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Ukraine wins in gas dispute in Stockholm tribunal against Russia; but victory may be hollow

Russia’s Gazprom rejects award, cancels Ukraine’s gas supply and transit contracts; stops supplying gas to Ukraine

Alexander Mercouris

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In a conflict in which Ukraine repeatedly claims victories which in reality turn out to be defeats, Ukraine did win finally win a genuine victory over Russia at the Stockholm Arbitration Tribunal on Wednesday 28th February 2018.

The victory came in the litigation between Russia’s monopoly gas exporter gas exporter Gazprom and Ukraine’s national gas company Naftogaz.

After having previously rejected all of Naftogaz’s arguments against the legality of its gas supply contracts with Gazprom, and after having ordered Naftogaz to pay Gazprom $2 billion for unpaid gas, the Stockholm Arbitration Tribunal ordered on Wednesday 28th February 2018 that Gazprom owed Naftogaz $4.7 billion for its failure to supply agreed volumes for transit.

The $2 billion Naftogaz was previously ordered to Gazprom is set off against the $4.7 billion Gazprom is ordered to pay Naftogaz, ending the litigation with an overall award to Naftogaz of $2.54 billion.

The Russian news agency TASS has provided an account of the issues in the litigation

Gazprom vs Naftogaz dispute

Gazprom and Naftogaz signed the current contract for the supply of gas to Ukraine in January 2009 and it is valid until December 31, 2019. Under the contract, the volume of supplies was to be 40 billion cubic meters of gas in 2009, and starting from 2010 – 52 billion cubic meters annually. However, since 2012, Naftogaz failed to fully intake the contracted volume. Since November 2015, Kiev has not bought Russian gas, replacing it with reverse gas from Europe.

In 2014, Gazprom and Naftogaz filed lawsuits against each other in the Stockholm Arbitration.

Ukraine sought a retroactive price change, recovery of overpayment for gas and cancellation of the “take or pay” principle.

Gazprom demanded that Naftogaz should pay arrears for gas that had been supplied earlier. Gazprom’s demands for Naftogaz amounted to more than $37 bln.

The Stockholm Arbitration satisfied the requirements of the companies only partially.

In December 2017, the court ordered Naftogaz to pay Gazprom $2 bln for the deliveries, but reduced the annual contractual volume of purchases to 5 billion cubic meters.At the same time, the “take or pay” condition was preserved for 80% of this volume. This condition will be effective only in 2018.

The court also rejected most of Naftohaz’s claims to Gazprom which concerned overpayment for gas. Only the price of gas received by the Ukrainian company in the second quarter of 2014 was lowered (from $485 to $352 per 1,000 cubic meters). Naftogaz wanted a retroactive price change starting from May 2011.

In the gas transit contract, Naftogaz and Gazprom agreed that the Russian holding will pump 110 billion cubic meters of gas through Ukraine annually. However, the contract notes that the annual volume is specified in additional agreements to the contract, depending on the obligations of Gazprom to European consumers.

Naftogaz demanded that Gazprom should pay $17 bln for the failure to supply the agreed volumes for transit. It also sought the revision of tariffs and conditions for the transit of Russian gas through Ukraine.

The Stockholm court ruled that Gazprom should pay about $ 4.7 bln to Naftogaz (taking into account the satisfied counter claims, Gazprom has to pay $ 2.56 bln). At the same time, Gazprom said that the arbitration court rejected Naftogaz’s demands to increase the tariff for gas transit and change the contract in accordance with Ukrainian legislation.

This account does not give reasons for the Stockholm Arbitration Tribunal’s decision.  Alexey Miller, Gazprom’s CEO, has however explained it in this way

The Stockholm arbitration, guided by double standards, adopted an asymmetric decision on our contracts with Naftogaz of Ukraine regarding supply and transit of gas. The decision seriously violates the balance of interests of the parties under these contracts. The arbitrators ground their decision by the fact that the situation with the Ukrainian economy has drastically worsened. We are totally against the situation when Ukraine’s economic problems are solved at our expense. In this situation, the continuation of the contracts’ validity is not economically feasible and unprofitable for Gazprom

(bold italics added)

As a general principle, European commercial law tends to take a more interventionist and paternalist approach to commercial disputes than is the case in common law jurisdictions such as those of England and (most of) the US.

A decision which in effect rewrites a contract for the benefit of a weaker party would not therefore be wholly unprecedented, and an arbitration panel – which is not technically speaking a court – has more liberty to be flexible than a court does.

Having said this, if it is in fact the case that the Stockholm Arbitration Tribunal made such a large award in Naftogaz’s favour simply because Ukraine’s economy has deteriorated since 2009, then that would indeed be a very remarkable thing indeed, and Gazprom would in that case be justified in complaining about it.

