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Naftogaz v. Gazprom (II)

National Joint Stock Company Naftogaz of Ukraine v. Public Joint Stock Company Gazprom (II), SCC Case No. V2014/129
Nature de la procédure :
Internationale
Type d'affaire :
Arbitrage commercial
Secteur économique :
Transport et entreposage
Transports terrestres, transport par conduites
Date d'introduction :
13 oct. 2014
Statut de l'affaire :
Achevée (autre que ISDS)
Pays d'origine de l'investisseur :
Ukraine
Pays d'origine du défendeur:
Russie
Institution:
SCC (Chambre de commerce de Stockholm)
Rules of arbitration:
Siège de l’arbitrage :
Stockholm
Loi applicable :
Suède

Documents de l'affaire

Tore Wiwen-Nilsson Président
Johan Munck Nommé par le défendeur
Jens Rostock-Jensen Nommé par le demandeur
Picture of partner

Ce document a été attribué dans le cadre du partenariat exclusif IBA x Jus Mundi pour l'arbitrage commercial.

Contributeur(s) :

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    Jus Mundi

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

Final Award

1. THE PARTIES TO THE DISPUTE AND THEIR COUNSEL

1.1 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 & Co. Advokatfirma DA
Attorneys-at-law Dag Mjaaland and Aadne M. Haga P.O. Box 1513 Vika
N-0117Oslo
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
Victor Business Centre
B. Khmelnitskogo Str., 52
01030 Kiev
Ukraine

1.2 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
Smalandsgatan 20
Box 1703
SE-111 87 Stockholm
Sweden

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 3 8 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 (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 SCC appointed as Chairperson of the Arbitral Tribunal:

Mr. Tore Wiwen-Nilsson,
Palsjovagen 24,
223 63 Lund,
Sweden
Email: twn@indarb.se
Telephone: +46 709 100 134

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

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

3. THE DISPUTE AND ITS BACKGROUND

3.1 The Parties

1.
The Claimant, National Joint Stock Company Naftogaz (NJSC, or "NAK" in Ukrainian) of Ukraine, is a Ukrainian wholly state-owned oil and gas company with over 1 70 thousand employees.
2.
Naftogaz is Ukraine's largest oil and gas producer as well as the major importer, transportation provider through its wholly owned affiliate Public Joint Stock Company Ukrtransgaz ("Ukrtransgaz"), and marketer of Natural Gas, covering all segments of the Ukrainian gas market, from industrial users down to direct residential and commercial customers. Naftogaz and its subsidiaries produce over 90% of the oil and gas in Ukraine.
3.
The Respondent, Public Joint Stock Company Gazprom (PJSC or "PAO" in Russian), is the world's largest gas extracting company with over 350 thousand employees. It is a publicly listed company situated in Moscow, Russia. According to the company's webpages, the Russian Federation (through the Federal Agency for State Property Management, OAO Rosneftegaz and OAO Rosgazifikatsiya) is a majority shareholder, holding 50,002 per cent of the shares. Gazprom is the biggest supplier of gas to Europe, approximately 50%-60% of which transit through Ukraine.
4.
Gazprom accounts for 14 and 74 per cent 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 in Summery

5.
This Arbitration ("the Transit Arbitration" or "the Gas Transit Arbitration") relates to a dispute under Contract No. TKGU dated 19 January 2009 between Gazprom and Naftogaz on volumes and conditions for transit of Natural Gas of Russian, Kazak, Turkmen or Uzbek origin through the territory of Ukraine from 2009 to 2019 (the "Contract" or the "Gas Transit Contract").
6.
The Gas Transit Contract was entered into on the same day as the Gas Sales Contract between the same Parties and is related to the Gas Sales Contract, inter alia through the calculation of the transit tariff. A dispute related to the Gas Sales Contract was referred to arbitration on 16 June 2014, SCC Case No. V 2014/078 ("the Supply Arbitration" or "the Gas Sales Arbitration"). The disputes are handled in separate arbitration proceedings but in the same Arbitral Tribunal; a Separate Award in the Gas Sales Arbitration was rendered on 31 May 2017 and the Final Award in the dispute was rendered on 22 December 201 7.
7.
The Gas Transit Contract provides for the transit of very significant volumes of Natural Gas from the Russian Federation to European countries, covering approximately 50-60 per cent of Russian Natural Gas exports to Europe. The Gas Transit Contract is a long-term agreement for the use of the Ukrainian Gas Transmission System ("GTS"), a major infrastructure of vital importance to the Russian Federation as an energy exporter, and other European countries as energy importers. Such infrastructure is always subject to complex and changing regulatory requirements, and, like many long-term agreements, the Contract includes provisions allowing the Contract to be adapted in order to comply with the applicable legislation in Article 13.2.
8.
In this Arbitration, Naftogaz claims (1) adjustment and replacement of alleged invalid and ineffective provisions on volumes and conditions for transit of Natural Gas through the territory of Ukraine, including transfer of Naftogaz' rights and obligations under the Contract to the Ukrainian TSO Ukrtransgaz, (2) tariff revision and claim for underpayment of transit services under the Contract, (3) and compensation for underdeliveries of transit volumes. Naftogaz also has claims for interest.
9.
Naftogaz' claims also encompasse assignment of the Contract from Naftogaz to the Ukrainian Transmission System Operator ("TSO"), PJSC Ukrtransgaz ("Ukrtransgaz").
10.
Gazprom requests that the claims should be dismissed. Gazprom also requests that Naftogaz' claims be rejected on the merits.
11.
According to Gazprom, the Tribunal does not have the power to re-write the Contract in the manner requested by Naftogaz and, moreover, Naftogaz has not fulfilled the contractual requirements pursuant to the tariff review provisions.
12.
Further, according to Gazprom, the Tribunal lacks jurisdiction to determine claims based on "energy law".
13.
According to Gazprom, the majority of Naftogaz's claims for relief do not fulfil the procedural requirement that the claims must be specific in order to avoid any doubts as to the content of the operative part of the award claimed by Naftogaz.
14.
Gazprom has counterclaims for payment pursuant to the Contract for gas which Naftogaz allegedly took in 2014 but did not pay for. Gazprom also has a counterclaim for compensation of alleged overpayments of the transit tariff in case Naftogaz' claims in relation to the price in the Gas Sales Contract are successful. In addition, Gazprom also has claims for interest.
15.
Naftogaz rejects Gazprom's counterclaims on the merits.

3.3 The Background

3.3.1 An overview of European Principles for gas transit

16.
Russia and Ukraine have a long history of cooperation in the gas sector. Since the Soviet era the countries are mutually reliant on each other Ukraine for gas supplies from Russia; Russia for transit through Ukraine into Europe.
17.
Natural gas deliveries from the USSR commenced in the late 1940s when small quantities of gas from the Ukrainian Soviet Socialist Republic (the Dashava and Opory fields) were sold to Poland. In 1967, after construction of a gas pipeline connecting the Soviet gas transportation system with consumers in Czechoslovakia was completed, large-scale exports of gas to European countries began.
18.
Transit of natural gas in Continental Europe was thus traditionally based on purpose-built pipelines and followed the different stages of large import projects. Special project pipeline companies covered the construction, financing and operation of the pipelines.1
19.
In the period preceding the liberalisation of European gas markets, there was no harmonised regulation of gas transit and transit tariffs. Transit arrangements were often subject to intergovernmental agreements, rather than to the authority of national regulators, and were complemented by private agreements. In this context, also third-party access was only granted on a negotiated basis.2 The practice of determining transit tariffs and third-party access on a negotiated basis was maintained under a European Directive on gas transit from 1991.
20.
Four methodologies have traditionally been used to set tariffs in high-pressure gas transit systems in Europe.
21.
A first, simple tariff methodology is the postal methodology. Under this kind of tariff, a single fixed fee is charged for the transport of any volume of gas within the area covered by the tariff.
22.
Distance-based tariffs are a second traditional methodology, whereby a charge is due by the shipper based on the distance between the entry and exit points indicated in the contract. The distancebased tariff system has generally been used in transit arrangements for Russian gas to Europe, inter alia through Ukraine, in the form of a commodity charge, i.e. a charge made for each unit of gas actually transported.
23.
In the point-to-point tariff methodology, a specific tariff is quoted for every pair of entry and exit points within the system.
24.
Finally, in the case of entry/exit tariffs, a separate tariff is quoted for each entry and exit point in the system. Booking of capacity is done separately for each entry and exit point, whilst the actual movement of gas is subsequently based on the combination of the shipper's set of capacity contracts.
25.
Until the late 2000s, the entry/exit tariff methodology was still only marginally employed, although it was developing into the norm inside the EU. In practice, however, this methodology was often combined with other methodologies to create hybrid systems.
26.
Today, following the enactment of the so-called "Third Energy Package", the adoption of entry/exit tariff systems is mandatory under European energy and competition law.
27.
The Third Energy Package also introduced the principle that tariffs should be cost-reflective, and abolished any distinction in treatment between transit and transmission of gas. Prior to the adoption of the Third Energy Package, there was a debate between cost-based pricing, if a transit line did not face effective competition from other transportation routes, and "competitive" pricing by reference to other pipelines, if the transit line faced effective competition. In the end, cost-based pricing prevailed as the dominant principle.
28.
Tariffs are usually determined between the parties to a gas transportation agreement independently of the determination of the contract price under any gas sales agreement which the transportation contract is intended to service.3 Another feature found in gas transport arrangements is the so-called "ship or pay" principle. Pursuant to this principle, in order to guarantee a minimum level of income to the transporter in recouping its capital investment in the pipeline, the shipper may be required to pay for the transportation of a defined minimum quantity of gas per year. This payment is made on the basis of reserved capacity in the pipeline, regardless of whether the shipper actually delivers that quantity of gas for transportation.

