Gazprom Statement on Contract with Naftogaz Ukrainy

The issues related to natural gas trade between Gazprom and Naftogaz Ukrainy are regaining the attention of the media.  Below please find Gazprom’s position on the company’s relationship with Naftogaz Ukrainy and response to incorrect assertions of growing contradiction between the two countries. 

1. As a matter of fact, there is no dispute between the Governments of Russia and Ukraine concerning the agreements signed on January 19, 2009 on Russian natural gas transit to Europe and on its deliveries to the Ukrainian domestic market. Both parties have common opinion that these agreements, found through difficult negotiations, meet fully the interests of both Ukraine and Russia, as well as of Gazprom Group and Naftogaz Ukrainy. Moreover, the agreement on transit signed in January is beneficial not only for these two neighboring countries, but also to European gas consumers. Therefore, Gazprom sees no sense in revisiting this set of contracts.

These long-term agreements have been concluded for 11 years, which (provided that both parties strictly adhere to them) makes the deliveries of natural gas in Europe more reliable and predictable. Moreover, these documents meet the European standards. 

2. The applicable transit tariffs are calculated based on the agreed formula depending on global oil and oil products price fluctuations.

Yulia Tymoshenko, the Ukrainian Prime-Minister, assumes that the transit tariff for Russian gas should increase by 65–70% starting from 2010. Obviously, her opinion is based on higher oil prices. The persisting volatility of oil and oil products price brings some uncertainty about the exact figure in the future. Gazprom experts are more conservative in their calculations: they forecast the transit tariff somewhere between USD 2.56 – 2.7, i.e. 50–60% of actual increase. However, this is not the core issue, as everybody understands that the exact figure will come out of the formula stipulated by the agreement. 

This year Gazprom paid fully in advance for gas transit in the current year and in the first quarter of 2010, without any obligation to make this advance payment. Gazprom does not plan to make such advance payment for the next period, and this particular issue was discussed during the meeting between the President of the Russian Federation Dmitry Medvedev with the Head of Gazprom Alexey Miller.

3. Taking into account the economic decline in the neighboring country due to the global economy crisis, Gazprom Group does not apply penalties against its Ukrainian partner for shortfalls in consumption of gas volume set forth by the contract signed in January. The Russian company understands the objective reason for reduction of hydrocarbon procurements: the current situation of the Ukrainian economy does not allow consuming the total volume of gas previously contracted. 

However, the current economic environment does not call for revisiting a long-term contract and its “take-or-pay” clause, as this economic crisis will not last forever.