After all, as Alexey Miller says, it is not Gazprom’s job to support Ukraine’s economy, and it is absurd to suggest that Ukraine’s economic problems – many of which are self-inflicted – should be solved at Gazprom’s expense.

Having said this, without publication of the actual reasons for the award – which is unlikely to happen – it is impossible to say for certain whether Miller is describing them properly.

Irrespective of what the Stockholm Arbitration Tribunal’s reasons for its decision were, Gazprom has has wasted no time in responding to it.

Firstly, it has rejected the decision.

This Gazprom is able to do because the Stockholm Arbitration Tribunal is an arbitration panel not a court.  If Ukraine wishes to enforce the award it must therefore convert the Stockholm Arbitration Tribunal’s decision into a court Judgment.

In most cases that is purely a formality.  However in this case it might not be straightforward if Miller’s account of the reasons for the Stockholm Arbitration Tribunal’s decision is true.  Many courts might balk at a decision which appeared to rewrite a contract in so radical a way and for such a reason.

There is also the issue of which courts would have jurisdiction in the case to convert the award into a court Judgment.

I do not know the answer to that question.  In order to answer it I would need to see the relevant contracts between Gazprom and Naftogaz.  I doubt that will ever happen because as I understand it the contracts are secret.

All I will say on the jurisdiction is that it is interesting that Ukrainian President Poroshenko is saying that if Gazprom refuses to pay the award Ukraine will enforce the award by seizing Gazprom’s assets in Ukraine itself.

That suggests either that Poroshenko believes that it is the Ukrainian courts which have jurisdiction in the matter, or that he is not confident that whichever other courts do have jurisdiction in the matter would agree to enforce the award by converting it into a judgment.

More to the point, Gazprom has signalled its total loss of confidence in the Stockholm Arbitration Tribunal by cancelling all its gas supply and transit contracts with Naftogaz, and by informing the Stockholm Arbitration Tribunal that it no longer considers it to have any further role in the matter.

In keeping with this decision, Gazprom has stopped supplying gas to Naftogaz, and has returned Naftogaz’s prepayment for the future supply of gas.

This has in turn triggered a short term gas crisis in Ukraine, which can no longer import gas from Russia to cover its own needs, but which is struggling to find alternative sources of gas in Europe, which is currently experiencing a gas shortage because of the recent cold weather.

In my opinion it is unlikely Naftogaz will ever see the $2.56 billion it has been awarded.

However against that Naftogaz and Ukraine have escaped paying the $2 billion it looked like they would have to pay to Gazprom just a few weeks ago.

Given Ukraine’s deteriorating financial and economic position the Ukrainian government probably calculates that a few days or even weeks of gas shortages is a small price to pay for escaping payment of the $2 billion to Gazprom, which in its present condition Naftogaz and Ukraine would struggle to pay.

As for the Russians, I suspect that privately they believe that Ukraine’s friends in the West applied backstairs pressure on the Stockholm Arbitration Tribunal when it looked like Naftogaz was about to lose the case to make what the Russians say is an illogical decision.

That will reinforce their decision to cut Ukraine out entirely as a transit state for their gas, regardless of whatever public assurances Putin may be currently giving to the contrary.

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Peace on Korean Peninsula within reach, if only Trump can remove Pompeo & Bolton (Video)

The Duran Quick Take: Episode 152.

Alex Christoforou

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RT CrossTalk host Peter Lavelle and The Duran’s Alex Christoforou discuss the results of the Putin-Kim summit in Vladivostok, Russia, aimed at boosting bilateral ties between the two neighboring countries, as well as working to contribute to a final peace settlement on the Korean peninsula.

Putin’s meeting with Kim may prove to be a pivotal diplomatic moment, as North Korea continues to work towards normalizing ties with the U.S. amidst ongoing denuclearization talks with the Trump White House.

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Via the BBC…

Russian President Vladimir Putin has said North Korean leader Kim Jong-un needs international security guarantees if he is to end his nuclear programme.

Such guarantees would need to be offered within a multinational framework, he added, following talks near Vladivostok in Russia’s far east.

Mr Kim praised the summit as a “very meaningful one-on-one exchange”.

Mr Putin said North Korea’s leader was “fairly open” and had “talked freely on all issues that were on the agenda”.

The meeting followed the breakdown of talks between the US and North Korea in February, when Mr Kim met US President Donald Trump in the Vietnamese capital Hanoi.

Those talks reportedly stalled over North Korea’s demand for full economic sanctions relief in return for some denuclearisation commitments – a deal the US was not willing to make.