3.3.2 The liberalisation of the European gas market

29.
The development of gas markets in Continental Europe since the late 1950s was initially characterised by the existence of a single (or dominant) transmission company in each country, often created either from existing state-owned companies or from a mixture of gas producers and state-owned companies. The position of these companies, or groups of companies, has been described as one of "de facto [...] monopsony buyers, monopoly transmission companies and monopoly (wholesale) sellers".4 One exception to this pattern of organisation was Germany, where a number of high-pressure pipeline companies governed by private law agreements operated in delimited areas. However, even there, the composition of the individual concession agreements and the territorial delimitation resulted in a de facto monopoly of the transmission companies within each region.
30.
This structure allowed European transmission companies to function as "gatekeepers" of their national or regional markets. The gatekeepers managed the demand/supply balance in their markets and were mostly successful in keeping competitors out.
31.
This system remained for decades, and in the late 1990s most European gas industries were still characterised by "anti-competitive transmission structures featuring single transmission companies with de facto monopolies of transportation and imports".5 By 2010, however, this picture had changed totally, as a regulatory framework for the transmission of natural gas was being implemented in Europe. More specifically, a new European Union acquis on energy and competition had developed, which reflected newly introduced common rules for the internal market in natural gas, as well as conditions for access to natural gas transmission networks.
32.
Since the 1990s, the EU has made substantial efforts to liberalise the European gas market by, inter alia, introducing and promoting a number of changes in the legal framework that affected the entire gas market in Europe.
33.
With regard to transit, already in 1991, the Directive "on the transit of natural gas through grids" (Directive 91/296/EEC) aimed at introducing the principles of fairness and non-discrimination in transit arrangements within the EU. At this early stage, however, no right of transit was granted to third parties, and transit contracts were negotiated between the entities responsible for the national transmission networks.
34.
The first major initiative for liberalising the European gas markets came with the first gas market directive (Directive 98/30/EC), which introduced third party access to gas transportation and storage infrastructure on non-discriminatory and transparent terms.
35.
The second EU gas market directive of2003 (Directive 2003/55/EC) aimed at improving third party access to gas transportation networks by introducing requirements for legal unbundling of integrated gas sales and transportation companies, as well as additional transparency requirements. The obligation to ensure fair and non-discriminatory access to downstream high-pressure transmission networks was then assigned to national regulatory authorities.
36.
The 2003 directive was farther complemented by the provisions of Regulation No 1775/2005 on the conditions for access to the natural gas transmission networks. The non-discrimination principle was also applied in Regulation No 1775/2005 in relation to capacity allocation mechanisms and balancing rules, as well as tariff methodologies.
37.
The 2003 directive repealed the 1991 transit directive. However, it did not provide for the termination of legacy transit contracts concluded under the terms of the latter, which were thus deemed to be still valid, albeit raising competition concerns. In addition, the effect of recognising the validity of historic long-term contracts was that transit flows were treated in a substantially different manner than other transmission services, notwithstanding the formal abolishment of the distinction between transit and transmission capacity in the 2003 directive.
38.
Overall, the impact of the regulatory framework described above was rather limited, and in late 2008/beginning of2009 no substantial changes in the gas market were expected as a result of EU legislation. The gas markets within individual European countries were still not uniformly regulated, and the Continental European gas market was characterised by the same structures as before. In particular, non-discriminatory network access did not yet exist, and the rules on legal and functional unbundling as provided for in the second gas directive had not led to effective unbundling of the transmission system operators. In other words, the "gatekeepers" largely remained in control of the markets.
39.
The third EU gas market directive of 13 July 2009 (Directive 2009/73/EC), and Regulation (EC) No 715/2009, continued the European Union's efforts to transform the European gas market by integrating the various national markets into a single liberalised market. This legislation provides inter alia for legally binding network codes in order to create a single gas market, and effective separation of network activities from supply and production activities (unbundling). The Directive became an effective tool to change the structures in the European gas market as it came to form a basis on which new structures could emerge after the turmoil of the financial crisis and its effects.
40.
The provisions of this so-called "Third Energy Package" introduced an objective non-discrimination principle for third party access, establishing that access tariffs shall be applied in a non-discriminatory manner between network users. These rules prohibit national measures granting preferential capacity for cross-border transmission, meaning that any differentiation between gas transmission and gas transit is no longer allowed. This prohibition applies even when such capacity is conferred on the basis of contractual commitments antedating the internal market legislation. The validity of legacy transit contracts is thus no longer envisaged.

3.3.3 Soviet gas transportation arrangements

41.
The historical role of Ukraine as a transit country means that the Ukrainian Gas Transmission System ("GTS") is one of the world's largest in terms of transit volumes, with an annual capacity at entry and exit points of almost 290 bcm and more than 175 bcm, respectively.
42.
The Figure below is an excerpt from the European Network of Transmission System Operators for Gas's 2014 map of the European Natural Gas Network, and shows the Ukrainian GTS (gas pipelines shown as blue lines):
43.
Excerpt from the map ENTSOG The European Natural Gas Network (Capacities at crossborder points on the primary market), dated June 2014
44.
The major part of the Ukrainian GTS together with most of the infrastructure for Russia's gas supplies to Europe was created during the Soviet period as part of the integrated system for gas supply of the former Soviet Union as well as its COMECON partners, and subsequently for export to Western Europe.
45.
The Ukrainian GTS consists of three main transportation corridors that traverse Ukraine from east to west.
46.
There are also some pipelines that cross Ukraine mainly from north/north-east to south. As a consequence of the way the Ukrainian GTS was structured, under the present Transit Contract, Natural Gas enters Ukraine from Russia, and from Russia via Belarus, while it exits Ukraine to Romania, Hungary, Slovakia, Poland and Moldova. Some gas may also cross Moldova and reenter Ukrainian territory for further transit. In other words, the Ukrainian GTS was constructed as a unidirectional system to export gas westwards. The primary role of the Ukrainian GTS continues to be export of Natural Gas, i.e. supplying Russian as well as Kazakh, Turkmen and Uzbek gas to Europe.

3.3.4 Ukraine-Russia gas transit arrangements in 1991-2002

47.
The dissolution of COMECON and the Soviet Union in 1991, led to rearrangements of the transport of Russian gas in and to the former COMECON states and FSU states. Ukraine, with one of the world's biggest pipeline systems, and the Russian Federation, with its natural gas deposits, made a number of arrangements to ensure safe transit of Russian gas to European countries and Moldova through the territory of Ukraine.
48.
Former internal transportation arrangements within the Soviet Union became international transit arrangements through independent states. Since then, several gas trading and transit arrangements have been put in place between Russia and Ukraine. In the beginning, a barter system was adopted, where the Russian Federation effectively paid for transit with Natural Gas.
49.
Gazprom continued to pay transit and storage fees to Ukraine by barter for more than a decade after independence. Under a 2001 Russo-Ukrainian agreement, only a small part of the fees began to be paid in cash, and Gazprom could supply Ukraine with Natural Gas in exchange for the transit services at its choice.
50.
All FSU countries use a gas grid system which during the Soviet period had been administered as a single national entity under a uniform management. After the break-up of the Soviet Union the system was split and came under the management of several different countries while gas supplies continued to follow the original routes, irrespective of the new national borders.
51.
In particular, with the partition of the Soviet gas transmission system along the new country borders, gas measuring stations (GMS) through which Gazprom had delivered gas to Naftogaz' and Ukrtransgaz' predecessor Ukrgazprom were located at points far from the Ukrainian border. These GMS have later served as inland stations, not as border stations. However, the Ukrainian gas transportation system (GTS) still largely has the technical structure inherited from the FSU.
52.
The first gas sales and transit arrangements were made on the inter-governmental level and were subsequently implemented by state-controlled companies: Russian Gazprom and, on the Ukrainian side Ukrgazprom until 1998, and subsequently Naftogaz.
53.
On 20 August 1992 the governments of Ukraine and Russia entered into the first such agreement to regulate the supplies of natural gas to, and the gas transit through the territory of Ukraine. The agreement was followed by a very similar one-year agreement in 1993 which also introduced a compensation for the operating costs of the Ukrainian GTS, amounting to USD 0,23 per every 100 km.
54.
In 1994, the governments of Ukraine and Russia concluded a 10-year agreement for gas supply and transit until 2005 (supplemented in 2000 and 2001), under which prices and volumes were to be agreed annually in intergovernmental protocols. Such protocols were signed between Russia and Ukraine until 2005.
55.
The gas transit agreements between Russia and Ukraine in this period were largely based on political considerations and barter arrangements, i.e. provision of transit services in return for gas supplies.

3.3.5 Gas transit arrangements in 2002-2007

56.
On 21 June 2002 Naftogaz and Gazprom entered into a transit contract for the period from 2003 till 2013 (the "2002 Transit Contract"). The wording of the 2002 Transit Contract is similar to the wording of the Contract. Under the 2002 Transit Contract, Gazprom was obliged to transit not less than 110 bcm of gas through the territory of Ukraine to Europe and Moldova annually in the period from 2003 till 2013. The exact transit volumes and tariffs were to be set out in annual addenda to the contract. However, the "gas for transit" barter system prevailed also under the 2002 Contract.
57.
On 9 August 2004 the Parties entered into Supplement No. 4 to the 2002 Transit Contract, pursuant to which a transit tariff was established for the 2005-2009 period at rate of USD 1.09375 for 1000m3 per every 100 km, while the price for supply of gas to Ukraine, in return for transit services was fixed at USD 50 per 1000 m3.
58.
Additional gas volumes (e.g. of Central Asian/Turkmen origin) were supplied to Ukraine under separate intergovernmental agreements (e.g., with Turkmenistan in 1992-2006) through Ukrgaz-prom/Naftogaz or by various gas trading companies (e.g., Itera and Eural Trans Gas).
59.
Since 2004, one such intermediary supplier of natural gas to Ukraine was RosUkrEnergo, a Swiss-based company co-owned by Gazprom and the group of companies owned and/or controlled by Mr. Dmytro Firtash, a businessman owning and/or controlling very large fertiliser (OSTCHEM, AZOT Cherkassy, STIROL), gas distribution (RosUkrEnergo), titanium (Crimean TITAN, Zaporizhzhya titanium) and banking (Nadra Bank) businesses in Ukraine (the "Firtash Group").

