Formula

934.
By Decision (2), the Tribunal decided [REDACTED]
935.
The prevailing Price Formula in Article 4.1 provides that the Contract Price (Pn) in US dollars (USD) per 1000 m3 shall be calculated441 as follows:

[REDACTED]

936.
This formula consists of a base price P0, plus a quarterly adjustment as of 1 January, 1 April and 1 October of each Delivery Year, which shall be valid within the corresponding quarter of the Delivery year (prospective application), the escalation supplement, reflecting the movements in the price of the index-fuels, gasoil (G) and fuel oil (M), which are determined as arithmetic average value of prices for the index-fuels during a reference period of nine months as published by an official report. The escalation supplement also incorporates the weights of the index-fuels. There is also a coefficient"k".
937.
In its request for Relief as per its Post-hearing Submission (Item 1.4 in Annex 1) of 16 November 2016 (the last Relief of Naftogaz prior to the Separate Award), Naftogaz requested that the Contract Price should be determined quarterly as of 1 January, 1 April and 1 October of each Delivery Year and be valid within the corresponding quarter of the Delivery year (prospective application), that the gas index element of the formula should be equal to the arithmetic average value of prices for quarter-ahead gas deliveries as published by ICIS Heren under the heading "NCG Price Assessment" (HUB prices), and that for conversion of prices from Euros to US Dollars, exchange rates of the European Central Bank should be used.

[REDACTED]

938.
In these proceedings after the Separate Award, Naftogaz introduced new Reliefs sought442, the last one on 10 November 2017, after the two days hearing on 9 and 10 October 2017. In all these Reliefs Sought, Naftogaz has amended its Relief Sought of 15 November 2016. In addition to those amendments that follow directly from the Separate Award443, these amendments relate to:
939.
The Contract Price to be determined retroactively on a monthly basis :

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.

940.
Briefly, the parties' respective cases can be summarized as follows.

Naftogaz

941.
In summary, Naftogaz asserts that these amendments are not new; that they are justified as addressing issues which according to the Separate Award were left over to be determined either by the parties in agreement or, after further proceedings, by the Tribunal, and, thus, are not "res judicata"; those issues that have not been expressly decided or considered in the Separate Award are outstanding; that they are a reflection of the Tribunal's reasoning that the Contract Price should reflect the level of market prices; that regarding (i) through (iii) above, they are amendments of Naftogaz' earlier request for Relief of 15 November 2016, which are required consequential adaptations to the Separate Award; and that Naftogaz has the right to amend its claim pursuant to Article 25 of the SCC Rules. Naftogaz has also referred to commercial considerations.

Gazprom

942.
In summary, Gazprom contends that the Tribunal's findings with regard to the Separate Award have become res judicata, and cannot be pursued further; that only issues expressly identified as outstanding issues in the Separate Award can be pursued further in these proceedings; that the issues (i) - (vi) above are not issues left over for determination by the Separate Award, and therefore it is not open to Naftogaz to request these adjustments; and that it is now, in any event, too late for Naftogaz to change its case in respect of pricing by advancing new requests for relief which Naftogaz had not sought by the date of the Separate Award; that Article 25 of the SCC Rules would not allow such amendments as the introduction of new requests for relief at this very late stage would undermine the Tribunal's rationale in deciding to have a Separate Award followed by a further award.

