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Home and abroad – A good day in the courts

December 22, 2017

It appears that the Stockholm Court of Arbitration has ruled in favour of Naftogaz in its case against Gazprom – at least for the most part.

At the time of writing the decision of the Stockholm Court was unseen, but Naftogaz claims that the court rejected the requirements of Gazprom on the “take or pay” for $ 56 billion in 2009-2017 in its entirety.

In addition, Naftogaz has reduced the amount of future mandatory annual volumes more than 10 times, and in accordance with its actual gas import requirements.

Further, the price of gas received by Naftogaz in the second quarter of 2014 was reduced by 27% from $485 to $352 per thousand cubic meters.  Naftogaz also states due to the revision of the contract price it saved approximately $1.8 billion on gas purchased in 2014-2015.

In short, the outrageously onerous gas deal Yulia Tymoshenko signed Ukraine up to in 2009 has been mitigated by the Stockholm Court of Arbitration to “save” up to $75 billion over the course of that 10 year Tymoshenko “negotiated” contract.

However, it is also apparent that the court denied Naftogaz the right to review the gas price for the period from May 2011 to April 2014 and to recover any over payment for gas for the period from May 2011 to April 26, 2014.  (Approximately $14 billion.)

Numbers and bottom lines aside however, perhaps most politically unpalatable outcome is that Naftogaz is obliged to “take and pay” Gazprom for 5 billion cubic meters of gas annually from 2018 until contract expiration in 2019.  After several years without purchasing any gas from Russia whatsoever. a couple of years of contractually enforced purchases will severely irk in some Ukrainian political and societal quarters.

Lastly it should be noted that the issues of gas transport also subject to arbitration, appear to remain without a court judgement.

This is important as the current gas transport contract across Ukraine to Europe is between Gazprom and Naftogaz.  Ergo this transportation contract will prevent the unbundling of Naftogaz per the 3rd Energy Package obligations (a requirement to separate production, transport, domestic supply and storage) until 2019 when that contract ends.

Nonetheless, undeniably a good day for Naftogaz, and a particularly poor day when assessing the judgement and negotiation abilities of Yulia Tymoshenko.

Domestically the Constitutional Court struck a blow to the leaders of all Ukrainian political parties, ruling that articles within Law 3700, effective from 27th February 2017, are unconstitutional.

In summary Law 3700 allowed party leaders to swap out electoral candidates following elections and prior to CEC recognition of electoral results per party list candidates.

In sum, a voter may have voted for X Party in the belief that party member Y would enter the Verkhovna Rada, to suddenly find the party leader didn’t particularly like party member Y and swapped them with another more preferred party member.  The constituency is used to not getting what they vote for due to the fecklessness of the political elite, but not getting who they vote for due to the fecklessness of the political elite clearly takes matters a little too far.

In a ruling that cannot be appealed, the Constitutional Court stated that this law “is contrary to the principles of democracy, legal certainty and legitimate expectations as an integral part of the rule of law, freedom of political activity, free elections and the free expression of the will of the voters; a free parliamentary mandate……….the provisions of the law violate the right of Ukrainian citizens to freely elect and be elected to bodies of state power and local self-government …..make it possible for the party to deny the political will of the electorate, embodied in the results of voting in the elections of people’s deputies of Ukraine, and contradict the principles of the constitutional order Ukraine.”

Ergo it now follows that party leaders will have to be a little more careful in their selection of party candidates and their placement/ranking upon the party list – lest a favorite fails and an irksome candidate gets over the party list finishing line.  The possibility of swapping two such candidates has now been crushed.

Time will tell whether the Draft Law that forces fully open party lists will manage to pass through its second reading in the Verkhovna Rada – or not.  It managed to gain the minimum 226 votes on its first vote – which was a surprise, and particularly so for the party leaders no doubt.  Some, several, or all of the party leaders clearly took their eye of the ball when that vote occurred.

As almost all Ukrainian political parties are nothing more a vehicle for the leader, the leader’s ego, and the money of “vested interests” behind them, clearly ideology and/or policy position is set by the mood of the leader on any particular morning when they wake, or by the business needs of the money behind the curtain.

Ukrainian political party leaders are used to having absolute control over their parties, and the parties are used to having absolutely no control over their leaders.

At the very least, in the absence of a successful reading of the draft law relating to full open party lists, the Constitutional Court ruling now makes it a little more difficult for any party leader to immediately ignore the will of the electorate moment the ballot box closes.

All in all, Lady Justice for once has smiled upon the Ukrainian constituency – mitigating the folly (gas deal) and smiting the nefariousness (Law 3700) of the political class.

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