3.3.6 The 2006 Gas Crisis and further supply and transit arrangements between Gazprom and Naftogaz

60.
Until 2005 gas transit and supply arrangements remained interconnected and interdependent. However, from 2005 Gazprom announced its intention to separate gas supply and transit and introduce market prices also for Ukraine.
61.
A first step towards European contract standards was made in 2006, amidst Gazprom's restructuring of the supply relationships with former COMECON countries and former Soviet Republics aiming to capture more of the economic rent of gas supplies. In this context, a distinction was made between the treatment of transit and the sale and purchase of gas.
62.
The transit of Russian gas to Europe and Moldova continued to be regulated separately by a transit contract between Gazprom and Naftogaz signed in 2002. But the transit tariff in that agreement was raised to compensate for an agreed higher gas price, and the gas transit barter scheme went out of use.
63.
Thus, starting from 2006, the previous transit and sales arrangements, where transit services were paid for by gas deliveries, were discontinued and split into (i) a separate supply contract scheme involving Naftogaz, RosUkrEnergo AG ("RosUkrEnergo"); and (ii) the 2002 transit contract between Gazprom and Naftogaz.
64.
Further, following the expiry of the above mentioned 1994 supply agreement and a failure to agree on an intergovernmental protocol governing gas supplies for 2006, Gazprom briefly suspended gas supplies to Ukraine from 1 January 2006.
65.
Following the termination of gas supplies to Ukraine and subsequent negotiations, a new scheme for gas supplies to Ukraine was agreed and implemented in the Agreement on regulating relations in the gas sphere of 4 January 2006. Gas transit services continued under the 2002 Transit Agreement, but the gas for transit barter scheme went out of use, and the tariff was amended to compensate for the higher gas price under the 2006 gas supply agreement. The tariff was raised to USD 1.60 for 1000 m3 per every 100 km until 2011. The 2006 Agreement also provided that:

• RosUkrEnergo would be the sole importer of Natural Gas to Ukraine, purchasing gas from Gazprom's subsidiaries Gazexport LLC and Gazprom LLC;

• Naftogaz and RosUkrEnergo founded a joint venture CJSC "Ukrgaz-Energo" ("Ukrgaz-Energo") - for sales of the natural gas imported by RosUkrEnergo in the Ukrainian domestic market;

• RosUkrEnergo purchased gas from Central Asian countries (Turkmenistan, Kazakhstan and Uzbekistan) at their external borders and up to 17 hem of natural gas from Gazprom, and then it resold these volumes to Ukrgaz-Energo;

• Ukrgaz-Energo resold the gas in the Ukrainian market (i) directly to industrial consumers and (ii) to Naftogaz which supplied natural gas to local distribution companies;

66.
Thus, starting from 2006, the previous transit and sales arrangements, where transit services were paid for by gas deliveries, discontinued and split into (i) a separate supply contract scheme involving RosUkrEnergo, Ukrgaz-Energo and Naftogaz, and (ii) the 2002 transit contract between Gazprom and Naftogaz, as amended.
67.
Under the above supply arrangements, Gazprom (through its subsidiaries) remained the only actual supplier of gas to Ukraine. RosUkrEnergo had no gas deposits and production capacities. The gas supplied had to be bought from Gazprom.

3.3.7 2008 gas supply arrangements

68.
On the basis of the 2006 gas supply arrangements, RosUkrEnergo accumulated significant revenues from importing the combination of Russian gas and cheaper Central Asian gas to Ukraine. Ukrgaz-Energo accumulated significant revenues from the re-sale of such natural gas to industrial consumers. Naftogaz continuously suffered from non-payment by the local distributors. In addition, Ukrgaz-Energo had a five-year gas purchase contract with RosUkrEnergo, while Naftogaz was supplied by Ukrgaz-Energo on a monthly basis.
69.
Against this background, Naftogaz required a new, direct gas sales contract with Gazprom to ensure secure gas supplies to Ukrainian consumers and increase its revenues through elimination of the supply scheme involving intermediaries.
70.
In late 2007 and early 2008, the then Prime Minister of Ukraine Mrs. Yulia Timoshenko arranged for changes in Naftogaz' management Mr. Oleg Dubina was appointed as Chairman of the Board on 24 December 2007, and [REDACTED] aftogaz' management was tasked to make new gas supply arrangements directly with Gazprom, without any middlemen.
71.
On 12 March 2008, Naftogaz and Gazprom entered into an Agreement on development of relations in the gas field (the "12 March 2008 Agreement"). The Agreement inter alia implied that Gazprom or RosUkrEnergo should sell natural gas to Naftogaz in volumes of not less than 49.8 bcm, and that Naftogaz was obliged to resell parts of these volumes to a Gazprom subsidiary in Ukraine with a margin not higher than 0.01 USD per 1000 m3. Also under the 12 March 2008 Agreement, Naftogaz undertook to procure gas storage and transit through Ukraine's GTS of gas supplied by RosUkrEnergo under relevant contracts, as well as to procure transit for additional volumes of gas delivered under the 2002 Transit Contract (previously supplied by RosUkrEnergo).
72.
Having removed one of the intermediaries Ukrgaz-Energo and secured gas supplies for 2008, Naftogaz proceeded to seek direct long term supply and transit contracts with Gazprom. During a 31 March 01 April 2008 meeting in Moscow, Naftogaz and Gazprom agreed in principle that Naftogaz could be the sole importer of Russian gas to Ukraine, and that RosUkrEnergo could be removed from the gas supply arrangements.
73.
After the above agreement in principle was reached, the Parties commenced negotiations of direct long-term contracts for both sale and transit of natural gas based on market-based prices and tariffs which, inter alia, resulted in the conclusion of the Contract.
74.
The magnitude of the Gas Transit Contract makes Ukraine the most important transit country in the world, as it transits the majority of Russian gas supplies to western and southern Europe even after the construction of the Nord Stream pipeline, which connects Russia and Germany directly across the Baltic Sea, and which was opened in 2011.
75.
Europe's gas consumption in 2013 was about 541 bcm. Gas supplied by Gazprom accounted for more than 30% of that figure, namely 161.5 bcm. In 2013, approximately half of that volume, about 80 bcm, effectively passed through Ukraine's pipeline network. This amounts to circa 15%o of total natural gas consumption in Europe.
76.
By way of comparison, the minimum annual volumes of transit gas agreed by the Parties under the Gas Transit Contract are more than twice the amount of Russian gas transited through Belarus the second most important transit country for Russian gas exports - which according to Gazprom's webpages amounted to less than 50 bcm in 2013.
77.
The data above provide an indication of the importance of the Gas Transit Contract, not only to Naftogaz and Gazprom, but also to the Ukrainian, Russian, as well as European gas industries and economies.

3.3.8 The Notice of disputes

78.
On 25 July 2014, Naftogaz sent a Notice of disputes to Gazprom informing of the changes necessary to be made to the Contract to align it with European and Ukrainian law, claiming compensation for underdeliveries of transit gas, and claiming adjustment of the transit tariff based on Swedish Contract law (the "Notice"). In its Notice, Naftogaz proposed to meet and negotiate at a neutral venue, previously used by the Parties in negotiations over the Gas Sales Contract, e.g. Brussels or Berlin.
79.
Gazprom responded to Naftogaz' Notice by its letter of 18 August 2014 in which it stated its readiness to negotiate, but only in Moscow. Gazprom did not accept Naftogaz' claims, expressly rejected some claims, and requested further substantiation.
80.
Naftogaz responded to Gazprom's letter by letter dated 9 September 2014, reiterating its willingness to negotiate and stating its readiness to present evidence and substantiate its claims in a meeting which it proposed could be held also at other neutral venues.
81.
The Parties have also met in trilateral discussions arranged by the European Commission, without reaching agreement. On 13 October 2014, Naftogaz submitted its request for Arbitration to the SCC Secretariat.

3.3.9 Ukraine's accession to the Energy Community and European competition and energy law

82.
The Energy Community Treaty between the European Union and the then nine Contracting Parties, Albania, Bulgaria, Bosnia and Herzegovina, Croatia, the former Yugoslav Republic of Macedonia, Montenegro, Romania, Serbia and the United Nations Interim Administration Mission in Kosovo, provided inter alia for the establishment of an integrated energy market among the Parties from the entry into force of the Energy Community Treaty on 1 July 2006. The Treaty was originally entered into for a period of 10 years from 1 July 2006, but has later been extended for another 10 year period.
83.
Ukraine acceded to the Energy Community Treaty on 1 February 2011 and is entitled to all rights and subject to all obligations under the Energy Community Treaty pursuant to Article 1 (2) of the Protocol concerning the Accession of Ukraine to the Energy Treaty of 24 September 2010 ("Protocol").
84.
The Treaty is applicable to the territory of Ukraine by virtue of Ukraine's status as a Contracting Party to the Treaty and pursuant to the Law of Ukraine on Ratification of the Protocol concerning the accession of Ukraine to the Treaty establishing the Energy Community No. 2787-VI, dated 15 December 2010.
85.
Pursuant to Article 9 of the Constitution of Ukraine, the Treaty became part of the national legislation of Ukraine after its ratification by the Ukrainian Parliament. The Treaty's provisions are mandatory Ukrainian laws, and take precedence over any contradicting rules of the national laws of Ukraine on competition and energy.6
86.
Pursuant to Article 10 of the Treaty, Ukraine is obliged to implement the acquis on energy in compliance with the time table for the implementation set out in Annex I to the Treaty. In particular, acceding to the Treaty, Ukraine undertook obligations to implement the so-called Second Energy Package (Directive 2003/55/EC, Regulation (EC) No 1775/2005 and Council Directive 2004/67/EC) by 1 January 2012, cf. Article 2 of the Protocol.
87.
The Third Energy Package was implemented in the acquis on energy and competition law under the Treaty by Decision of the Ministerial Council of the Energy Community, dated 6 October 2011 ("Decision No 2011/02/MC-EnC").
88.
The Parties to the Treaty were given until 1 January 2015 to implement the Third Energy Package, with the exception of Article 11 (on certification in relation to third countries) which shall apply from 1 January 2017, in their national legislation, cf. Article 3 of Decision No 2011/02/MC-EnC. Also, the separate deadlines on unbundling referred to in Articles 9(1) and 9(4) of the Third Gas Directive are replaced by the dates 1 January 2016 and 1 January 2017 respectively, cf. Article 8 of Decision No 2011/02/MC-EnC.
89.
The main Ukrainian legislation establishing the general framework for the regulation of gas transit and implementing Ukraine's obligations under the Treaty, which is relevant to the Contract 1s:

• Law of Ukraine on Fundamentals of the Functioning of the Natural Gas Market (the "Ukrainian Gas Market Law"), dated 8 July 2010, No. 2467-VI, as amended, establishing the legal, economic and organisational basis for the functioning of the Ukrainian gas market and the Ukrainian GTS as well as state control thereof. This Law contains a number of provisions implementing the Second Gas Package regarding the independence of the operator of the gas transmission system (the "transmission system operator", the "TSO") and equal access to the gas transmission system. In particular, the Law prohibits a gas transportation undertaking from being engaged in production and supply of natural gas, and provides that a TSO shall be responsible for operating, maintaining and developing the transmission system and its interconnections with other systems, cf. Article 2 (4) of Directive 2009/73/EC of the European Parliament and of the Council of 13 July 2009 concerning common rules for the internal market in natural gas.

