The gas dispute with Ukraine may cost Gazprom its profits from pumping gas through the Nord Stream pipeline, which has been operational since 2012, and through which 61 billion cubic meters of gas were pumped to Europe last year, a third of Russia’s entire gas export.
A Swiss court has seized payments made by the pipeline operator, Swiss-registered Nord Stream AG, to Gazprom, the operator’s 51% shareholder.
The seizure was imposed as part of the interim measures for the ruling by the Stockholm Arbitration Institute that Gazprom must pay Naftogaz Ukraine $2.6 billion in compensation for failing to meet its contractual obligations to transit gas through Ukraine to the EU.
From now on, all revenue which the Russian gas monopoly would receive from the pipeline operator will instead go to Swiss court officers, at the request of the Ukrainian company. Gazprom gave warning about this specifically in the prospectus of the eurobonds it plans to issue in order to finance the second Nord Stream line.
The operator of the second pipeline, Nord Stream 2 AG, will also be unable to pay Gazprom any profits. However, unlike the company which manages the operational first line, the operator of the second does not generate any profit, and instead has been eating away at $6 billion worth of investments over the last two years.
Gazprom’s announcement clarifies that the restriction will only affect revenue from gas transit, not from gas sales. This will equate to around €250 million per year, a relatively small sum for the Russian gas holding.
According to Gazprom’s report, its share in Nord Stream AG’s profits for January-June 2018 was 8.77 billion rubles ($130 million) and 7.28 billion ($110 million) the year before.
Apparently this action was made possible by the fact that the shares of both pipeline operator companies are being used as collateral. Gazprom’s shares in Nord Stream AG are collateral for a €1.8 billion loan from the French bank Société Générale. This means that virtually all of the operator’s €2.09 billion of net assets are de facto encumbered.
On February 28, the Stockholm Arbitration Institute ruled on the contract for the transit of gas through Ukraine and partially satisfied the claims of Naftogaz of Ukraine, obliging Gazprom to pay the Ukrainian company $4.63 billion for failing to supply certain amounts of gas under a transit agreement. The same arbitration court had ruled on the dispute over the gas supply contract earlier, ordering Naftogaz of Ukraine to pay $2 billion to the Russian company. In the latest ruling, Gazprom had to pay Naftogaz about $ 2.6 billion.
On May 30, Ukrainian President Petro Poroshenko announced the initiation of a mandatory recovery from Gazprom of $2.6 billion.