The Tribunal's Findings and Conclusions

943.
The Tribunal finds that [REDACTED] are new444 as compared to the reliefs sought by Naftogaz in its Post-Hearing Brief of 15 November 2016. They are new because they are significantly different.
944.
They are also inconsistent with the Separate Award.
945.
The point of departure for Naftogaz' claim regarding price revision in the arbitration prior to the Separate Award was the prevailing Article 4.1 with its formula. The Relief claimed by Naftogaz regarding Article 4.1 prior to the Separate Award focused on that formula and concerned amendments to specific elements of the formula: the value of Po, the value of H0 and the definition of H0 and H, i.e. the escalation supplement or the gas index element (the introduction of 100 % hub bid prices for natural gas instead of gas oil and fuel oil), and the reference period (three months instead of 9 months). Nothing else.
946.
The relief granted by the Tribunal by Decision (2) was based on and concerned only that Relief requested by Naftogaz regarding price revision. By Decision (2), the Tribunal [REDACTED]
947.
The Tribunal disagrees with Naftogaz alleged interpretations of the Separate Award in support of its case that the amendments are justified as an alleged reflection of the Tribunal's reasoning that the Contract Price should reflect the level of market prices. Naftogaz "cherry picks" phrases in the Separate Award and gives them a meaning that neglects the context in which they were made and which conclusions the Tribunal drew form them445. By the Separate Award, the Tribunal decided what should be meant by the level of prices in the market: German Hub prices, or more precisely 100 % NCB hub mid prices, as sought by [REDACTED] Award). The Separate Award does not enshrine interpretations of the kind asserted by Naftogaz.
948.
The introduction by Naftogaz of a [REDACTED] On the basis that the Tribunal [REDACTED]446
949.
The Tribunal also notes that [REDACTED] There can be no doubt that these reliefs are new and not just "alignments with the Separate Award", as Naftogaz puts it.
950.
The Tribunal concludes that it [REDACTED] In other words, the reliefs that Naftogaz now seeks are new reliefs.
951.
Then remains the issue whether it would be appropriate to now allow the amendments under Article 25 of the SCC Rules.
952.
The Tribunal finds that there are a number of reasons against it being appropriate to allow the new reliefs.
953.
The new reliefs have been introduced very late in the proceedings, almost three years after the commencement of the proceedings. Naftogaz has not presented any reason why it did not request these reliefs earlier in the arbitration or any justification for introducing them at this late stage, other than implicitly its desire to achieve improvements.
954.
In March - April 2017, almost three years after the commencement of the Arbitration, it was clear that the proceedings were about to be closed. Only some limited issues of no relevance to the amendments made now were addressed subsequently. At that point, the Parties had pleaded their cases comprehensively and sufficiently for the Tribunal and the Parties to be satisfied that the parties "have had reasonable opportunities to present their cases" (Article 34 of the SCC Rules), and that the Tribunal, based on what had been pleaded, then could render a final award. It was time for the proceedings to be closed pursuant to Article 34 of the SCC Rules. As mentioned, on 12 May 2017, the Tribunal instructed the parties that they should not make any further submissions on the merits, until otherwise decided by the Tribunal. The only reason why the proceedings were not closed was that the Tribunal had decided to render a separate award and that the parties should be allowed to make further submissions post the Separate Award on [REDACTED] should the parties fail to agree on them.
955.
In this respect, the Tribunal refers to what is stated above regarding [REDACTED]
956.
Further, the amendments are not marginal but comprehensive and significant.
957.
Another circumstance to consider is how the new reliefs relate to price revision under Article 4.4.
958.
A claim by Naftogaz [REDACTED] All facts, grounds and relief requested by Naftogaz in the arbitration before the Separate Award have been founded [REDACTED]
959.
Naftogaz alleges that the present "ground for Requests 1.1) to 1.4) is the same - due to changes in the market conditions in the fuel and energy market Naftogaz has a right under Article 4.4 of the Contract to have the price clauses of the Contract revised to achieve a market reflective price".447 This is, however, only the ground for [REDACTED]
960.
The reliefs sought by Naftogaz have been based on what Naftogaz earlier claimed were [REDACTED]
961.
What in reality Naftogaz is doing now is to try to re-open [REDACTED] report of Dr. Hesmondhalgh, §§ 14 - 23 (C-231).
962.
The reliance on[REDACTED]
963.
Based on all these circumstances together, the Tribunal finds that it would not be appropriate to allow the new reliefs and that they shall be dismissed.
964.
The Tribunal concludes that the formula shall be as set forth in Annex1 to this Final Award.

9.3 Articles [REDACTED]and [REDACTED]

965.
Decision [REDACTED] reads:
966.
The Tribunal notes that Gazprom claims that the Tribunal's Decisions [REDACTED] is ultra petita, and that it cannot stand. Accordingly, on 7 November 2017, Gazprom has challenged Decision [REDACTED] on grounds for excess of mandate and/or procedural irregularity451.
967.
This is a matter for the Svea Court of Appeal, and possibly the Swedish Supreme Court, to resolve.
968.
In these proceedings, Gazprom asserts inter alia that the Tribunal has awarded something that is significantly lower than what Naftogaz formally requested in its claims for relief in its Post-Hearing Submissions of 15 November 2016. However, Gazprom does not peruse this assertion in the arbitration. Therefore, there is no reason for the Tribunal to give its views on it or take it into account when determining the ACQ (or the MAQ).452

