NaftoGaz Freezing Gazprom’s Assets in UK to Recover USD 2.6bn Court Award

June 25, 2018

Ukraine’s state energy company NaftoGaz announced on its website that it has served Russia’s Gazprom with an order to freeze assets in England and Wales. The order was issued by the Commercial Court in London on Jun 18 to enforce the Stockholm arbitration award, whereby Gazprom owes Naftogaz USD 2.6bn. Naftogaz has also notified offices of 17 banks which conduct business with Gazprom in London that they are forbidden to facilitate any reduction in Gazprom’s assets in the UK.
NaftoGaz admitted that Gazprom is still fighting the Stockholm arbitration ruling which awarded the Ukrainian side with USD 2.6bn as a result of the “unfair” gas transit contract of 2009. The Svea Court of Appeal in Stockholm temporary suspended the enforcement of the transit award.
“The Svea Court ruling does not suspend the award itself, it only suspends enforcement in Sweden. It is up to the courts of each individual country to determine, under its own national laws, whether the Swedish ruling suspends the enforcement of the award in such country. The Transit Award remains valid, and interest continues to accrue and we will seek enforcement in jurisdictions where enforcement is an option,” Naftogaz CEO Andriy Kobolev was quoted as saying on the website.       

There was no expectation that NaftoGaz would get the USD 2.6bn court award from Gazprom without additional complications. An illustration of how hard it is to implement international court rulings against the Russian state is the famous Yukos case. Despite a juridical award in the tens of billions for the Kremlin-led confiscation of the company’s assets, very little money has actually been recovered in the case. In our view, NaftoGaz will not be able to recover the award from Gazprom in the short term. On the other hand, Gazprom’s debt to Naftogaz could be used as a strong argument in negotiations on a new gas transit contract through Ukraine, as the current contract expires on 31 Dec 2019. Ukraine earns about USD 2bn of transit revenue per year from Russian gas passing through the country’s territory. Gazprom has already substantially reduced the volumes of gas it transits across Ukraine, and expressed its intention to reduce the level further by means of transit diversification pipelines (Nord Stream, Turkish Stream, etc). Kyiv and Moscow have been actively involved in talks on a new transit contract since March, but no details on the talks have been made public.         
In other natgas-related news, the US government’s Overseas Private Investment Corporation (OPIC) approved USD 250mn in political risk insurance for NaftoGaz on Jun 14, which will effectively function as a loan guarantee to fund gas import purchases. The financing will help NaftoGaz to build up gas reserves during the summer months to maintain a reliable supply and affordable prices in the upcoming heating season. 

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