• Copier la référence
  • Tutoriel vidéo

Avocats, autres représentants, expert(s), secrétaire du tribunal

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.