Gazprom tightened the Poles in the appeal

The company disagreed with arbitration in a dispute with PGNiG.
03.10.2018
Kommersant
Origin source
Gazprom, as suggested by “Kommersant”, began to drag out an arbitration dispute with the Polish PGNiG, which has been dragging on since 2015. PGNiG wants to reduce the price of the gas supply contract, and at the end of June the Stockholm Arbitration made a partial decision on the case, which both sides publicly interpret in their favor. Now, Gazprom, according to PGNiG, decided to challenge this decision of the arbitration on appeal. According to Kommersant’s interlocutors in the market, the company thus wants to delay the matter as much as possible, given Poland’s irreconcilable position on issues important to Gazprom - the construction of the Nord Stream-2 gas pipeline and the extension of the Yamal-Europe transit contract.

Gazprom decided to challenge the decision of the Stockholm arbitration on June 29 in a dispute with the Polish state company PGNiG, the PGNiG report said. Gazprom has not commented on this yet. The dispute itself concerns the price of a gas supply contract - PGNiG requires its backdating for deliveries in 2012–2014. The dispute was submitted to arbitration in 2015, and in the summer the arbitrators made a partial decision, which did not specify the amount of compensation, but merely summarized the general conclusions of the arbitrators, based on which the final decision determines the specific changes to be made to the contract. Both sides then interpreted the partial decision in their favor: for example, PGNiG stated that the arbitration confirmed its right to revise the price of the contract. Gazprom, on the other hand, argued that the arbitration “completely refused PGNiG to change the price as required by this company during the proceedings”. The arbitration also refused to consider hub prices “as the only relevant factor for pricing in long-term contracts,” and PGNiG’s right to revise prices was never challenged - it is in all long-term contracts of Gazprom.

Now the Polish company believes that Gazprom seeks to delay the process by filing a partial decision of the arbitration on appeal. “Gazprom’s decision raises concerns about the deliberate extension of the trial, which, after a partial decision favorable to PGNiG, should bring a positive result for the Polish consumer,” the PGNiG report said. We note that Gazprom is now acting in a similar way with respect to just one other company, relations with which are almost hopelessly flawed, the Ukrainian Naftogaz.

The last time the contract between Gazprom and PGNiG for 10.2 billion cubic meters per year changed in 2012, then Poland received a 10% discount. The contract price is fully pegged to oil. According to Kommersant, PGNiG in its lawsuit demanded to tie pricing to the quotes of the German gas hub NCG, deducting the cost of transportation from Poland to Germany, and also to charge hundreds of millions of euros overpayment for gas in 2012–2014. At the same time, in November 2017 PGNiG re-used the right to revise the contract (three years passed from the previous attempt), in response, in December Gazprom initiated negotiations on the revision of the contract on its part. So far, mutual claims have not been submitted to arbitration, since the parties were awaiting a decision on the current dispute.

Gazprom, in any case and regardless of the arbitration decision, will have to change the pricing for PGNiG due to obligations to the European Commission for regulating the antitrust investigation. As part of these commitments, Gazprom should provide consumers with prices as close as possible to the prices of liquid trading platforms in Europe (in the case of Poland this would be the desired PGNiG German hub NCG) to consumers in the isolated markets of the Baltic States.

However, Gazprom, according to the interlocutors of Kommersant, does not see the point of going towards Poland, given its active position on countering the Russian company. For example, Poland is trying to prevent the Nord Stream 2 project by lobbying for a negative EU law change project, as well as launching an antitrust investigation against Gazprom and the five European companies involved in this project. In addition, Poland not only declares its readiness to abandon the contract for the purchase of Russian gas, which expires in 2022, but also takes an unclear position on the extension of the transit contract through the Yamal-Europe gas pipeline (expires in 2020).

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