Czech CEZ collects $45 million from Gazprom for undelivered gas

The Czech company CEZ has initiated international arbitration proceedings against “Gazprom exports (100% subsidiary of Gazprom) due to shortages of gas in 2022. This was reported on February 9 by CEZ.

“On February 8, 2023, CEZ officially initiated arbitration proceedings against Gazprom Export LLC by filing an application for arbitration under the rules of the International Chamber of Commerce (ICC),” the release says. The arbitration will be held in Geneva.

The Czech company is seeking compensation for damages in the amount of about 1 billion CZK (about $44.9 million at the current exchange rate of the Central Bank) that arose as a result of “significant shortages” of natural gas by Gazprom Export last year. The company does not explain the mechanism for the formation of losses.

According to Gazprom Export, the total volume of Russian gas supplies to the Czech market in 2020 amounted to 5 billion cubic meters. m. The largest buyer was RWE Supply & Trading CZ (a subsidiary of the German RWE). In the first half of 2021, deliveries amounted to 918 million cubic meters. m (data for the second half of the year and 2022 were not published).

Previously, the Czech Republic could receive gas from Russia along three routes: in transit through Ukraine, through the Yamal-Europe and Nord Stream gas pipelines. But deliveries through Ukraine since May 2022 have been carried out only through one of the two gas measuring stations, deliveries via the Yamal-Europe pipeline actually stopped at the end of 2021, and Nord Stream and the non-launched Nord Stream 2 suffered as a result sabotage. Now Russian gas supplies to the Czech Republic are carried out only through the GTS of Ukraine.

Russian gas also continues to flow to the EU via a branch from the Turkish Stream. According to the European Network of Gas Transportation System Operators (ENTSOG), on February 8, pumping in this direction amounted to 43.6 million cubic meters. m, but this gas is not supplied to the Czech Republic.

In 2022, Gazprom stopped selling gas to several European companies due to the transfer of payment for supplies into rubles. The decree on the transfer of payments for gas into the national currency was signed by Russian President Vladimir Putin in the spring of 2022 after the freezing of the Central Bank’s gold and foreign exchange assets abroad as part of anti-Russian sanctions. As a result, companies from Poland, Bulgaria, Germany, the Netherlands and Finland abandoned the new payment terms. The termination of deliveries of the Czech CEZ was not reported.

Due to the decline in gas supplies to the EU last year, two lawsuits were filed against Gazprom – from the Finnish Gasum and the German Uniper.

Gasum challenged the new payment scheme for gas supplies, but in November an arbitration tribunal in Stockholm ordered the company to pay Gazprom Export more than 300 million euros under the current contract for the supply of Russian gas in connection with the failure to fulfill the obligation to “take or pay” (take-or-pay ) including late payment interest. At the same time, the arbitration, recognizing the decree of the President of the Russian Federation on the transition to payment for gas in rubles by unfriendly countries as a force majeure circumstance, obliged the companies to continue negotiations on the contract to resolve the situation.

Uniper filed a lawsuit with the Arbitration Tribunal in Stockholm in November seeking to recover from Gazprom Export losses in the amount of 11.6 billion euros for gas not delivered since June. Arbitration proceedings in this case are ongoing.

Igor Yushkov, a leading analyst at the National Energy Security Fund, believes that after the decision of the arbitration on the dispute between the Finnish Gasum and Gazprom, the arbitration in Geneva may also side with Gazprom. The Russian company itself, the analyst recalls, recognizes shortfalls in gas supplies and explains them as force majeure. In the current situation, Gazprom may file a counterclaim against CEZ for non-compliance with the “take or pay” condition in order to strengthen its position in arbitration.

Forward Legal lawyer Oles Gruzdev notes that Gazprom’s export contracts may provide for penalties for undersupply of gas volumes specified in the agreement, but the destruction of Nord Stream and the reduction in transit through Ukraine made deliveries in contractual volumes impossible. In this case, the contracts may also contain provisions on force majeure, adds Kira Vinokurova, special adviser on sanctions issues at the Pen & Paper Bar Association. But Gazprom’s international treaties are not standard and force majeure provisions may differ, she explains.

According to Gruzdev, recognition of the force majeure circumstance in many respects “may depend on the political position of the judges.” To recover damages, Gruzdev continues, the plaintiff must prove that Gazprom’s failure to fulfill the terms of the contract led to additional property losses. At the same time, the arbitration will calculate the amount of losses on its own, Vinokurova notes, and will take into account the arguments of both parties. At the same time, in her opinion, the decision of a foreign arbitration institution “is unlikely to be enforced in Russia.”

According to lawyers, Gazprom should expect an increase in the number of such claims in the near future: they can be filed by importers from Germany, Bulgaria and Poland.

Yushkov objects: “These companies will wait for the decision of the arbitration in Geneva before filing lawsuits.”