Article [REDACTED]

969.
The issue relating to Article [REDACTED] is what shall be considered to be Naftogaz' requirement of import to supply its customers in Ukraine, including fuel gas.
970.
The parties agree that [REDACTED]
971.
However, the parties differ on how the total annual consumption in Ukraine and total annual domestic production shall be determined.
972.
The parties' respective proposals of an adjusted ACQ are set out in the table at paragraph 72 of Gazprom's Reply Submission:
973.
ACQ proposed by the parties (in bcm)

[REDACTED]

974.
These figures have been calculated by the parties excluding deliveries to the Donetsk and Luhansk regions455.
975.
Naftogaz asserts that domestic production in Ukraine will increase substantially over the remainder of the term of the Contract.456 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.457
976.
Naftogaz asserts that Ukrainian consumption is expected to continue what Naftogaz alleges to have been a "steady decline" in recent years. Gazprom's position is that Ukrainian consumption is set to increase.
977.
Both parties have invoked evidence in support of their cases.
978.
Naftogaz relies on Dr. Hesmondhalgh458 and witness evidence given by Mr. [REDACTED] in his witness statements 5 and 6, with supporting documents in Annexes459. Gazprom relies on recent economic indicators and expectations of economic growth in Ukraine by international financial institutions,460 projections by independent industry analysts,461, based on publicly available data published by Energobiznes on a monthly basis over the period 2009 to August 2017462, a report from the Oxford Institute for Energy Studies of March 2017 (the "Pirani Re-port")463, a World Bank report464 and an article in the Financial Times465.
979.
As stated by Dr. Hesmondhalg, "[t]here is, inevitably, uncertainty about what Naftogaz's import needs will be"466. The determining factors are many and uncertain, ranging from investment possibilities in new production, economic growth, domestic demand, energy efficiency, weather conditions, additional competing capacity from Nord Stream, etc.467.
980.
It is a truism that the future cannot be proven. So, the Tribunal is not assessing evidence in the normal sense. What the Tribunal is confronted with is not to find what the available evidence proves about the future, but, rather, based on the evidence and the pleadings of the parties, to find the figures that make most sense.
981.
Looking at the different scenarios of the parties, the Tribunal finds that Gazprom's scenario 1, corresponding to Gazprom's alternative proposal 2 above, is close to Naftogaz' scenario 2468 for both 2018 and 2019.469
982.
However, the Tribunal finds that there is a qualitative difference in the evidence invoked by the parties. Gazprom relies on publicly available data only, whereas Naftogaz essentially relies on testimony of Mr. [REDACTED], and Dr. Hesmondhalgh, who relies essentially on information received from Naftogaz.
983.
In his oral testimony at the hearing in October 2017470, Mr. [REDACTED] clarified some of his statements in his written witness statements471 to the effect that he conceded that there were uncertainties that were not evident from his written witness statements. From his oral testimony can be concluded that his scenario 1472 is not very likely to occur. As to scenario 2, Mr. [REDACTED] s oral testimony also casts doubts about his assumption of 33.48 bcm for 2018 and 33.56 bcm for 2019 for gas consumption, and a gas production of 21.34 bcm for 2018 and 22.23 bcm for 2019473. In this respect, the Tribunal notes that Naftogaz' figures for the ACQ in the above table are average figures of Naftogaz' scenarios 1 and 2474.
984.
Dr. Hesmondhalgh summarises her eighth report475 by stating that "[I]n summary, I consider that all the available evidence suggests that Gazprom's proposed range for the ACQ under the Contract is too high, particularly for 2019. The ACQs proposed by Naftogaz for 2018 and 2019 appear more reasonable in the light of the available evidence". The Tribunal does not find that Dr. Hesmondhalgh's report supports that conclusion. For example, when she discusses Ukrainian gas production in § 40 of her report, she refers to Naftogaz' 2016 Annual Report476 and to a report from the Ukraine "National Investment Council", "Ukraine Gas Upstream, Opportunities Down the Road", from 2017477. However, her findings in § 40 from these sources are exaggerated478. Similarly, her discussion regarding the data for 2017 and her conclusions for the weather and its impact on gas consumption for 2018 and 2019 in § 46 of her eighth report are not supported by the source she is referring to479.
985.
Mr. [REDACTED] scenario 2 can be contrasted with the Pirani Report from March 2017480. The Pirani Report says that Ukraine gas production has been stabilised at around 20 bcm per year despite the loss of Chernomorneftegaz481, and that, assuming slow recovery, and no significant escalation of military, Ukraine's gas demand could stabilise in the next few years at around 3235 bcm per year. The figures from the Pirani Report regarding Ukrainian demand assume that the arrangements for gas supply directly by Russia to the Donetsk and Luhansk areas and to Crimea remain in place482.
986.
Taking the middle value 33.5 bcm of the Pirani Report for gas demand for each of the two years 2018 and 2019, and assuming 20 bcm annual domestic Ukrainian production from the Pirani Report for each of the two years 2018 and 2019, Ukraine's import needs will amount to 13.5 bcm for both years of which 10.0 bcm (74 % of 13.5= 9.99) is the import needed by Naftogaz, corresponding to ACQ 5.0. The Tribunal justifies the rounding of figures by its observation that the underlying calculations seemingly exact are based on uncertain projections of future circumstances.
987.
As a comparison with the parties' scenarios, reference is made to the below Table 5 from Dr. Hesmondhalgh's 8th report, page 15:

