Gazprom challenges gas pricing award in Sweden

Gazprom has applied to a Swedish court to overturn the award of a Stockholm-seated ad hoc tribunal finding that Polish state gas utility PGNiG was entitled to seek a gas price revision.

Original article by Tom Jones, published in “Global Arbitration Review” on 05 October 2018

https://globalarbitrationreview.com/article/1175341/gazprom-challenges-gas-pricing-award-in-sweden

The Russian energy company filed its application with the Svea Court of Appeal this week to set aside the partial award in favour of PGNiG.

In its challenge, Gazprom alleges that the tribunal acted ultra vires when it found that it had the authority to fill gaps in the parties’ agreement in accordance with section 1(2) of the Swedish Arbitration Act, even though the parties had not granted the panel this authority.

The tribunal chaired by Austrian arbitrator Christoph Liebscher and including Julian Lew QC and Klaus Sachs of Germany as co-arbitrators issued the award in June.  According to PGNiG, the tribunal upheld its contractual rights to request lower prices for natural gas than those stipulated in a 1996 supply contract with Gazprom known as the Yamal contract.

PGNiG says that Gazprom has been rejecting these requests for years, and as a result the contract price has significantly exceeded typical gas prices in Western European markets.

It says the tribunal rejected its initial request for a new price formula as “too far-reaching” but said it would determine a new price at a later stage of the proceedings.

In its own press release issued at the time of the award, Gazprom says the tribunal accepted arguments by its subsidiary Gazprom Export and “fully rejected PGNiG’s claims to change the pricing that were filed in the course of the proceedings”.

Gazprom adds that the tribunal confirmed the right of PGNiG to seek a price revision in the event of substantial changes in the market but did not agree with the pricing formula that the Polish company had suggested.

In the set aside application, Gazprom argues that any final award in the proceedings will be subject to the outcome of the set aside action against the partial award.

PGNiG has issued a press release on the set aside application, saying it is confident the challenge is “groundless” and will not hold up in court.

It also raises concern that Gazprom may be “purposefully prolonging the procedure” which appeared to be nearing a “positive outcome” for the Polish company.

Under the Yamal contract, PGNiG receives 10 billion cubic metres of gas annually until 2022. As part of a “take-or-pay” commitment included in the deal, the Polish company is obliged to purchase at least 8.7 billion cubic metres every year.

The Polish state group previously filed an arbitration against Gazprom in 2011, but withdrew the claim the following year after the parties agreed a price adjustment. Poland’s treasury minister said at the time that the deal meant PGNiG would pay 15% less for the gas, saving the government US$1 billion annually over 12 years.

In the current arbitration, which began in May 2014, PGNiG is represented by Weil Gotshal & Manges in New York and Warsaw, while Gazprom is using Jones Day in Paris. Both sides have been approached for comment.

  • Polskie Górnictwo Naftowe i Gazownictwo (PGNiG) v Gazprom and Gazprom Export (Ad hoc arbitration)

Tribunal

  • Christophe Liebscher (Austria) (Chair)
  • Julian Lew QC (UK)
  • Klaus Sachs (Germany)
  • Counsel to PGNiG
  • Weil Gothsal & Manges
    Special counsel Eric Ordway in New York
  • Counsel to Gazprom and Gazprom Export
  • Jones Day
    Partners Michael Bühler in Paris and Johannes Willheim in Frankfurt, London