Arthur Zurabyan, of ART DE LEX, commented on Gazprom’s claim against Turkmengaz to change the price of gas
The Russian concern, Gazprom, wants to revise the price of the gas it buys from Turkmenistan. On 8 June, Gazprom Export said that it appealed to the Stockholm Arbitration Court against Turkmengaz to revise the price of gas it buys from Turkmenistan. A representative of the Russian side did not comment on the details of the claim, and his colleague from Turkmengaz did not respond to questions.
Russia has been purchasing Turkmen gas since the days of the Soviet Union to supply its southern regions, which do not obtain Russian gas because infrastructure deficiencies. In 2006-2008, Russia purchased almost all Turkmen gas (41-42 billion cubic meters), but after the crisis of 2008, Gazprom insisted on revising the supply conditions. As a result of the new 2010 contract, the amount decreased by about 10 billion cubic meters, while the price, tied to the price of oil, was USD 240 per 1,000 cubic meters.
Last year, after a sharp drop in oil prices, which also influenced gas prices, price of Turkmen gas again became an issue, as sources close to Gazprom told Vedomosti. Now the monopoly delivers gas to Europe at USD 230-250 per 1,000 cubic meters, and purchasing Turkmen gas at USD 240 is unprofitable because the gas has to be transported, about 3000 km, from the border of Turkmenistan and Uzbekistan, said the deputy director of the Fund of National Energy Security, Alexei Grivach.
The companies failed to agree on a price revision, and as a consequence, from the beginning of the year, Gazprom unilaterally decided to base its payment to Turkmengaz on the export netback in Europe (USD 150-170 per 1,000 cubic meters), a source told Vedomosti. The monopoly also has reduced the purchase of gas up to 4 billion cubic meters. The deputy chairman of Gazprom, Alexander Medvedev, explained that there is no need to acquire larger amounts of gas, but purchases will continue, “taking into account the relationship with our neighbors.” According to Medvedev, the volume has been reduced, “based on joint agreements.” Turkmenistan said that the reduction is groundless and that Gazprom is “an unstable partner.” The parties, as Grivach stated, “drew up the contracts in a such way that they annually agree to the prices through additional agreements–it is very eastern.” Turkmenistan does not want to revise the price in order to be able to use a discount on gas as an exchange, in the future, on the gas or on any other issue among “neighbors.”
“In court, Gazprom may require a revision of the contract price, based on structural changes in the market, which they will support with references to relevant provisions in the agreement,” according to Arthur Zurabyan, the head of the International Arbitration and Dispute Resolution Practice of ART DE LEX. It is possible that the economic disputes will be resolved at the political level, he added.
Grivach agreed that the lawsuit is a formality because the heads of states will make the decision.
Both Zurabyan and Vasily Itskov, the head of the Dispute Resolution Practice of Horizon Capital, think that the outcome will not affect the proceedings against Naftogaz. Ukraine disputes only the price of gas, which it agreed to when it signed a contract, and Gazprom agreed to a flexible price, which is based on the price of oil, Itskov said.