[REDACTED]

The Tribunal’s Conclusion as to the ACQ

988.
Based on the available evidence, the Tribunal finds that the figure [REDACTED] is the most sensible figure, and that [REDACTED] shall be the ACQ for each of the years 2018 and 2019.

"The Donetsk and Luhansk regions"

989.
Naftogaz has requested the insertion in Article [REDACTED] of a text intending to exclude gas deliveries to the Donetsk and Luhansk region:
990.
".... adjacent to areas subject to Ukrainian government control..."
991.
This added text has been introduced in the proceedings by Naftogaz after the Separate Award. The issue underlying this request has not emerged in the arbitration as a disputed issue until after the Separate Award.
992.
Naftogaz position is clear, the Naftogaz does not have any responsibility for gas deliveries to these regions.
993.
Gazprom objects to the inclusion of the added text, it being new and not an issue left over from the Separate Award. Gazprom's position is that Gazprom has not, and does not, make any monetary claim in this arbitration in regard to gas delivered to these regions, but it reserves its rights outside of this arbitration.

The Tribunal's Conclusions regarding Article [REDACTED] and "The Donetsk and Luhansk regions"

994.
The Tribunal rejects [REDACTED] the following reasons.
995.
[REDACTED]
996.
Second, if Naftogaz is prevented from off taking gas in the Donetsk and Luhansk regions, Naftogaz could invoke the [REDACTED]
997.
Third, the definition of "Point of Delivery" in Article 1.10 means a point [REDACTED]
998.
To summarize, the Tribunal [REDACTED]
999.
Further, the amendment has been requested by Naftogaz very late in the arbitration without Naftogaz explaining why it is justified to introduce it not until at this stage.
1000.
The Tribunal also finds that it would be inappropriate to allow this revision in view of the circumstances mentioned above.
1001.
It should also be borne in mind, as pointed out by Gazprom, that [REDACTED]

The Tribunal's Conclusion regarding the text of Article [REDACTED]

1002.
For the above reasons, the Tribunal rejects Naftogaz' request.
1003.
On this basis, and to adopt the text to the determination by the Tribunal regarding the ACQ (and with some minor editorial changes to texts of the parties), Article [REDACTED] shall read:

[REDACTED]

Revision of Article [REDACTED]

1004.
This Article is providing for the quarterly distribution of the ACQ. Naftogaz has suggested a distribution of the ACQ for 2018 and left the distribution for 2019 to be determined according to the prevailing text. Gazprom objects to the new text on the grounds that it is not needed and that it is a new claim by Naftogaz.
1005.
The Tribunal has found that it is appropriate as a practical matter to [REDACTED] Gazprom has suggested that once the ACQ has been determined by the Tribunal, the parties could agree on the appropriate distribution. The Tribunal [REDACTED]. The Tribunal also notes that Gazprom has expressed that it does not have any objections in principle to the "approximate distribution"484 proposed by Naftogaz expressed in percentage terms.