• Law of Ukraine On Pipeline Transport (the "Ukrainian Pipeline Transport Law"), dated 15 May 1996, No. 192/96-VR, as amended, inter alia establishing technical rules and standards for the operation of pipeline transportation installations as well as providing for the corporate model and requirements for companies active in pipeline transportation and/or surface storage of natural gas. The Ukrainian Pipeline Transport Law stipulates conditions for unbundling, and sets out the license requirements for a TSO;

• Law of Ukraine on Oil and Gas (the "Ukrainian Oil and Gas Law"), dated 12 July 2001, No. 2665-III, as amended, establishing the legal framework for business activities in production, transportation, storage and distribution of oil and gas which is aimed at "facilitating the competitiveness in the oil and gas comple"x (Article 7). The Law defines transit of natural gas as the transmission of natural gas originated outside Ukraine and destined for consumers outside the territory of Ukraine by main-pipelines, i.e. high-pressure pipelines of the GTS of Ukraine, through the territory of Ukraine in accordance with relevant agreements;

• Law of Ukraine "On amendment of certain laws of Ukraine regarding reform of the management system of Unified Gas Transport System of Ukraine" (the "2014 Ukrainian GTS Reform Law"), dated 14 August 2014, No. 1645-VII, enacting important changes to the gas sector intended to implement the Energy Community Treaty in general, and the Third Energy Package in particular;

• Law of Ukraine on the Protection of Economic Competition (the "Ukrainian Competition Law"), dated 11 January 2001, No. 2210-III, providing for competition regulation applicable also to gas supply and transit in Ukraine and implementing Articles 101 and 102 TFEU prohibiting agreements restricting competition and abuse of a dominant position,

• A number of regulations and decisions of the Cabinet of Ministers of Ukraine (the "CMU"), the Ministry of Energy and Coal Industry of Ukraine (the "Ukrainian Energy Ministry"), and of the National Commission for the State Regulation of Energy and Utilities ("NCSREU") in the gas field, the most relevant of which are listed below:

• Ukrainian Energy Ministry's Decree No. 882 of2 December 2013 entrusting Ukrtransgaz with functions of a TSO of the Unified Gas Transport System of Ukraine,

• Presidential Decree No. 694/2014 of27 August 2014 on the establishment of the National Commission for the State Regulation of Energy and Utilities,

• Ukrainian Energy Ministry's Decree No. 726 dated 17 October 2014 approving and providing in the annex a model contract for natural gas transportation services by high-pressure pipelines through the territory of Ukraine (Model Gas Transportation Contract).

90.
The above-mentioned legislation and by-laws implement the requirements for an independent regulator with specific competences, and the unbundling requirements with regard to the system operators of the transmission and distribution system. The National Commission for State Regulation in Energy and Utilities (NCSREU), established in August 2014 by Presidential Decree No 694/2014, has replaced the National Energy Regulatory Commission ("NERC") as regulator. Ukrtransgaz, a wholly-owned subsidiary of Naftogaz, is designated as TSO of the Ukrainian GTS, cf. the Decree of the Ministry of Energy and Coal Industry of Ukraine No. 882 of 2 December 2013.
91.
On 9 April 2015, the Ukrainian Parliament adopted Law of Ukraine on the Natural Gas Market (the "New Gas Market Law"), which transposes the Third Energy Package in the gas sector of Ukraine. According to Chapter VIII (Final and Transitional Period Provisions) of the New Gas Market Law supersedes the old Ukrainian Gas Market Law which ceased to apply from 1 October 2015 (the commencement date for most of the provisions of the New Gas Market Law). The new Natural Gas Market Law establishes the legal, economic and organisational basis for the functioning of the Ukrainian gas market and the Ukrainian GTS as well as a state control thereof. The New Gas Market Law, which was drafted with the assistance of the Energy Community Secretariat, was signed by the President on 30 April 2015. With the exception of certain provisions on unbundling, where the implementation deadline according to Decision 2011/02/MC-EnC is extended, Ukrainian legislation implementing the Third Energy Package has entered into force and has been given effect. The provisions on the unbundling of the gas distribution system operator commence at 1 January 2016, and the provisions on the unbundling of the TSO and the gas transportation system owner, investment planning and compliance programme (to ensure non-discrimination on the part of gas transmission system operator) commence at 1 April 2016. The Law also provides for a transitional regime for the operation of the gas distribution system operator during transitional period between 1 October 2015 and 1 January 2016, and gas transmission system operator for the period between 1 October 2015 and 1 April 2016.
92.
Also, the Law provides the legal basis for the adoption of supplementary secondary legislation. Pursuant to Article 33 of the New Gas Market Law, the TSO is tasked with developing a gas transmission system code (the "Ukrainian Network Code") to be approved by the Regulator. The Network Code shall inter alia contain rules on secure and reliable operation of the system, commercial and technical conditions of access to the system, a list of services rendered by the operator, rules on balancing, determination of entry and exit points of the gas transmission system and on an action plan in the event of disruptions. Pursuant to Article 32 of the New Gas Market Law, the Regulator shall also approve a model contract on gas transportation, i.e. a standard contract that the TSO shall use when providing gas transportation services to network users.
93.
The 2015 Gas Market Law provides the legal basis for the adoption of secondary legislation, inter alia on licensing of gas transportation activities, standard agreements on gas transportation, tariffs and the methodology for their determination. On 30 September 2015 the national regulator, NCSREU, adopted a series of resolutions with secondary legislative acts aimed at further implementation of the new Gas Market Law. Among others, the "Ukrainian Gas Transmission System Code", the "Standard Natural Gas Transmission Contract", and the "Ukrainian Tariff Methodology" were adopted.
94.
All resolutions entered into force from the date of their official promulgation.
95.
The Ukrainian Gas Transmission System Code was officially promulgated on 27 November 2015 and entered into force from this date, except for certain provisions which enter into force 1 April 2017.
96.
The Ukrainian Tariff Methodology was also officially promulgated on 27 November 2015 and thereby entered into force.
97.
On 29 December 2015, the regulator adopted the following resolutions in accordance with the Tariff Methodology:
98.
Resolution No. 3156 of 29 December 2015 On application of incentive-based regulation in the field of natural gas transmission for PJSC "Ukrtransgaz",
99.
Resolution No. 3157 of 29 December 2015 On setting the long-term regulatory parameters or purposes of incentive-based regulation for PJSC "Ukrtransgaz",
100.
Resolution No. 3158 of29 December 2015 On setting tariffs for PJSC "Ukrtransgaz." for services of natural gas transmission by trans-border pipelines for entry points and exit points,
101.
Resolution No. 3159 of29 December 2015 On setting a general tariff for transmission of natural gas, tariffs for transmission of natural gas by main pipelines and distribution pipelines
102.
All of the above resolutions entered into force on 1 January 2016. The market parties have been given until 27 February 2016to implement the tariffs with effect as of 1 January 2016.

4. THE CONTRACT

4.1 The structure of the Contract

103.
The Contract is a long-term contract between National Joint Stock Company "Naftogaz of Ukraine" Kiev, Ukraine, the "Contractor", and Open Joint Stock Company (now: Public Joint Stock Company) Gazprom of Moscow, the Russian Federation, the "Client".
104.
The subject matter of the Transit Contract is the performance of transit services on a payment basis by Naftogaz, which has agreed to transport specific volumes of Natural Gas through the territory of Ukraine from the entry points at the borders between Ukraine and Russia, Belarus and Moldova, to the exit points at the borders between Ukraine and Romania, Hungary, Slovakia, Poland and Moldova. The term of the Transit Contract is 11 years.
105.
The Contract regulates the volumes and conditions for the transit of Natural Gas (i.e. gas of Russian, Kazakh, Turkmen or Uzbek origin) through the territory of Ukraine from 1 January 2009 to 31 December 2019. It provides for the transit of very significant volumes of Natural Gas through Ukraine to European countries. The minimum annual volume stipulated in the Contract amounts to 110 billion cubic metres ("bcm"). [REDACTED]
106.
The language of the Contract is Russian. In this Arbitration is has been translated into English.
107.
The Contract consists of a main body, which has been amended a number of times in the form of Addenda. After the Contract was signed, the Parties have entered into [REDACTED] Addenda to the Contract, as follows:

[REDACTED]

108.
The Addenda considered to be most relevant to the present dispute are [REDACTED]

4.2 The main contents of the Contract

4.2.1 Subject matter of the Contract. Article 2 of the Contract

109.
In the Contract, Naftogaz is referred to as the "Contractor" and Gazprom is referred to as the "Client".
110.
Article 1 of the Contract contains definitions and applicable interpretations.
111.
Article 2 of the Contract reads:

"The subject matter of this Contract is the performance of transit services by the Contractor from 2009 to 2019 inclusive, on a payment basis for transit of Natural Gas through the territory of Ukraine by pipeline transport from Entry Points to Exit Points subject to the volumes and terms set out in Article 3 of this Contract."

112.
Thus, the subject matter of the Transit Contract is the performance of transit services on a payment basis by Naftogaz, which has agreed to transport specific volumes of Natural Gas through the territory of Ukraine from the entry points at the borders between Ukraine and Russia, Belarus and Moldova, to the exit points at the borders between Ukraine and Romania, Hungary, Slovakia, Poland and Moldova. The term of the Transit Contract is 11 years.

4.2.2 Volumes of Natural Gas transit Article 3 of the Contract (as amended/clarified in Addenda)

4.2.2.1 Introduction

113.
Article 3 of the Transit Contract specifies the minimum volumes of gas to be delivered for transit in Article 3.1, as well as procedures for clarification of the annual volumes of transit gas, including their breakdown by quarter and destination, in Article 3.2. Article 3.3 of the Transit Contract sets out procedures for changes to the quarterly volumes, monthly volumes and destinations. Article 3.4 sets out rules for daily deviations, unauthorised gas withdrawals by Gazprom, and simultaneous delivery and redelivery of gas at Ukraine's Eastern and Western borders.

