Details of Russia-Ukraine gas transit contract revealed

Payment for Russian gas transit to Europe via Ukraine in 2020 will grow by at least 2% from 2019, according to the draft agreement sealed between Russia's Gazprom and NJSC Naftogaz of Ukraine, which was signed in December last year for five years.

The signed version of the contract remained the same, RBC wrote on January 31, referring to its sources.

Transit of Russian gas through the Ukrainian gas transmission system (GTS) will have totaled 225 billion cubic meters (bcm) by 2024. It is planned to pump 65 bcm of gas this year, as well as 40 bcm annually within 2021-2024. Gazprom pumped about 90 bcm of gas via Ukraine in 2019.

The cost of the Russian gas transit is set at US$31.72 per 1,000 cubic meters. That is, Naftogaz will receive more than US$7 billion in five years.

The rate of transit in the new contract is fixed for the whole period of its validity. However, the rate was not fixed in the previous ten-year contract (expired in 2019), as it was calculated using the formula linked to the European gas price and pumping volumes.

If Gazprom needs to increase gas supplies to Europe beyond volumes stipulated in the contract, it shall pay for gas transit taking into account the increasing coefficients: rise in price from 1.1 times in a quarter to 1.45 times in 24 hours. The maximum rate increase may be 45%.

The Gazprom-Naftogaz new transit agreement changed not only the tariff calculation and the mandatory volumes of gas pumping, but also the jurisdiction to cover potential disputes between the parties. According to the previous contract, all disputes were to be dealt with by the Arbitration Institute of the Stockholm Chamber of Commerce, which ruled in favor of Naftogaz in 2018, obliging Gazprom to compensate the Ukrainian company for US$2.56 billion for failure to supply gas under the transit agreement.

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As a result, taking into account the accrued interest, the Russian company had to pay Naftogaz US$2.9 billion at the end of 2019. This was a condition for the prolongation of Russian gas transit from January 1, 2020.

Now, the disputes shall be settled in another international arbitration tribunal – at the International Chamber of Commerce in Zurich (ICC). However, like the previous contract, the new deal is governed by Swedish substantive law.

As UNIAN reported earlier, on December 30, Ukraine and Russia signed a new gas transit contract for a period of five years, obliging Russia's Gazprom to pump a minimum of 65 bcm of gas via Ukraine in the first year and 40 bcm in the next four years. The parties may extend the contract for another ten years.

On December 31, Naftogaz CEO Andriy Kobolyev said Ukraine would get at least US$7.2 billion from Russian gas transit over the next five years.