Russia's Gazprom 'Surprised' at $3.4 Billion Ukraine Fine

LONDON—Russia's state-owned gas company PAO Gazprom on Friday expressed extreme surprise at news that Ukraine has fined it around $3.4 billion for abusing its dominant position in the country.

"Gazprom does not carry out business activity on the territory of Ukraine, (as) it hands over natural gas to Naftogaz of Ukraine on the western border of the Russian Federation," the company said in a statement emailed to The Wall Street Journal.

Gazprom said the decision looked like an attempt to pressure the Russian company, and added that it would use all available judicial means to fight for its rights and legal interests.

The Russian gas giant was responding to news of the fine posted on the social media account of Yuriy Terentyev, chairman of the Antimonopoly Committee of Ukraine.

The committee couldn't be reached immediately to confirm the information on the post.

Maxim Moshkov, a Russia-based oil and gas analyst at UBS said he had heard about the situation, but was struggling to see how such a fine could be imposed if there was a binding contract in place between Gazprom and Ukraine.

"I am not lawyer, but a contract is a contract," he said. "If [Kiev] has signed a deal to buy Gazprom's gas then I find it difficult to work out how they can then impose this levy."

Mr. Moshkov said he believes that the underlying problem could be the fee Ukraine is paid for transporting Russian gas across its territory to European consumers. About 50 billion to 60 billion cubic meters of gas a year is transported through a 1,240 kilometer pipeline network across Ukraine. Under the current agreement this has generated fees of about $1.7 billion a year.

The fee is based on the volume transported, the distance and the current gas price, a calculation that means the levy has recently dropped by about $170 million. Mr. Moshkov said he believes this hasn't been received well in Kiev and could lead to problems in the run up to renewal talks in 2019.

Gas disputes between Ukraine and Russia have been ongoing since 2005. There is an outstanding claim from Gazprom against the company for failing to pay for gas it refused to take in the third quarter of 2015. Gazprom invoked the take-or-pay obligations on Ukraine's state-owned natural gas company, Naftogaz, which landed it with $2.5 billion in fines. Earlier this week, Naftogaz said the charges were "not market based, invalid and inapplicable."

"It really is in no party's interest to bring about yet another gas crisis," said Investcafe's Gazprom analyst Grigoriy Birg. "Russia needs to be seen as a stable supplier of gas to Europe in the face of growing efforts to diversify away from Russian natural resources."

James Marson in Moscow contributed to this article

Write to Kevin Baxter at [e-mail]

(END) Dow Jones Newswires

January 22, 2016 11:45 ET (16:45 GMT)

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