The head of the ART DE LEX International Arbitration and Dispute Resolution Practice, Artur Zurabyan, commented on a Ukrainian law regarding the ownership of its natural gas system
The article “Russia may take Ukraine to court,” by Ludmila Podobedova in Izvestia on 18 August 2014, analyzed the pitfalls of a new bill the Ukranian Supreme Rada adopted, according to which 51 percent of all gas and transport systems must be in the hands of the government, and American as well as European investors can have 49 percent.
The State Duma deputy and member of the Energy Committee, Andrey Krutov, requested that the minister of energy, Alexander Novak, and minister of economic advancement, Alexey Ulukaev, consider the possibility of filing a complaint against Ukraine with the World Trade Organization about the violation of Russian rights. Because the Ukrainian law prohibits vertically organized ownership of the delivery mechanism for gas and the natural gas it delivers, it effectively excludes Gazprom’s involvement in Ukraine. Krutov stated that the WTO will demand that Ukraine allow Russian investors to own shares in the Ukrainian gas and transport system. Podobedova, the author of the article, contended that Ukraine had agreed to abide by WTO regulations and must allow any investors to purchase shares.
According to Andrey Kobolev, the head of board of directors of Naftogas Ukraine, the law is an important step to minimize the risks of Russia blocking gas transit through Ukraine, given the strained relations between Russia and Ukraine. With the leading European companies as investors, Ukraine can strengthen its energy security, and Europe can guarantee its supply of natural gas.
Mr. Krutov believes that the participation of Gazprom in funding the Ukranian natural gas transport infrastructure can lead to a compromise on a payment agreement: “With a debt of USD 5.3 billion for Russian gas since 2013, Ukraine could use its assets as a guarantee for further gas. In any case, according to WTO terms, Russian investors have every right to free access to the Ukranian market. Anything else is a direct violation of antimonopoly legislation in favor of the EU and the USA.”
The Ministry of Economic Development and Ministry of Energy provided no commentary because they officially have not received Krutov’s request. Nevertheless, both ministries are ready to provide the information in the future. Earlier, the official representative of the Ministry of Energy, Elena Lashkina, informed Izvestia that the Ukranian government is in breach of its obligations under the WTO agreement: “according to WTO obligations, Russian operators should have access to the Ukrainian market, including its gas and oil market. Moreover, Russian companies should compete on equal basis with other foreign companies.”
The head of the ART DE LEX International Arbitration and Dispute Resolution Practice, Artur Zurabyan, stated that if Russia takes its claim to the WTO and wins the case, Ukraine would have to remove restrictions on Russian companies. Russia, however, would have to meet half way regarding Ukrainian companies that faced sanctions: “the authors of the bill and the Ukrainian parliamentarians never have hid the purpose of the bill, which is not to admit Russian companies (mostly Gazprom, even with respect to renting) into the Ukrainian oil and gas market. The Ukrainian bill violates WTO marketing rules. Furthermore, Ukraine has adopted sanctions against Russia, so if Russia successfully claims that Ukraine is violating WTO rules, then the WTO would have to admit that other WTO countries’ sanctions against Russia violate its rules.”
The Russian Federation position would depend on whether European companies would like to invest in a Ukrainian gas and oil market that remains unstable and cannot guarantee supply. The South Stream Pipeline, would bypass Ukraine, and Russia would have no need for involvement in Ukraine.
The original Russian-language posting of this item is at http: //artdelex.ru/rus/publications/rukovoditeli-praktiki-mezhdunarodnogo-arbitrazha-art-de-lex-artur-zurabyan-prokommentiroval-zakonoproekt-ob-upravlenii-gts-ukrainy-kompaniei-prinadlezhashchei-na-49-amerikanskim-ili-evropeiskim-investoram.