The Tribunal's Conclusion regarding Article [REDACTED]

1006.
On this basis, the Tribunal decides that Article [REDACTED] shall read:

[REDACTED]

9.4 Revisions of Article [REDACTED]

1007.
Naftogaz has requested revisions of Article [REDACTED] to the effect that (i) the possibility to amend by agreement the ACQ becomes a kind of a ACQ revision provision, and (ii) Naftogaz shall have the right to reduce the ACQ if Gazprom were to sell additional natural gas in Ukraine to Naftogaz' direct or indirect customers, combined with a duty of Gazprom to inform Naftogaz of such sales.
1008.
These revisions are entirely new. They have been requested by Naftogaz only now in the continued proceedings after the Separate Award.
1009.
They are [REDACTED]
1010.
The Tribunal does not agree with Naftogaz that these revisions are consequential to the Separate award, [REDACTED]
1011.
The Tribunal does not consider that there is any basis in the Separate Award for it to accept these requested revisions. The Tribunal repeats that he fact that the Separate Award has been rendered, and that issues remained to be resolved, does not entail an opportunity for a party to improve its case or the Contract commercially for its benefit.
1012.
The Tribunal also finds that it would be inappropriate to allow these revisions in view of the circumstances mentioned above. They shall therefore be dismissed.

The Tribunal's Conclusions regarding Article [REDACTED]

1013.
For the above reasons, the Tribunal rejects Naftogaz' request.

9.5 A New Article [REDACTED]

1014.
This Article provides that Naftogaz shall offtake at least 50 % of the Average Daly Delivery Rate, thus allowing Naftogaz greater flexibility than the prevailing Contract, and subjects daily nominations to Ukrainian legislation.
1015.
Naftogaz argues that, in view of [REDACTED]. is required in order to ensure that Naftogaz can take only the MAQ without breaching the Contract.
1016.
Gazprom has in response referred to Article [REDACTED] alleging that Naftogaz misunderstands the Contract. Gazprom argues that Naftogaz' position appears to be based on a mistaken understanding that the average daily delivery rate is set by reference to the total ACQ. According to Gazprom nothing in Contract requires this. The Average daily delivery rate is defined in Article 1.9 of Contract as meaning "the Gas delivery volume determined by dividing the planned quarterly delivery volume by the number of days in the corresponding Quarter of Delivery". There is nothing in Contract to prevent the parties from planning quarterly delivery volumes, which, over the course of a year together equate to the MAQ, and not the ACQ.
1017.
It is the Tribunal's understanding that, from a "technical" perspective, it is possible for the parties to comply with the Contract [REDACTED] That is because if the parties could plan quarterly delivery volumes that equate to the MAQ (or anywhere between the MAQ and ACQ), no additional variation in the Average Daily Delivery Rate is required to ensure the MAQ is met.
1018.
In any event, the parties have had this contractual arrangement since the entering into the Contract in 2009, and, seemingly, it has worked.
1019.
Also, this request is entirely new.
1020.
The Tribunal repeats what it has stated above. There is no basis in the Separate Award for the Tribunal to accept an entirely new relief. Again, the fact that the Separate Award has been rendered, and that issues remained to be resolved, does not entail an opportunity for a party to improve its case or the Contract commercially for its benefit.
1021.
The requested new article also makes a reference to nominations to be made in accordance with relevant Ukrainian legislation.
1022.
Gazprom makes the observation that the Contract is not performed in Ukraine as the delivery of the gas takes place in Russia.
1023.
However, it is beyond the possibility of the Tribunal to judge whether or not Ukrainian law applies without proper submissions on the matter.
1024.
Nevertheless, the Tribunal does not find [REDACTED]
1025.
Based on the above, the Tribunal finds that it would be inappropriate to allow these revisions in view of the circumstances mentioned above. They shall therefore be dismissed.