4.2.2.2 Article 3.1 of the Contract

114.
Pursuant to Article 3.1 of the Contract as amended, the minimum annual volumes of Natural Gas which Gazprom shall deliver for transit are 110 bcm,7 except for the years 2009 and 2011-2015, for which other volumes have been agreed. Furthermore, pursuant to the same Article, the Contractor shall ensure its acceptance and further transit through the territory of Ukraine to the Acceptance and Delivery Points on the border of Ukraine with Romania, Hungary, Slovakia, Poland and Moldova. Moreover, the Contractor shall ensure the proper operation of the gas transportation system of Ukraine at his own discretion and guarantee reliable and continuous transit through the territory of Ukraine of the Client’s natural gas in the volume transferred for transit by the Client.
115.
Articles 3.1.1 to 3.1.4 of the Transit Contract. [REDACTED] record the breakdown of the transit gas volumes by quarter and by destination [REDACTED] and the annual transit gas volumes to be delivered by Gazprom [REDACTED]
116.
Article 3.1.1 stipulates that the gas volumes to be transited in 2009 shall amount to 120,083 bcm. the Parties have subsequently entered into Addendum [REDACTED] Addendum [REDACTED] amending the gas volumes for the years from [REDACTED] inclusive. For [REDACTED] the gas volumes to be transited shall [REDACTED]

4.2.2.3 Article 3.2 of the Contract

117.
Pursuant to Clause 3.2 of the Contract the annual gas volumes to be transited in the subsequent years (i.e. after 2009) and their allocation by quarters and by destination, shall be clarified in Addenda to the Contract. If no Addendum is concluded before the start of a Contract Year, it follows from Article 3.2 that the transit volume shall be equal to the sum of minimum annual quantity obligations under contracts concluded by Gazprom Export LLC with European buyers who receive gas through Ukraine. In that case, the minimum annual obligations shall be verified by an auditor.

4.2.2.4 Articles 3.3 and 3.4 of the Contract

118.
The annual volumes of transit gas through the territory of Ukraine are allocated by quarters and by destination, cf. Article 3.1.1 as amended.
119.
Pursuant to Article 3.3 first paragraph, the quarterly volumes of transit gas by destination can be changed by prior agreement at the latest 15 days prior to the beginning of the relevant Quarter.
120.
The allocation of quarterly volumes shall be conducted in equal parts by months, based on the average daily quarterly volume. Article 3.3 second paragraph also allows changing the monthly volumes of transit gas by prior agreement at the latest 10 days prior to the beginning of the relevant month.
121.
Reallocation of the flow of natural gas by destination is only permitted upon the Parties' written mutual consent, cf. Article 3.3 third paragraph.
122.
As a main rule, the delivery and acceptance of gas in a month is to be conducted evenly, cf. Article 3.4 first paragraph. The Transit Contract in general permits a deviation of daily volumes of "not more than +/- 6.5%" (except at one gas metering station, the GMS Uzhgorod, where the permitted deviation is +/- 4,5%) from "the average daily, monthly volumes" that follow from Article 3.1.
123.
Article 3.4 second and third paragraph regulate the situation if Gazprom without prior agreement withdraws transit gas volumes that exceed the permissible deviation according to Article 3.4 first paragraph.
124.
According to Article 3.4 second paragraph, Gazprom shall not later than 36 hours prior to the moment of occurrence of excess deviations provide delivery of gas to Naftogaz as compensation for such deviations on the borders of the Russian Federation/Ukraine, the Republic ofBela-rus/Ukraine. In such case, the Parties shall agree on the volumes, destinations and duration of the Gas supply.
125.
If Gazprom fails to compensate for exceeding the permitted deviation, Naftogaz shall not be responsible for enforcing the Contract's regulations for the delivery and acceptance of gas, cf. Article 3.4 third paragraph.
126.
The Transit Contract imposes on Naftogaz a duty to keep the volume of available Natural Gas in every 24 hours at the exit point equal to the volumes injected at the entrance points, cf. Article 3.4 last paragraph. The Transit Contract thus does not fix any balancing system.

4.2.2.5 Articles 3.5 and 3.6 of the Contract

127.
Article 3.5 of the Transit Contract provides that transit volumes exceeding the minimum volume determined in Article 3.1 are to be paid for according to the provisions of the Transit Contract, and Article 3.6 records that Naftogaz agrees to transit gas to the border of Moldova, for the purpose of further transit through Moldova to the Ukrainian-Moldovan border at Alekseyevka, for further transit.

4.2.3 Conditions for Gas transit Article 4 of the Contract

128.
Pursuant to Article 4, the Contract shall be supplemented by an annually-concluded Technical Agreement. This Technical Agreement forms an integral part of the Transit Contract, cf. Article 7.1 and the definition of "Technical Agreement" in Article 1. However, the main transit conditions are regulated in the Contract itself, and the absence of a signed Technical Agreement shall not be an obstacle for the Parties' performance of their obligations under the Contract, cf. Article 4.1 second paragraph last item.
129.
It follows from Article 4.2 that, in case of change in transit gas volumes, including as a result of force majeure circumstances, the Parties have agreed to immediately review the issues regarding volumes of transit gas, taking into account the work modes of compressor stations, main gas pipelines and the technical capabilities of gas supply systems. A reduction in the daily volume of gas supply at exit points of the gas transport system (GTS) shall only be possible in specific directions of gas transit, upon the Parties' written mutual agreement, cf. Article 4.3 first paragraph.
130.
In case of a general reduction in the volume of gas supplies to the gas transportation system for transit, the volumes of transit gas shall be reduced pro rata in all directions, cf. Article 4.3 second paragraph.
131.
Transit gas is supplied in a common gas stream and gas measurements shall be conducted at entry and exit points to be determined in the annually-concluded Technical Agreement, cf. Article 4.4. Technological losses of gas at the border sections of gas pipelines shall be determined in accordance with agreed documents.
132.
Pursuant to Article 4.5, Naftogaz "shall be responsible for ensuring the reliable and continuous functioning of the gas transportation system of Ukraine, including for the timely and complete provision of technical gas [fuel gas], as well as for any losses of Natural Gas on the territory of Ukraine, which was supplied by the Client for transit".
133.
Pursuant to Article 4.6, the Parties charge their subsidiaries with the technical implementation of the Transit Contract. Naftogaz has charged "its obligations in the technical implementation of the contract to DK Ukrtransgaz", cf. Article 4.6 second paragraph. A number of Gazprom affiliates, including Gazprom Export, have been charged with carrying out Gazprom's technical obligations under the Transit Contract, cf. Article 4.6 first paragraph.
134.
Upon the written instructions of Gazprom Naftogaz shall take measures restricting the transit of gas supplies in relevant directions, cf. Article 4.7.

4.2.4 Repair work on the gas transportation system and quality requirements of the transit gas Articles 5 and 6 of the Contract

135.
Naftogaz' obligation to conduct repair work on the Ukrainian gas transportation system is expressed in Article 5.1, which also specifies that the repair works shall be agreed between the Parties in advance. [REDACTED]
136.
The quality requirements of the transit gas at the entry and exit points, hereunder the admissible range of lowest calorific capacity (value), are specified in Article 6. Article 6.3, called "Standard Methods for Quality Determination", reads as follows:

[REDACTED]

4.2.5 Documentation of gas delivery and acceptance Article 7 of the Contract

137.
[REDACTED]
138.
According to Article 7.1 of the Contract, the Parties were obliged to enter into a Technical Agreement for 2009 in parallel with and simultaneously with signing the Contract. It follows from Article 7.1 that should the Parties fail to sign the Technical Agreement for each following year as intended, the Technical Agreement for the previous year shall apply.
139.
Pursuant to Article 7.2 a Monthly Gas Delivery and Acceptance Report shall be prepared for each Gas Metering Station ("GMS"), i.e. the station(s) where the quantity and quality of transferred natural gas is measured and determined (cf. the definition in Article 1), and for each Gas Consumption Measuring Unit ("GCMU"), inaccurately transcribed as "GCMP" in the English translation of Article 7, i.e. the station intended for measuring the quantity of gas on the gas pipeline during its acceptance/delivery and consisting of one or several measuring pipelines (cf. the definition in Article 1). The daily figures of all metering streams for the reporting month shall be summarised, and technological losses and withdrawals of gas at the border sections of gas pipelines from GMS and GCMU to the border of Ukraine shall be deducted. The Monthly Gas Delivery and Acceptance Report is to be signed by representatives of the Parties on the first day of the month following the reporting month, cf. Article 7.3.
140.
Additionally, a Consolidated Monthly Gas Delivery and Acceptance Report shall be prepared by summarising the daily volumes of gas fixed in the monthly Gas Delivery and Acceptance Reports for all Gas Metering Stations (GMS), cf. Article 7.4. This consolidated report is the basis for execution of the transit services price reports as described in Article 8 below.
141.
The Parties shall prepare monthly documents confirming the quality of Natural Gas at the Gas Metering Station (GMS), and these documents form an integral part of the Monthly Gas Delivery and Acceptance Report, cf. Article 7.5.

4.2.6 Price for the transit of gas - Article 8 of the Transit Contract

4.2.6.1 Introduction

142.
The price (tariff) provisions are found in Articles 8.1 to 8.6 of Article 8. Article 8.1 contains the price (tariff) formula. Article 8.2 regulates price reductions due to Advance Payments by Gazprom, Article 8.3 regulates the agreed monthly schedule for transit services rendered from Naftogaz to Gazprom against a previously received advance payment, and Article 8.4 specifies the pricing principles that shall apply once the advance payment is repaid. The estimated annual costs of the transit services for the years 2009 to 2011 are stipulated in Article 8.5 as amended [REDACTED] Article 8.6 establishes that the price paid for gas transit by Gazprom under the Transit Contract includes taxes and duties, including VAT.
143.
Article 8 also contains a price (tariff) revision provision in Article 8.7.
144.
[REDACTED]
145.
It follows from Article 8.2 that part of the transit services rendered by Naftogaz under the Transit Contract. is payment for previously received advance payments. [REDACTED]

4.2.7 The Price Formula

146.
Article 8.1 contains the price (tariff) formula and reads as follows:

"The price for transit services of 1,000 (one thousand) cubic meters of Gas through the territory of Ukraine in 2009 is defined as equal to USD 1.7 (one dollar and 70 cents) per every 100 (one hundred) kilometres with the exception of the price for the services on transit of 1,000 (one thousand) cubic meters of Gas, as rendered in return for previously advance payments, as referred to in Clause 8.2 of this Article.

With effect from 2010, the price for services on transit of 1,000 (one thousand) cubic meters of Gas through the territory of Ukraine (Tn) shall be calculated on an annual basis for the transported volumes of Gas according to the following formula: "

Tn = An + Kmgnj where

An is the tariff, calculated according to the following formula:

An = 0.5 * A2010+ 0.5 * {An-1 x (1 + In-1)}

where:

A2010 = USD 2.04 per 1000 m3 per 100 km.

An-1 constitutes the tariff for the year immediately preceding the current year of transportation.

For the calculation of the price for gas transit in 2010: An-1 A2010.

In-1 is the infation level in the European Union, as published annually by Eurostat agency for the year immediately preceding the current year of transportation. For the calculation of An in 2010, In-1 0.

