Naftogas and its successors

The Ukrainian government’s decision to reorganize its Naftogaz company, Russian Gasprom’s largest partner, and subsequent revision of agreements with Russia are legally groundless, experts believe. The Ukrainian gas giant’s obligations should be handed over to its successors after it ceases to exist, as laid down in the existing Russian-Ukrainian intergovernmental gas supply treaty.

Statements concerning the Naftogaz reorganization plan envisaging its being replaced by some other companies which are said to have nothing to do with the bilateral gas contract, appear as a new trick of Kiev aimed at making Moscow agree to legal disadvantages. Earlier, the Ukrainian authorities have threatened to reduce Russian gas purchases and even file a suit in the Stockholm Arbitration Tribunal over unfair pricing. However, Kiev seems to have realized that an organization of this kind will hardly side with a violator of international agreements. Now it acts by the “we-forgive-everyone-to-whom-we-owe-money” formula.

Even if Naftogaz is reorganized into separate structures, including a transit company and a supply group, they will automatically become parties to the existing contract. This is stipulated by the document, says head of the National Energy Security foundation Konstantin Simonov:

"For some reason, Ukraine believes that if it makes a clever trick to do away with the Naftogaz company, the treaty will become void as well. It is a rare occurrence for the gas industry when everyone is aware of what the document is actually about. Back in 2009, the Ukrainian side published its text on the Internet. I recommend everyone to attentively read this document. I am very doubtful that Ukrainian Prime Minister Azarov has read it at all. One of its clauses says that in case of changing the legal organizational form, a merger or some other transformation initiated by either side, the latter has to properly arrange a successor. In other words, a successor should exist anyway," Konstantin Simonov emphasizes.

The Ukrainian side, however, decided to liquidate Naftogaz, which is not regarded as restructuring and does not formally fall under the mentioned clause.

In the meantime, European countries, whom Russia has long-term gas contracts with, know almost nothing about the dispute between Moscow and Kiev. The West still takes Russia as a reliable hydrocarbon supplier, according to independent German expert Igor Reichlin:

"This news hasn’t yet been revealed by any of the German newspapers or their online versions. We can only see some bloggers claiming that Russia and Ukraine are once again entering into a gas supply quarrel. As a matter of fact, Europe has already got used to annual Ukraine-initiated gas disputes with Russia," Igor Reichlin says.

The German expert is sure that any development of relations between Gasprom and Naftogaz and the situation around the Russian-Ukrainian intergovernmental agreement will not affect Russia’s reputation in Western Europe, primarily Germany as the major Russian gas importer.

Moscow is still hopeful that Naftogaz’s reorganization will have no impact on international obligations, which is a hope for common sense that the Ukrainian government obviously lacks.

By Marina Chupina

The Voice of Russia, September 6, 2011