Speaking after the talks on Thursday, Mr Putin said he wanted to see full denuclearisation on the Korean peninsula.

But he said this could only be achieved through respect for international law.

“We need to restore the power of international law, to return to a state where international law, not the law of the strongest, determines the situation in the world,” he said.

Mr Kim greeted Russian officials warmly when he arrived in Russia on Wednesday.

The North Korean leader was entertained by a brass band in Vladivostok before he got inside a car flanked by bodyguards, who – in now familiar scenes – jogged alongside the vehicle as it departed.

What do we know about the summit?

According to the Russian presidential spokesman, Dmitry Peskov, the Kremlin believes the six-party talks on North Korea, which are currently stalled, are the only efficient way of addressing the issue of nuclear weapons on the peninsula.

Those talks, which began in 2003, involve the two Koreas as well as China, Japan, Russia and the US.

“There are no other efficient international mechanisms at the moment,” Mr Peskov told reporters on Wednesday.

“But, on the other hand, efforts are being made by other countries. Here all efforts merit support as long as they really aim at de-nuclearisation and resolving the problem of the two Koreas.”

What do both sides want?

This visit is being widely viewed as an opportunity for North Korea to show it has powerful allies following the breakdown of the talks with the US in February.

The country has blamed US Secretary of State Mike Pompeo for the collapse of the Hanoi summit. Earlier this month North Korea demanded that Mr Pompeo be removed from nuclear talks, accusing him of “talking nonsense” and asking for someone “more careful” to replace him.

The summit is also an opportunity for Pyongyang to show that its economic future does not depend solely on the US. Mr Kim may try to put pressure on Moscow to ease sanctions.

Analysts say the summit is an opportunity for Russia to show that it is an important player on the Korean peninsula.

President Putin has been eager to meet the North Korean leader for quite some time. Yet amid the two Trump-Kim summits, the Kremlin has been somewhat sidelined.

Russia, like the US and China, is uncomfortable with North Korea being a nuclear state.

How close are Russia and North Korea?

During the Cold War, the Soviet Union (of which Russia is the main successor state) maintained close military and trade links with its communist ally, North Korea, for ideological and strategic reasons.

After the Soviet Union collapsed in 1991, trade links with post-communist Russia shrank and North Korea leaned towards China as its main ally.

Under President Putin, Russia recovered economically and in 2014 he wrote off most of North Korea’s Soviet-era debt in a major goodwill gesture.

While it is arguable how much leverage Russia has with the North today, the communist state still regards it as one of the least hostile foreign powers.

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Putin meets Kim for the first time (Video)

The Duran Quick Take: Episode 151.

Alex Christoforou

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The Duran’s Alex Christoforou and Editor-in-Chief Alexander Mercouris take a look at the historic meeting between Russian President Vladimir Putin and North Korean leader Kim Jong Un in the city of Vladivostok in the Russian Far East.

The meeting marks the first ever summit between the two leaders.

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Via RT…

Leaders of Russia and North Korea sat down for a historic summit in Vladivostok, expressing hope it will revive the peace process in the Korean Peninsula and talks on normalizing relations with the US.

The summit on Russky Island, just off Vladivostok, started a little late because President Vladimir Putin’s flight was delayed. North Korean leader Kim Jong-un had made the trip by train, arriving on Wednesday.

In brief public remarks before the talks, the two leaders expressed hope the summit will help move forward the reconciliation process in the Korean Peninsula. Putin welcomed Kim’s contributions to “normalizing relations” with the US and opening a dialogue with South Korea.

Kim said he hoped the Vladivostok summit would be a “milestone” in the talks about denuclearizing the Korean Peninsula, but also build upon “traditionally friendly ties” between Russia and North Korea.

The North Korean leader also made a point of thanking Putin for flying all the way to Vladivostok for the meeting. The Far East Russian city is only 129 kilometers from the border with North Korea.

The historic summit takes place less than two months after Kim’s second summit with US President Donald Trump in Hanoi fell apart without a breakthrough on denuclearization. The US rejected North Korea’s request for partial sanctions relief in return for moves to dismantle nuclear and missile programs; Washington insists on full disarmament before any sanctions are removed.

Denuclearization of the Korean Peninsula is the main subject of the Kim-Putin summit, but there will also be talks about bilateral relations, trade, and humanitarian aid. The first one-on-one meeting is scheduled to last about an hour, followed by further consultations involving other government officials.

Following the summit, Putin is scheduled to visit China.

 

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Kim And Putin: Changing The State Of The Board In Korea

The future of Korea could be decided by these two men today.