The Tribunal's Conclusion regarding Article [REDACTED]

1026.
For the above reasons, the Tribunal dismisses Naftogaz' request.

9.6 Article [REDACTED] - Take or Pay

1027.
The parties have entrusted the Tribunal with finalizing the text of Article [REDACTED]
1028.
The parties have agreed on the terms of this Article, except485:
1029.
As regards an exception requested by Gazprom that volumes [REDACTED]
1030.
As regards an exception requested by Naftogaz that [REDACTED]
1031.
A request by Naftogaz that [REDACTED]
1032.
Having considered the arguments of the parties, the Tribunal has made the following observations.
1033.
Gazprom's request as per [REDACTED]
1034.
Naftogaz' request as per [REDACTED]
1035.
As to [REDACTED]

The Tribunal's Conclusions regarding Take or Pay

1036.
Consequently, the Tribunal does [REDACTED]. Having considered the concerns that the parties have expressed in relation to the issue, the Tribunal has found that it would be appropriate to insert words to the effect that [REDACTED]
1037.
Further, the Tribunal does [REDACTED]
1038.
The Tribunal concludes that text shall be as is set out in Annex 2 to this Final Award.

9.7 The amount of repayments to which Naftogaz is entitled

1039.
There are a number of issues to be decided in order to determine the amount to which
1040.
Naftogaz is entitled and what the net effect between the parties is for quantum.

Gazprom's claims for gas supplied in April, May and June 2014

1041.
The issues between the parties are486 how Naftogaz' payment dated 24 December 2014 shall be allocated: (i) according to Gazprom as an overpayment by Naftogaz where the price paid was the price invoiced, which was higher than the revised the Contract Price with effect from 27 April 2014, or (ii) according to Naftogaz as an underpayment by Naftogaz where the price paid is considered to be the revised price; and (iii) whether allocation shall be against interest first or against the invoiced amount first.
1042.
Both parties refer to Chapter 9 Section 5 of the Swedish Commercial Code (Sw. Handels-balken), and to NJA 2009 p. 64, according to which the debtor has the right to decide the allocation of a payment among debts, failing which the creditor has the right to allocate a payment among its claims against the debtor, subject to the restriction under Chapter 9 Sections 5 that interest will have to be paid before the capital amount.487
1043.
Gazprom claims that it follows from Swedish law that the 24 December 2014 payment shall be allocated to interest first.
1044.
Naftogaz asserts that parties are free to agree to deviate from these principles, and refers to [REDACTED]488 reflecting such agreement. Gazprom’s objects and asserts that [REDACTED] is not such agreement. Gazprom refers in this context to paragraph [REDACTED] providing that [REDACTED] was not to be used in this arbitration, which according to Gazprom shows that [REDACTED] was not intended to be a binding agreement to deviate from Swedish law489.
1045.
Naftogaz holds [REDACTED] and that it shall be understood to mean that [REDACTED] it [REDACTED] that [REDACTED] affect the positions of the parties in the arbitration, and that the parties shall not rely on it. The Tribunal
1046.
In passing, the Tribunal notes that the Binding Protocol490, which does not contain a provision that it must not be used in this arbitration, contains the same wording regarding how the payments should be allocated.
1047.
There is no disagreement regarding the fact that the parties agreed that Naftogaz should make, and did make, the payment of 1,650 billion USD against certain invoices491, which were for gas delivered in April, May and June 2014, and not for interest. The Tribunal finds that this [REDACTED]
1048.
Further, at the time of the payment on 24 December 2014, invoices for the deliveries of gas in April - June 2014 had been issued. The invoices clearly state the price for the gas, USD 491.52 for April, USD 492.28 for May and 492.86 for June, i.e. not a revised price. Interest had ac-crued492 but the invoices were not for interest.
1049.
The position taken by Gazprom regarding the allocation of the 24 December 2014 payment in these continued proceedings after the Separate Award is not the same as the position of Gazprom before the Separate Award. At that time, Gazprom, referring to [REDACTED], allocated the 24 December payment to the oldest invoice first, i.e. for deliveries in April in full and May in part493, but consistent with its present position, at the Contract Price (factual price) of USD 491.52 for April, USD 492.28 for May and 492.86 for June, i.e. a price which was higher than the revised the Contract Price with took effect from 27 April 2014.
1050.
Based on the above, the Tribunal concludes that the payment made on 24 December 2014 shall be considered to be a payment for the gas delivered in the months April - June 2014, against the first invoice first, and not for interest, and that it was made at the invoiced price.
1051.
The Tribunal also finds that it is clear from the Russian Government Resolution 260 that the customs duty reduction ceased to have effect from and including 2 April 2014. Thus, the last date that the reduction applied was 1 April 2014.

