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Naftogaz attacks Gazprom's assets

Naftogaz launched a forced recovery of Gazprom's debt in the jurisdiction of European countries within the framework of the award of the Stockholm Arbitration. The first blow was struck on the assets of the Russian gas monopoly in the Nord Stream 2 project. Experts believe that this will at least delay construction of the gas pipeline bypassing Ukraine, while Gazprom will have to pay off debts anyway.

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The National Joint-Stock Company Naftogaz of Ukraine started the process of forcing a $2.6 billion debt from Russia's Gazprom in the framework of the award of Stockholm Arbitration rendered at the end of February this year, plus $45 million of late payment. The company assures that all court procedures and the seizure of assets will take no more than a year.

These actions of the Ukrainian side fully comply with the New York Convention on the Recognition of Arbitral Awards, according to which the plaintiff can demand the execution of the court's decision in the jurisdiction of any country that signed the document, by recognizing the procedure by a local court.

The process started in Switzerland with the imposition of interim measures on the shares of Nord Stream AG and Nord Stream 2 AG, operators of the Nord Stream and Nord Stream-2 gas pipelines. A similar procedure has been launched in the Netherlands and UK.

"We began seizing Gazprom assets from Nord Stream 1 and 2 shares in Switzerland. There will give grounds for Europe to once again reflect on how reliable these bypass pipelines are as the shares of their operator companies are arrested over the unwillingness of their owner to play by civilized rules and to implement the decision of international arbitration," Chief Commercial Officer of Naftogaz Yuriy Vitrenko wrote on Facebook.

Gazprom, which took a strange position (at first they did not refuse to pay off debts, realizing their imminence, but then filed lawsuits against arbitration decisions on far-fetched pretexts and began the procedure for terminating contracts with Naftogaz) has not yet made official statements. But the Russian media referring to their gas monopoly, reported that Gazprom did not receive any notification of the procedure. But Nord Stream 2 AG informed that on May 29 they received a decision on the arrest of the company's assets, which was handed by the Swiss bailiffs who arrived at their office. At the same time, Nord Stream 2 AG assures that these actions will not affect the construction of the Nord Stream 2 gas pipeline.

By the way, apparently preparing for the Naftogaz attack, Gazprom transferred 100% of Nord Stream 2 shares to a pledge until full repayment of obligations under agreements with foreign partners - Shell, OMV, Engie, Uniper and Wintershall, which in 2017 provided financing to Nord Stream 2 AG worth EUR 324 million each.

Experts believe that in any case, Gazprom has driven itself into a trap - the seizure of its assets is actually possible, which will damage its position in the market and increase financial losses significantly, while the implementation of the Nord Stream 2, designed to deprive Ukraine of its transit status, will at least slow down greatly. As for Gazprom's claims regarding the decisions of the Stockholm Arbitration, which allegedly were handed down with gross violations of the procedure, the Swedish Supreme Court can revoke them in case of proving "participation of third parties," as Gazprom insists, but it has no right to reverse the decision in its essence.

Gazprom can't get out of the trap

President of the Center for Globalistics, Strategy XXI, Mykhailo Honchar believes the strategy of Naftogaz is correct, logical and consistent. Its actions, on the one hand, force Gazprom to pay its debts, on the other hand, they hamper the implementation of the Nord Stream 2 project. And Europe, indeed, will have to think about it. The European Commission, in favor of the main filler of the EU budget - German business, by closing with zero result the case of Gazprom's abuse of the European market rules, gave the go-ahead for the implementation of the Nord Stream 2, while assuring that this gas pipeline is an exclusively commercial project and does not threaten the Ukraine transit. They turned a deaf ear to Russia's announcement that it would supply gas via the Ukrainian pipe "taking into account the expediency."

"The European Commission in this issue would hardly have decided in favor of Ukraine. Europe, in fact, backed off because the case of Gazprom's abuse of the dominant position in the EU market was closed. Therefore, we shouldn't count on its support. Now something might change," the expert said.

According to him, there is enough we can recover from Gazprom - assets and property in Switzerland, UK, the Netherlands and Germany. Gazprom has much more than the amount they must pay to Naftogaz.

"Visits by bailiffs to the Nord Stream offices means that both the shares of these Gazprom enterprises can be arrested, as well as tangible assets, for example, pipes for Nord Stream 2, which are stored in four European ports in the Baltic Sea. Their cost will cover the recovery sum. Thus, even if we cannot disrupt the project, we will definitely delay its implementation. Of course, if Gazprom pays Naftogaz, it will unlock the arrest. But if it remains stubborn, it will fall into a trap. According to the contracts, if Gazprom does not start gas deliveries through Nord Stream-2 within the specified time, it will have to pay a penalty to its European partners, and for the monopoly it means additional significant financial losses," Honchar stressed.  

REUTERS

At the same time, he notes that it was easier for Gazprom to repay the debt than to find themselves in the present situation. After all, the amount of $2.6 billion it's not a lot of money for them.

"Money, as you know, is never enough, especially given the new projects of Gazprom. But it's not about them. It's about the Russian principles - how can they pay anything to Ukraine that got out of control? The Kremlin ordered to find some ways to delay payments to Kyiv, and then pay and do it quietly. But the deadline to implement the decision of the Stockholm Arbitration has passed, and the defendant ignores it, playing with the appeal on some far-fetched pretexts and with the termination of contracts with Naftogaz. It did not work out, the plan did not work," said Honchar.

Energy expert Serhiy Dyachenko also believes that Gazprom's appeal and file an application for a termination of contracts with Naftogaz makes no practical sense.

"Firstly, the decision by the Stockholm Arbitration was taken in respect of existing contracts recognized by both sides and for the period that has already passed. Secondly, there is a deadline for the execution of the arbitration award, and the appeal has nothing to do with it… More decisions are to come. Then there may be cassation suits. And this will also entail more rulings. In other words, the decision taken by the arbitration is valid. Gazprom is obliged to fulfill it but it has the right to challenge it, too. But it is obliged to pay," the expert said.

In his view, the recovery process is likely to start not with the shares of Nord Stream 2, but with tangible assets. However, this will still slow down the implementation of the project.

"At first they always arrest tangible assets, real estate, and only then - slippery finances. Nevertheless, this might slow down the process of construction of the Nord Stream 2. Gazprom will surely affect Gazprom, which they themselves, or rather, their Kremlin master, provoked. But their main objective is to delay the arbitration process and sever the transit contract with Ukraine, presenting the need for the Nord Stream-2 construction as the base for such actions, claiming that Ukraine is an unreliable partner, therefore Europe must refuse to have gas transited via its territory. Let's see where this brings us," summed up the expert.

The attack by Naftogaz on Gazprom's assets has just begun, and everything shows that Ukraine will finally cross the t's and dot the i's in its relations with the Kremlin's "gas needle." But the most interesting part of this saga is yet to come.

Nana Chornaya

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