Kmgnj is the fuel tariff which is calculated monthly according to the following formula:

Kmgnj = (0,03*Pnj) / L * 100

where:

Pnj is the prevailing price for gas supplies to Ukraine in the given payment month under the Contract No. KP dated 19 January 2009 in USD per 1,000 cubic meters,

L is the distance of transportation in kilometres (km) equal to 1240 km,

n is the corresponding year of gas transportation, and

j is the corresponding month of gas transportation in year n"

4.2.8 The Tariff

147.
The tariff, An, is a distance-based commodity tariff expressed by the volumes transported (in volumetric units).
148.
The tariff, An, is the sum of a fixed part with a weight of 50%o and an inflation adjusted part calculated on the basis of the tariff of the preceding year, also with a weight of 50%.
149.
The fixed part, A2010, is stipulated as USD 2.04/1000m3/100 km.
150.
To adjust for inflation, the tariff for the preceding year is multiplied with the product of an agreed weighted factor, 1, and the inflation factor of the preceding year, In-1. The resulting product is then again multiplied with the tariff for the preceding year.
151.
For 2010, the tariff, An, was USD 2.04/1000m3/100 km. The tariff for 2010 has been calculated in the following way:
152.
The fixed part of the formula remains constant, i.e. USD 1.02/1000m3/100 km (50% of USD 2.04).
153.
The inflation adjusted part was also USD 1.02/1000m3/100 km. This has been calculated in the following steps: The inflation factor, In-1, is 0 in 2010, cf. above. The tariff for the preceding year, An-1, fixed at USD 2.04/1000m3/100 km for 2010, is therefore multiplied with 1 (1 + 0 = 1). The product, USD 2.04/1000m3/100 km, is then multiplied with the agreed weight, 0,5, resulting in an inflation adjusted part of USD 1.02/1000m3/100 km.
154.
The sum of the fixed part, USD 1.02/1000m3/100 km, and the inflation adjusted part, USD 1.02/1OOOm3/100 km, results in a tariff of USD 2.04/1000m3/100 km.

4.2.9 The Fuel Tariff

155.
The Transit Contract requires that the volume of Natural Gas available in every 24 hours at exit points shall be equal to the volumes injected at entry points. Thus, the Transit Contract does not allow for leaks during transit and Naftogaz also has to separately procure fuel gas, i.e. gas (mixed with filtered, compressed air) required as fuel for compressors and/or heaters, which are integral parts of the pipeline system and needed in order to meet the delivery point specification.
156.
It is common to charge for a small percentage of fuel gas and leaks. The purpose of the fuel tariff, Kmgnj, is to compensate Naftogaz for the operational costs specifically related to fuel gas.
157.
In general, the transit tariff will usually be determined between the transporter and the shipper independently of the determination of the contract price under any gas sales contract which the gas transit contract is intended to service.
158.
In the Transit Contract, however, the fuel tariff is based on a percentage of the Contract Price for natural gas in the Gas Sales Contract entered into between the Parties.
159.
The fuel tariff is arrived at by multiplying the prevailing Contract Price in a given month under the Gas Sales Contract between the Parties (Pnj) with an agreed weight of 0.03, and to divide the resulting product with a fixed transportation distance, 1240 km (L).
160.
The Contract Price under the Gas Sales Contract is currently linked to other alternative fuels, i.e. gas oil (G) and fuel oil (M) (the mg in Kmgnj). In this relation, i.e. the determination of the fuel tariff under the Transit Contract, the elements gas oil (G) and fuel oil (M), have no independent function.

4.2.10 The price (tariff), Tn, for transit services

161.
The price (tariff) for transit services, Tn, was USD 2.04/1000m3 per 100 km in 2010. In 2014, the price (tariff), Tn, was USD 2.09/1000m3 per 100 km.[DAREFTER?]

4.2.11 Price reductions due to advance payments

162.
Pursuant to Article 8.2, in 2009 Naftogaz was obliged to provide services for transit of Gas in the amount of USD 250 million against an advance payment received from Gazprom in accordance with Supplement No. 4 dated 9 august 2004 to the Contract on the volumes and conditions for transit of Natural Gas through the territory of Ukraine in the period from 2003 to 2013, dated 21 July 2002
163.
Article 8.3 sets out the monthly schedule for the transit services rendered by Naftogaz to Gazprom against the previously received advance payment, and Article 8.4 specifies the pricing principles that shall apply once the advance payment is repaid. It follows from Article 8.4 that Gazprom then shall pay for Naftogaz' transit services at the price provided in Article 8.1.
164.
[REDACTED]

4.2.12 The estimated price for gas transit services

165.
Article 8.5 of the Contract reads:

"The estimated cost of the services for transit of the Gas volumes specified in Clause 3.1 of Article 3 of this Contract through the territory of Ukraine in 2009 amounts to approximately USD 2,350,000,000 (two billion three hundred fifty million)."

166.
While the estimated cost of services for transit through Ukrainian territory in 2009 was approximately USD 2 350 000 000. the estimated cost amounts to approximately [REDACTED] and to approximately [REDACTED] for 2011. cf. Article 8.5 [REDACTED] These estimates are based on the agreed gas volumes tor transit under the Transit Contract as amended in the Addenda.

4.2.13 Taxes and duties included in the price for Transit Services

167.
Article 8.6 establishes that the price paid for gas transit by Gazprom under the Transit Contract includes taxes and duties, including VAT.

4.2.14 The Price Revision Clause Article 8.7 of the Contract

168.
Article 8 also contains a price (tariff) revision provision in Article 8.7 which, in Naftogaz' translation, reads:

"In case of a significant change in 2010 and subsequent years of the terms for determination of transit tariffs in the European gas market as compared to what the Parties had reason to expect at the conclusion of this Contract, and if the price for transit services specified in Clause 8.1 of this Contract does not correspond to the level of transit tariffs in the European gas market, each Party is entitled to apply to the other Party with a request for revision of the price for transit services."

169.
Gazprom translates the tariff revision clause as:

"8.7. In the event of a material change in 2010 and subsequent years of the conditions of formation of transit tariffs at the European gas market, as compared to what the Parties reasonably expected at the time of entering into this Contract, and if the transit tariff specified in Clause 8.1 of this Contract does not correspond to the level of transit tariffs at the European gas market, each Party shall have the right to address the other Party with a request to reconsider the transit tariff

170.
According to Article 8.7, each Party is, in Naftogaz' translation, entitled to request a revision of the price for transit services (in Gazprom's translation: request to reconsider the transit tariff) provided two conditions are met:
171.
First, there must have been a significant change in 2010 and subsequent years of the terms for determination of transit tariffs in the European gas market as compared to what the Parties had reason to expect at the conclusion of the Contract. Thus, the earliest effective date for a tariff revision under the Contract is 1 January 2010.
172.
Second, the Price for transit services as provided for in Article 8.1 of the Contract does not correspond to the level of transit tariffs in the European gas market.
173.
Pursuant to Article 8.7.1 the request for price revision (in Gazprom's translation: "request to reconsider the transit tariff"') shall be made in writing, and be properly substantiated. After receipt of the request, the Parties are obliged to initiate negotiations within 20 days.
174.
Pursuant to Article 8.7.2, if no agreement has been reached within three months from when the Parties entered into negotiations, the dispute may be referred to arbitration for final decision, in accordance with Article 12 of the Contract.

4.3 Payment procedure Article 9 of the Contract

175.
Article 9 of the Contract sets out the payment procedure.
176.
Article 9.1 establishes the principle that Gazprom shall pay in money for transit services rendered by Naftogaz.
177.
Article 9.2 establishes the principle that the currency of payment under the Contract shall be US dollars.
178.
Articles 9.3 to 9.5 set out the procedures and dates for invoicing, reconciliation of payments and the term of payment. Article 9.5 reads as follows:

"The Client shall pay for the services rendered by the Contractor on transit of Gas through the territory of Ukraine on a monthly basis by transferring money to the Contractors account by the 20th day of the month following the month in which services were rendered based on the invoices issued by the Contractor in compliance with the Transit Services Price Report signed by the Parties in the actual calculated value of rendered services based on the common volume of the transported Gas as specified in the monthly reports and the prices for transit according to Clause 8.1 and Clause 8.2, taking into account the provisions of Clause 8.4.

If the Contractor issues an invoice after the 15th day of the month following the reporting month, the term of payment for services on transit shall be extended with the respective number of business days."

4.4 Liability of the Parties Article 10 of the Contract

179.
General obligation to perform Article 10 of the Transit Contract regulates the liability of the Parties under the Contract.
180.
Article 10.1 establishes the Parties' general obligation to perform the terms and conditions of the Contract and the principle that the Parties are liable for any damages caused by the Parties' failure to perform. Article 10.1 reads:

"The Client and the Contractor will undertake their best efforts to duly perform the undertaken obligations under this Contract.

Should the Parties fail to perform the terms and conditions of this Contract, each of the Parties shall reimburse the other Party for any proven damages caused by such failure to perform."

4.4.1 Delivery after transit and the required quality of natural gas

181.
Article 10.2 regulates the obligations of Naftogaz as regards the quality of the natural gas supplied at the agreed delivery points after transit through Ukrainian territory, i.e. at the Exit Points at the Ukrainian western border. The natural gas delivered at the Exit Points is required to have the same quality as the gas supplied at the Entry Points. If this quality requirement is not met, Naftogaz is obliged to restore the gas quality at its own expense. If the gas quality cannot be restored, Naftogaz is obliged to compensate Gazprom for proven damages, such as penalty payments made to third persons or discounts on the price of Natural Gas, caused by the inferior gas quality.

4.4.2 Delayed payments for transit services and penalty interest

182.
If Gazprom's payment for transit services rendered are delayed, Naftogaz is entitled to a penalty interest of 0.03% of the amount of overdue transferred monetary funds for each day of delay in payment, cf. Article 10.3.

4.4.3 Withdrawal of transit gas

183.
Pursuant to Article 10.4, the withdrawal by Naftogaz of natural gas supplied by Gazprom for transit shall be recorded under the Gas Sales Contract. The price for such withdrawn transit gas shall be determined in accordance with Article 4.3 of the Gas Sales Contract.
184.
Article 10.4 reads as follows:

"In case the Contractor withdraws Natural Gas supplied for transit by the gas transportation system of Ukraine all the gas withdrawn shall be recorded in the Contract on Sale and Purchase of Natural Gas between OAO Gazprom and NAK Naftogaz of Ukraine No. KP dated 19 January 2009.

The price for this gas shall be established in accordance with Clause 4.3 of Article 4 of the Contract on purchase and sale of natural gas between OAO Gazprom and NAK Naftogaz of Ukraine No. KP dated 19 January 2009."