Gazprom's claim for gas supplied in December 2013

1052.
There is no remaining issue regarding Gazprom's claim. The Tribunal thus accepts it.

Gazprom's claim for gas supplied in October and November 2015

1053.
Gazprom has made a new request for relief to the effect that Gazprom is entitled to payment of the difference between amounts paid by Naftogaz for gas delivered in October and November 2015 and the revised price, and that the underpayments for deliveries in these months shall be offset against overpayments.
1054.
Naftogaz objects with reference to Decision (9), and asserts that Decision (9) does not provide that Naftogaz shall make additional payments for gas paid by Naftogaz at a Contract Price which is lower than the Contract Price resulting from the price revision. Naftogaz is right.
1055.
Gazprom then refers to Article 25 of the SCC Rules, alleging that it could not have made this claim until it had received Naftogaz' submission on the Outstanding Issues.
1056.
The Tribunal makes the observation that this issue did not arise when Naftogaz made its calculations of the amount of its overpayments as these calculations were based on a revised Contract Price which always was lower than the price it had paid. Now, when the revised Contract Price resulted in being higher than the price actually paid by Naftogaz for as delivered in October and November 2015, there is a difference, which as a matter of principle Naftogaz owes Gazprom.
1057.
The claim is as such non-controversial. There is no issue as to the amount. It was calculated by Dr. Moselle, and it has been confirmed by Dr. Hesmondhalgh and Dr. Moselle in consultations by the Tribunal.
1058.
If the Tribunal were to dismiss the relief, it would be without prejudice.
1059.
Overall, the Tribunal does [REDACTED]

Gazprom's claim for late payments for gas delivered in February and March 2014

1060.
Gazprom also claims interest in accordance with Article 6.2 of the Contract for late payments for gas delivered in February and March 2014. Naftogaz objects and refers to Decision (11) and Decision (8) of the Separate Award alleging that the Tribunal should have rejected all claims for payment or of interest not mentioned in Decision (8).
1061.
The Tribunal disagrees. The Separate Award expressly states in paragraph (3492) that quantum is to be determined by the parties in agreement or by the Tribunal in the further proceedings. Consequently, the Decisions do not decide on quantum.
1062.
Thus, the Tribunal admits this claim.

9.8 Naftogaz' Request for a Declaration regarding Gas Offtaken, but not paid for

1063.
The issue underlying this request is the wish of Naftogaz that the Tribunal makes a declaration to the effect that Naftogaz does not have any responsibility for gas delivered to the Donetsk and Luhansk regions, and that any claim by Gazprom for deliveries to these regions, which Gazprom has not made in the arbitration, are not valid claims against Naftogaz.
1064.
Gazprom objects to the relief, it being new and not an issue left over from the Separate Award. Gazprom's position is that Gazprom has not, and does not, make any monetary claim in this arbitration in regard to gas delivered to these regions, but it reserves its rights outside of this arbitration. Gazprom states that the circumstances surrounding what Gazprom calls "the civil conflict" affecting the Donetsk and Luhansk regions are highly politically charged and outside the scope of the factual investigations in these proceedings.
1065.
This request has not emerged in the arbitration until after the Separate Award, and it is not correct, as alleged by Naftogaz, that the Tribunal should have made findings on this mat-ter.494The question that was the subject of some submissions before the Separate Award was not whether or not Naftogaz was responsible for gas delivered to the Donetsk and Luhansk regions, but whether Gazprom made claims in the arbitration against Naftogaz for volumes of gas delivered to these regions in Q3 of 2015 and in 2016. There were no findings by the Tribunal in this respect; the Tribunal simply noted the agreement by the parties as to which volumes of gas that it had to address.
1066.
Naftogaz' new request goes further than the Tribunal taking notice of the volumes that the parties agree on for the purpose of resolving the specific claim in the arbitration made by Gazprom regarding payment for gas offtaken but not paid for. The request that Naftogaz now is making is not related to a particular claim in the arbitration. It is disputed and would involve the determination by the Tribunal of which responsibility Naftogaz has for gas delivered to the Donetsk and Luhansk regions, which would require complex factual investigations and complex legal examinations, which are outside the scope of the factual and legal investigations and examinations of the proceedings in this arbitration, and which therefore would require new submissions from the parties.
1067.
As the Tribunal has noted above, the Contract contains provisions that Naftogaz can invoke in its defence against claims for gas offtaken by someone else.
1068.
The Tribunal does not find Naftogaz' arguments about alleged risk for Naftogaz regarding allocation of pre-payments by Naftogaz to Gazprom for future deliveries of gas relevant [REDACTED] that issue is [REDACTED] being about price revision, invalidation of certain clauses in the Contract and ensuing claims for repayments or damages, and payment for gas delivered.
1069.
Further, the new relief has been requested by Naftogaz very late in the arbitration without Naftogaz explaining why it is justified to introduce it not until at this stage.
1070.
To summarize, the Tribunal does not find that the new relief is justified or appropriate to admit. It shall therefore be dismissed.
1071.
Finally, the [REDACTED], for the purpose of this Arbitration, further clarifications are required from Gazprom regarding its deliveries to Naftogaz and deliveries to the Donetsk and Luhansk regions, or otherwise in relation to the issues raised in connection with this new relief requested by Naftogaz. [REDACTED]