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Authored by Tom Luongo:


Today is a big day for Korea. The first face-to-face summit of Russian President Vladimir Putin and North Korean Leader Kim Jong-un takes place.

At the same time the 2nd annual Belt and Road Forum kicks off in Beijing.

This meeting between Putin and Kim has been in the works for a while but rumors of it only surfaced last week. But don’t let the idea that this was put together at the last minute fool you.

It wasn’t.

The future of Korea could be decided by these two men today.

I know that sounds bold. But hear me out.

And while no one seems to think this meeting is important or that anything of substance will come from it I do. It is exactly the kind of surprise that Putin loves to spring on the world without notice and by doing so change the board state of geopolitics.

  • Russia’s entrance into Syria in 2015, two days after Putin’s historic speech at the U.N. General Assembly
  • 2018’s State of the Union address where he announced hypersonic missiles, embarrassing the U.S. Militiary-Industrial Complex which accelerated the Bolton Doctrine of subjugating the world
  • Flying 2 TU-160 nuclear-armed bombers to Venezuela, creating panic in D.C. leading to the ham-fisted regime change operations there.
  • Nationalization of Yukos.
  • The operation to secure Crimea from U.S. invasion by marines aboard the U.S.S Donald Cook during the Ukrainian uprising against Viktor Yanukovich.

Both Putin and Chinese Premier Xi Jinping are angry at the breakdown of the talks in Hanoi back in February. It was clear that everyone expected that meeting to be a rubber stamp on a deal already agreed to by all parties involved.

In fact the two meetings between Kim and Trump were only possible because Trump convinced them of his sincerity to resolve the ‘denuclearization’ of North Korea which would clear a path to rapid reunification.

It’s why they went along with the U.S.’s increased sanctions on North Korea as administered through the U.N. in 2017.

That John Bolton and Mike Pompeo destroyed those talks and Trump was unwilling or unable (who cares at this point, frankly, useless piece of crap that he is) to stop them embarrassed and betrayed them.

They are now done with Trump.

He’ll get nothing from either of them or Kim until Trump can prove he’s in charge of his administration, which he, clearly, is not.

And they will be moving forward with their own agenda for security and Asian economic integration. So I don’t think the timing of this meeting with that of the Belt and Road Forum is an accident.

And that means moving forward on solving the Korea problem without Trump.

It is clear from the rhetoric of Putin’s top diplomat, the irreplaceable Sergei Lavrov, that Russia’s patience is over. They are no longer interested in what Trump wants and they will now treat the U.S. as a threat, having upped their military stance towards the U.S. to that of “Threat.”

If Bolton wants anything from Russia at this point he best be prepared to start a war or piss off.

This is also why Russia took the gloves off with Ukraine in the run up to the Presidential elections, cutting off energy and machinery exports with Ukraine.

To put paid Putin’s growing impatience with U.S. policies, he just issued the order to allow residents of Lugansk and Donetsk People’s Republics to apply for Russian passports.

This will send Bolton into apoplexy. Angela Merkel of Germany will be none too pleased either. Putin is now playing hardball after years of unfailing politeness.

It’s also why Lavrov finalized arms and port deals all over the Middle East in recent weeks, including those with Lebanon, Egypt, Turkey and India.

Bolton, Pompeo and Pence are ideologues. Trump is a typical Baby Boomer, who lives in a bubble of his own design and believes in an America that never existed.

None of them truly understand the fires they are stoking and simply believe in the Manifest Destiny of the U.S. to rule the world over a dim and barbaric world.

Putin, Xi, Rouhani in Iran and Kim in North Korea are pragmatic men. They understand the realities they live in. This is why I see Putin willing tomorrow to sit down with Kim and flaunt the U.N. sanctions and begin the investment process into North Korea that should have begun last year.

Putin would not be making these moves if he didn’t feel that Bolton was all bark and no bite when it came to actual war with Russia. He also knows that Germany needs him more than he needs Germany so despite the feet-dragging and rhetoric Nordstream 2 will go forward.

Trade is expanding between them despite the continued sanctions.

Putin may be willing to cut a deal with President-elect Zelensky on gas transit later in the year but only if the shelling of the LPR and DPR stops and he guarantees no more incidents in the Sea of Azov. This would also mollify Merkel a bit and make it easier for her politically to get Nordstream 2 over the finish line.

There are moments in history when people go too far. Bolton and Pompeo went too far in Hanoi. He will pay the price now. Putin and Kim will likely agree to something in Vladivostok that no one is expecting and won’t look like much at first.

But the reality is this summit itself marks a turning point in this story that will end with the U.S. being, in Trump’s transactional parlance, a “price taker” since it has so thoroughly failed at being a “price maker.”

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