4.5 Article 12. Applicable Law and Arbitration

185.
Article 12 of the Contract regulates the applicable law and the dispute resolution mechanism of the Contract.
186.
Pursuant to Article 12.1, the Contract is regulated by the substantive laws of Sweden.
187.
Article 12.2 states that the Parties "shall seek to resolve all disputes and controversies between themselves relating to the interpretation and application of this Contract by means of negotiations". If the Parties fail to reach a solution to the dispute by means of negotiations within 45 days upon the occurrence of the dispute, the dispute "shall be finally resolved by arbitration in accordance with the Rules of the Arbitration Institute of the Stockholm Chamber of Commerce".

4.6 Miscellaneous Article 13 of the Contract

4.6.1 Replacement of legally invalid or ineffective provisions Article 13.2 of the Contact

188.
Article 13.2 of Article 13 reads as follows:

"If any of the provisions of the present Contract becomes legally invalid pursuant to the applicable legislation or ineffective, this shall not affect the validity of other provisions hereof If any of the provisions of the present Contract becomes invalid or ineffective, the Parties shall agree to replace such invalid or ineffective provision with a new provision that would have the economic effect as close as possible to that of the invalid or ineffective provision."

189.
Article 13.2 provides that the validity of the Contract shall not be affected if any of its provisions becomes legally invalid pursuant to the applicable legislation or ineffective. Instead, the Parties shall agree to replace such invalid or ineffective provision with a new provision that would have the economic effect as close as possible to that of the invalid or ineffective provision.

4.6.2 Amendments and Addenda to the Contract Article 13.6. of the Contract

190.
Article 13.6 of Article 13 of the Contract sets out the procedure for how amendments to the Contract shall be made. The Article reads:

"All and any amendments and Addenda to this Contract shall be in writing and shall be signed by the authorized representatives of the Client and the Contractor.

The Parties agreed that the said amendments and Addenda signed and sent by fax are binding provided that they are further confirmed by the original

The Parties shall notify each other of changes to their bank details, legal addresses, telephone numbers and faxes within a five-day term following the occurrence of the respective changes."

4.6.3 Assignments of the rights and obligations under the Contract Article 13.8 of the Contract

191.
Pursuant to Article 13.8 of Article 13 of the Transit Contract, neither of the Parties can assign its rights and obligations under the Contract to third parties without the written consent of the other Party.

4.6.4 Continuation of gas transit in case of dispute Article 13.12 of the Contract

192.
Article 13.12 of Article 13 of the Transit Contract stipulates that the gas transit shall continue in case of any dispute as regards any issue related to the performance or validity of the Contract

4.7 The Technical Agreement

4.7.1 Introduction

193.
[REDACTED] the Transit Contract shall be supplemented by [REDACTED] Technical Agreement [REDACTED]
194.
[REDACTED]
195.
[REDACTED]
196.
[REDACTED]
197.
[REDACTED]
198.
[REDACTED]
199.
[REDACTED]
200.
[REDACTED]

4.7.2 [REDACTED]

201.
[REDACTED]
202.
[REDACTED]
203.
[REDACTED]

4.7.3 [REDACTED]

204.
[REDACTED]
205.
[REDACTED]
206.
[REDACTED]
207.
[REDACTED]
208.
[REDACTED]
209.
[REDACTED]
210.
[REDACTED]
211.
[REDACTED]
212.
[REDACTED]
213.
[REDACTED]
214.
[REDACTED]
215.
[REDACTED]
216.
[REDACTED]
217.
[REDACTED]

4.7.4 [REDACTED]

218.
[REDACTED]
219.
[REDACTED]
220.
[REDACTED]
221.
[REDACTED]
222.
[REDACTED]
223.
[REDACTED]
224.
[REDACTED]
225.
[REDACTED]
226.
[REDACTED]

4.7.5 [REDACTED]

227.
[REDACTED]
228.
[REDACTED]
229.
[REDACTED]
230.
[REDACTED]
231.
[REDACTED]

4.8 Other legal documents relevant to the Contract

4.8.1 Introduction

232.
In addition to the Contract, certain other legal documents are of particular relevance to the Contract, as explained in the following.
233.
The Gas Transit Contract was entered into as a separate agreement on 19 January 2009. On the same date, the Parties also entered into Contract No. KP on the purchase and sale of Natural Gas in 2009 2019 (the "Gas Sales Contract", the "Sales Contract" or the "Supply Contract"). The Gas Sales Contract and the Gas Transit Contract are related. However, although negotiated and concluded in parallel, the Gas Sales Contract and the Transit Contract are separate contracts, stemming from separate legal relationships, regulating different subject matters and with different objectives.
234.
[REDACTED]
235.
The Energy Community Secretariat has assessed the Transit Contract, and presented its findings in its Preliminary Compliance report of 3 December 2014.
236.
The Agency for Cooperation of Energy Regulators ("ACER") has considered the validity of legacy long-term transit arrangements on a general basis in light of the requirements of EU energy and competition law. The overall mission of ACER is to complement and coordinate the work of national energy regulators at EU level and promote the single EU energy market for natural gas. As such it plays a central role in the development of EU-wide network and market rules. ACER's report provides an assessment of legal aspects concerning legacy long-term transit arrangements under EU legislation.

4.8.2 The Gas Sales Contract

237.
As mentioned above, Gazprom and Naftogaz also negotiated and entered into a long-term sales contract for Natural Gas of Russian, Kazak, Uzbek or Turkmen origin, on 19 January 2009 (the "Gas Sales Contract") in parallel with the Transit Contract. Although negotiated and concluded in parallel, the Gas Sales Contract and the Transit Contract are separate contracts, stemming from separate legal relationships, regulating different subject matters and with different objectives.
238.
As mentioned above, the Gas Transit Contract and the Gas Sales contract were entered into as separate agreements on the same date, and the Gas Transit Contract is to some extent related to the Gas Sales Contract.
239.
First, the transit tariff is linked to the Contract Price for natural gas received under the Gas Sales Contract.
240.
Second, Gazprom's advance payments for transit services by Naftogaz under the Transit Contract are earmarked to be used to pay for gas received under the previous and the current gas sales contracts.
241.
Third, the Transit Contract stipulates that any withdrawal by Naftogaz of Natural Gas supplied by Gazprom for transit shall be recorded and paid for under the Gas Sales Contract.

4.8.3 The Interim Agreement

242.
The Interim Agreement set out the framework enabling the delivery of gas from Gazprom to Naftogaz to cover domestic consumption in Ukraine during the winter period from 1 November 2014 until 31 March 2015, in order to safeguard the security of gas supply during this period.
243.
With regard to gas transit, the main objective of the Interim Agreement was to confirm continued

