Ukraine Will Take Russia to Arbitration Court if Gazprom Doubles Gas Price

If Russian state owned gas giant Gazprom raises gas prices on Ukraine, Kyiv promised they would take them to arbitration court. Kyiv claims the move is political as tensions rise between the two countries.

“Our Russian neighbors have carried out yet another form of aggression against Ukraine – aggression through its gas supplies. This price is the highest on European territory and it is not an economic but a political price,” said Prime Minister Arseny Yatseniuk at a cabinet meeting.

“If we don’t come to an agreement (with Russia) then there is a procedure laid out in our contract, going to the arbitration court in Stockholm,” Ukrainian Energy Minister Yuri Prodan told journalists before a cabinet meeting.

“We are not trying to break our contract but to set up a fair price like in Europe,” he said.

Pro-West Ukrainians began protests against Russia-backed president Viktor Yanukovych in November 2013 after he rejected a trade deal with the European Union in favor of a Russian bailout. Included in the bailout was a huge discount on gas from Gazprom. The opposition ousted him on February 22.

After Yanukovych was ousted, the West promised sanctions against Russia for aggression in Crimea. Gazprom fired back with a threat to cut off gas to Ukraine, which would cause a problem for Europe. Unfortunately for Europe, Russia is one of their top suppliers of natural gas and the majority of the pipelines run through Ukraine. Ambassadors from Slovakia, Czech Republic, Hungary, and Poland asked the US to export more natural gas to Europe.

Yatsenyuk told Prodan to talk to Europe in Brussels about bringing more gas to Ukraine. The pipelines through Ukraine that transport gas from Russia can be reversed to bring gas from Europe.

However, the move might have other reasons besides politics. Gazprom is short $910 billion in a seven year prediction and losing money. It has lost money in the stock market for the past three years despite investing a lot of money into the 2014 Winter Olympics in Sochi and projects in Siberia. This is not new for a state owned company.

“This is an issue of any Russian state company,” Oleg Popov, who helps manage $1 billion of securities for Allianz Investments in Moscow, said by e-mail yesterday. “Gazprom is an active participant in the government’s foreign policy, social projects, where Gazprom incurs costs instead of the government, thus lifting the burden off the budget.”

The company “is not being managed as a profit-maximizing entity but rather for all sorts of other political agendas,” William Browder, the founder of Hermitage Capital Management Ltd. said in an April 1 interview.