The Tribunal's conclusion

1072.
Naftogaz' request [REDACTED].

9.9 Jurisdiction

1073.
Both parties have invoked jurisdictional objections. Insofar as they are relevant to the claims of the Parties and to conclusions of the Tribunal, they have been considered.

9.10 Set-off

1074.
The Parties are in agreement that the Tribunal shall set-off all amounts owing between the Parties pursuant to this Sales Arbitration. The effect of this is that a single net amount shall be ordered to be paid by one party.
1075.
Naftogaz has also made two independent declarations of set-off (Sw. kvittningsforklaringar). They are independent civil law acts
1076.
The Tribunal has dismissed the declaration of set-off between amounts awarded in the Sales Arbitration and the Transit Arbitration made by Naftogaz on 15 September 2017 in its Submission on the Implementation of the Separate Award. That decision was made in connection with, and as part of, the Tribunal's rejection of Naftogaz' request for a stay of this Arbitration, requested by Naftogaz until Naftogaz' counterclaim in the Transit Arbitration has been finally resolved by a final and binding award. Set-off was introduced by Naftogaz in this Arbitration as a defence and was dismissed as such.
1077.
The other declaration of set-off was made by Naftogaz on 15 September 2017 in its Submission on the Implementation of the Separate Award, with effect as of 30 September 2017, regarding Naftogaz' capital and interest claims in this Arbitration. Also, this declaration of set-off has been introduced by Naftogaz as defence.
1078.
The Tribunal consider that this set-off defence has been made too late. Naftogaz could have raised it much earlier in this Arbitration.
1079.
Gazprom made its request for a set-off, by netting amounts in the final award, already on 21 April 2017. On 4 May 2017, Naftogaz objected to the request stating that in its view, "this request is advanced far too late in the proceedings to be appropriate. Naftogaz is seriously concerned that allowing such request would jeopardize the time schedule. The issue is in fact far more complex than the email below might suggest. It would require further specification and clarification and substantiation from Gazprom and is very likely to give rise to substantial legal argumentation from both sides as well as time-consuming calculation exercises."
1080.
These arguments were not valid arguments at that time, in particular as Gazprom's request in effect was for a simple netting in the final award, but they are now as regards Naftogaz' declaration of set-off which would require complex calculations. It has also emerged that that calculations made by Naftogaz in respect of its declaration of set-off are disputed by Gazprom.
1081.
The Tribunal finds, as it did regarding the intra arbitration set-off, that it would be inappropriate to accept Naftogaz' late claim for a set-off. With reference to Article 25 of the SCC Rules, the Tribunal therefore decides that Naftogaz is not entitled to amend its defence in the Supply Arbitration by making the declaration of set-off between amounts awarded in the two Arbitrations. The declaration of set-off as a defence shall thus be dismissed.

9.11 The Tribunal's Conclusion as to the Quantum following from the above

1082.
In view of the Tribunal's conclusions and findings above, and including the Tribunal's findings and conclusions above regarding the formula, i.e. P0 and H0 being equal to USD 351.62, H being determined on the basis of QA NCG hub mid prices, with application prospectively, actual calorific value to adjust the Contract Price, use of ECB published exchange rates, and underpayments in October and November 2015 to be set-off against overpayments, late payment interest in respect of February and March 2014495, the conclusion is that

i) The principal amount payable to Naftogaz is USD 233,846,359.81 and t