5. THE PROCEDURE

The procedural steps are listed below.
244.
On 13 October 2014, Naftogaz submitted its Request for Arbitration.
245.
On 15 October 2014, the SCC informed the Parties of Naftogaz's request for Arbitration and gave Gazprom until 29 October to submit its answer.
246.
On 28 October 2014, Gazprom requested a time extension for its submission of its answer to Naftogaz's request for Arbitration.
247.
On 3 November 2014, Naftogaz commented on Gazprom's request.
248.
On 4 November 2014, based on the Parties' comments, the SCC granted Gazprom until 28 November to submit its answer.
249.
On 28 November 2014, Gazprom submitted its answer to the request for Arbitration.
250.
In its Request for Arbitration, Naftogaz proposed to constitute the same Arbitral Tribunal in the Gas Transit Arbitration (SCC Arbitration Case V2014/129) as in the Gas Sales Arbitration (SCC Arbitration Case V2014/78), consisting of Mr. Tore Wiwen-Nilsson as Chairperson, and as party-appointed arbitrators, former Supreme Court Justice Johan Munck and Mr. Jens Rostock-Jensen. Gazprom agreed in its Answer of 28 November 2014.
251.
On 11 December 2014, the SCC confirmed the constitution of the same Arbitral Tribunal and informed on the advance on costs.
252.
On 23 December 2014, Gazprom requested consolidation of the present SCC Arbitration Case V2014/129 concerning the Gas Transit Contract with the SCC Arbitration Case V2014/78 concerning the Gas Sales Contract. The request was sent to the SCC and directly to the Claimant.
253.
On 29 December 2014, the SCC gave Naftogaz until 5 January to comment on Gazprom's request.
254.
On 5 January 2015, Naftogaz provided comments to Gazprom's request.
255.
On 5 January 2015, the SCC informed the Arbitral Tribunal of Gazprom's application, and requested the Tribunal to comment on it by 9 January 2015.
256.
On 7 January 2015, the SCC gave Gazprom until 12 January to respond to Naftogaz' comments.
257.
On 9 January 2015, the Tribunal commented on the issue of consolidation.
258.
On 12 January 2015, 2015 Gazprom commented on Naftogaz' submission of 5 January 2015.
259.
On 13 January 2015, the SCC informed that the consolidation issue would be referred to the SCC Board shortly.
260.
On 13 January 2015, Naftogaz requested and was granted a possibility to comment on Gazprom's 12 January 2015 submission by 19 January 2015. After that date, the SCC would not expect any further exchange of briefs.
261.
On 13 January 2015, the SCC forwarded to the Parties the Tribunal's e-mail of 9 January 2015 with comments to the issue of consolidation.
262.
On 19 January 2015, Naftogaz submitted its final comments on the consolidation issue.
263.
On 21 January 2015, Gazprom submitted unsolicited comments to Naftogaz' submission of 19 January 2015.
264.
On 22 January 2015, the SCC confirmed receipt of Gazprom's comments and reminded the Parties that the SCC did not expect any further briefs.
265.
On 28 January 2015, the Board of the SCC decided not to consolidate SCC Arbitration Case V2014/129 with SCC Arbitration Case V2014/78.
266.
On 29 January 2015, after the Parties had paid the advance on costs, the case was referred to the Arbitral Tribunal by the SCC.
267.
On 5 March 2015, a case management meeting was convened in Stockholm, Sweden. In this meeting, the Parties agreed to a Procedural Order No. 1 with a Provisional Timetable as Annex No. 1.
268.
On 30 April 2015, Naftogaz submitted its Statement of Claim, including supporting documents, witness statements and expert reports.
269.
On 16 October 2015, Gazprom submitted its Statement of Defence and Counterclaim, including supporting documents, witness statements and expert reports.
270.
On 21 October 2015, the Procedural Time Table was amended.
271.
On 30 October 2015, Gazprom submitted a request for Document Production.
272.
On 25 November 2015, after having exchanged Document Requests, the Parties submitted a Joint Submission of Requests for Document Production where only Naftogaz made a request for production of document, and requested the production of only one document.
273.
On 2 December 2015, the Tribunal decided to deny Naftogaz' Request for the Production of Document.
274.
On 4 December 2015, with agreement of the Parties, the SCC appointed Professor Boel Flodgren as Administrative Secretary of the Tribunal.
275.
On 29 January 2016, the Procedural Time Table was amended by agreement between the Parties.
276.
On 27 April 2016, the Tribunal decided on the Requests for the Production of Documents.
277.
On 11 May 2016, the Tribunal made a correction of its Decision on Request for Production of Documents April 2016.
278.
On 5 February 2016, the counsel of Gazprom, Mr Matthew Saunders, confirmed that he was resigning from DLA Piper but only after "a lengthy contractual notice period".
279.
On 11 February 2016, Gazprom submitted a Request for further Document Production (the EY Report)
280.
On 12 February Naftogaz was invited to comment on Gazprom's request by 16 February 2016.
281.
On 12 February 2016, Naftogaz submitted its Statement of Reply and Defence to Counterclaim, including supporting documents, witness statements and expert reports.
282.
On 13 February 2016, Naftogaz submitted its Statement of Reply and Defence to Counterclaim along with the Expert Reply
283.
On 13 February 2016, the Tribunal decided, subject to the confirmation by the Parties of their availability, that the hearing in this Arbitration should be held in the period 14 25 November 2016.
284.
On 16 February 2016, Naftogaz submitted a comment on Gazprom's request of 11 February for a document production order.
285.
On 23 February 2016, Gazprom submitted a comment on Naftogaz' response 16 February regarding Gazprom' s request 11 February for Document Production.
286.
On 24 February 2016, the Tribunal asked for further clarification by Gazprom of its request for Document Production.
287.
On 2 March 2016, DLA Piper submitted information about Mr Matthew Saunders no longer being involved in this Arbitration.
288.
On 31 March 2016, after having communicated with Naftogaz on the issue, Gazprom submitted further information regarding its request for Document Production.
289.
On 1 April 2016, the Tribunal issued the following instructions to the Parties:
290.
1.Naftogaz shall submit possible objections to Gazprom's Document Request no later than on 5 April 2016 and shall submit documents to which no objections are made by Naftogaz no later than on 12 April 2016.
291.
2. The parties shall at the latest on 15 April 2016 file a joint submission in accordance with paragraphs 4.5i) and 4.6 of procedural Order No. 1.
292.
Any concerns regarding the confidentiality or sensitivity of information requested, with proposals for procedures to handle such concerns, should be addressed by the Parties in connection with the filing of the joint submittal.
293.
On 5 April 2016, Naftogaz submitted its objections and comments to Gazprom's request for document production.
294.
On 15 April 2016, the Parties submitted a Joint Submission of request for Document Production.
295.
On 27 April 2016, the Tribunal decided on Gazprom's request 22 March for Document Production.
296.
On 12 May 2016, the Parties submitted their agreement regarding the practical arrangements for the hearing in this Arbitration.
297.
On 31 May 2016, submitted their agreement on outstanding items in respect of the timetable for the Arbitration. The Parties notified that the Pre-hearing Written Submissions would be limited to 50 pages.
298.
On 21 June 2016, the Parties submitted their agreement on the extension of time for the submission of Gazprom's Statement of Rejoinder from 24 June to 6 July 2016. The Parties had also agreed that, in the event that Gazprom would not be able to submit an expert report relating to the matters arising from the review of the documents disclosed by Naftogaz pursuant to the Tribunal's order dated 27 April 2016 by that date, such a report would be submitted by 15 July 2016.
299.
On 6 July 2016, Gazprom submitted its Statement of Rejoinder and Reply to Defence to Counterclaim, including supporting documents, witness statements and expert reports.
300.
On 3 August 2016, Naftogaz submitted a request for an additional round of pleadings or, alternatively, request for a cut-off date for new evidence.
301.
On 5 August 2016, Gazprom submitted its response to Naftogaz' request for an additional round of pleadings or, alternatively, request for a cut-off date for new evidence.
302.
On 8 August 2016, The Tribunal, considering the Parties' letters of 3 august and 5 August, made the following decision:
303.
1. The Tribunal permits the Parties to each make one further submission on the merits, the Claimant at the latest on 26 August 2016 and the Respondent at the latest on 1 November 2016.
304.
2.The Sur-Reply and Rejoinder of the Claimant may only address new issues and claims raised in the Respondent's Rejoinder of 6 July 2016 and clarifications required as a result of the Respondent' Rejoinder. No new issues may be raised and amplifications of earlier arguments only are not permitted. The Claimant may invoke new evidence but only as required to support by factual evidence and expertise what is addressed in the Sur-Reply and Rejoinder. The Sur-Reply and Rejoinder must not exceed 25 pages (excluding supporting evidence).
305.
3.The Sur-Rejoinder and Sur-Reply of the Respondent may only address matters raised in the Sur-Reply and Rejoinder of the Claimant, and amplifications of earlier arguments only are not permitted. New evidence is only permitted to support what is addressed in the Sur-Rejoinder and Sur-Reply of the Respondent. The Sur-Rejoinder and Sur-Reply of the Respondent must not exceed 25 pages (excluding supporting evidence).
306.
4.Except as set forth above, no new evidence is permitted, unless the Tribunal in its discretion determines that the Party seeking the permission of the Tribunal has been able to demonstrate that it has not been possible for it to present the evidence before and that the evidence is relevant and material to the outcome of the dispute.
307.
On 27 August 2016, Naftogaz submitted its Sur-Reply and Rejoinder to Counterclaim along with an Expert Sur-Reply.
308.
On 8 September 2016, Gazprom informed that its legal team had been supplemented to include Alan Gourgey, QC, Kassie Smith QC and Thomas Sebastian, all of whom are self-employed barristers.
309.
On 24 October 2016, Gazprom submitted a notification of names of experts and witnesses of fact to be present at the hearing or that Gazprom wished to cross-examine at the hearing.
310.
On 24 October 2016, Naftogaz submitted a notification of names of experts and witnesses of fact that Naftogaz wished to be present at the hearing.
311.
On 1 November 2016, Gazprom submitted its Statement of Sur-Rejoinder including supporting documents, witness statements and expert reports.
312.
On 2 November 2016, the Tribunal sent to the Parties a suggested Agenda for the Planning Meeting to be held by telephone on 9 November. The Tribunal also asked for clarification and specification on certain items and a time-line, preferably a joint time-line, of events of relevance to the claims in the arbitration with expected response from the Parties no later than on 14 November 2016.
313.
On 4 November 2016, the Parties submitted a suggested outline timetable for the hearing.
314.
On 4 November 2016, the Tribunal commented on the suggested timetable for the hearing.
315.
On 8 November 2016, Naftogaz submitted its Pre-Hearing Written Submission.
316.
On 8 November 2016, Gazprom submitted its Pre-Hearing Written Submission.
317.
On 9 November 2016, the Parties and the members of the Tribunal held a Pre-Hearing Planning Meeting in the form of a telephone conference at which also the Administrative Secretary was present.
318.
On 14 November 2016, Naftogaz responded to the Tribunal's request of2 November 2016 for clarification of certain items.
319.
On 14 November 2016, Gazprom responded to the Tribunal's request of 2 November 2016 for clarification of certain items.
320.
On 15 November 2016, the Tribunal asked for further clarification from Naftogaz on certain items to be provided before the start of the hearing.
321.
On 16 November 2016, in response to the Tribunal's request of2 November, Gazprom submitted its timeline of events and informed that the Parties had been unable to agree on a joint timeline.
322.
On 16 November 2016, the Chairperson asked the Parties to make a new effort to agree on a gross timeline with all relevant dates with a disclaimer.
323.
On 16 November 2016, Naftogaz submitted a request for clarification of Gazprom's request for dismissal dated 14 November 2016.
324.
On 16 November 2016, Naftogaz submitted its timeline of events relevant to its claims and informed that it would proceed to agree on a joint timeline in accordance with the Chairperson's suggestion of 16 November.
325.
On 17 November 2016, Naftogaz submitted a revised version of its timeline in replacement of the timeline submitted on 16 November 2016.
326.
On 19 November 2016, the Parties met with the Administrative Secretary at the venue of the hearing to check that the technical equipment and other practical matters were in order.
327.
Between 21 November - 4 December 2016, the Hearing took place in Stockholm.
328.
During the Hearing, the following persons appeared before the Tribunal at the request of Naftogaz:
329.
as witness of fact : [REDACTED]
330.
as expert witnesses: Mr Carlos Lapuerta, dr Serena Hesmondhalgh, Professor Sir Francis Jacobs.
331.
During the Hearing, the following persons appeared before the Tribunal at the request of Gazprom:

as witness of fact : [REDACTED]

as expert witnesses: Dr Boaz Moselle, Dr Katja Yafimava, Mr Bernhard Witschen, Professor Lars Henriksson.

332.
On 26 November 2016, Naftogaz submitted a Revised Relief Sought.
333.
On 28 November 2016, Gazprom submitted an application to admit new evidence including supporting documents, witness statement and expert report.
334.
On 28 November 2016, Naftogaz submitted its reply to Gazprom’s application to submit new evidence.
335.
On 28 November 2016, the Tribunal decided that Gazprom should submit a more complete application to admit new evidence on 19 December 2016 and that Naftogaz should submit its response to this application on 30 January 2017.
336.
On 30 November 2016, Gazprom submitted its response to Naftogaz' Revised Relief Sought of 26 November.
337.
On 30 November 2016, the Tribunal decided, on the Parties' request, to have - after the Parties' closing statements on 4 December a short discussion with the Parties on the procedural issues related to the outstanding issues caused by Gazprom's application of28 November to admit new evidence and Naftogaz' amended Relief Sought of26 November 2016.
338.
On 1 December 2016, Naftogaz submitted its Explanatory note requested by the Tribunal during the Hearing - regarding the roles and relationships between the parties involved (Naftogaz and Ukrtransgaz, and Gazprom and Gazprom Export) and the legal consequences thereof
339.
On 1 December 2016, Gazprom submitted its reply requested by the Tribunal during the Hearing regarding the distinction between Naftogaz and Ukrtransgaz and between Gazprom and Gazprom Export and the relevance of this in this Arbitration.
340.
On 8 December 2016, the Tribunal provided the Parties with notes from the discussion at the closure of the Hearing on 4 December for review and comments.