Dmitry Kiselev, in Vesti Nedeli, interprets the decision of the Stockholm Arbitration Court, which dealt with the dispute between Gazprom Export and the Finnish company Gasum, as follows:
“A completely unexpected, almost unbelievable for today's Europe decision was made by the Arbitration Court of Stockholm on Thursday, obliging the Finnish company Gasum to pay the Russian Gazprom €300 million. Thus, the Stockholm Arbitration recognized the lawful payment of Russian gas in rubles. But the refusal of the Finnish company to pay in rubles was declared illegal.”
The Stockholm Arbitration really ruled that Gasum, which refused to pay for gas in rubles, must pay this amount, including for volumes not actually delivered, since the contract was concluded on the terms of take or pay (“take or pay”). But there is no recognition of the legitimacy of the requirement to pay in rubles in the decision of the arbitration; he recognized the debt of the Finnish company to Gazprom, but nowhere is it said in what currency it should pay.
Arbitration awards are not published; you can learn about them only from the reports of the parties to the arbitration process. Here is the message from Gazprom Export:
“On November 14, 2022, a decision was made following the ad hoc arbitration in Stockholm between Gazprom Export LLC and the Finnish company Gasum Oy. The Arbitration Tribunal, in its decision, among other things, ordered Gasum to pay Gazprom Export a debt of more than 300 million euros for gas supplies and in connection with the failure to fulfill the “take or pay” obligation, as well as interest for late payment.
In addition, the tribunal recognized the issuance of a decree of the President of the Russian Federation dated March 31, 2022 on the transition to payment for gas in rubles "a force majeure circumstance under the contract."
Thus, the tribunal confirmed the legitimacy of the suspension of natural gas supplies in the event that the buyer fails to pay in rubles in accordance with the decree of the President of the Russian Federation.
And here is the Gasum press release :
“Gasum has entered into a long-term contract for the supply of natural gas with Russia's Gazprom Export LLC. In April last year, Gazprom Export demanded to Gasum that the payments agreed in the supply contract be made not in euros, but in rubles. Gasum did not accept this demand. In addition, the companies had significant disagreements regarding some other requirements put forward on the basis of the contract. For these reasons, Gasum referred the case to arbitration in accordance with the supply contract. In May, Gazprom Export stopped gas supplies to Gasum.
On November 14, the Arbitration Court ruled in this case. According to the decision, Gasum is not obliged to pay either in rubles or in accordance with the proposed payment procedure. In addition, the arbitration court ordered Gasum and Gazprom Export to continue bilateral negotiations on the contract in order to resolve the current situation. Currently, natural gas deliveries from Russia will not continue in accordance with Gasum's gas supply contract.
Gasum will not comment further on this case during the course of the negotiations.”
Thus, it can be concluded that the arbitration did not evaluate either the legitimacy of the Russian claims or the legality of the actions of the Finnish company. He only admitted that for Gazprom Export, the requirement of the Russian leadership to accept payments only in rubles was a force majeure circumstance.
Sergey Vakulenko, former Head of Strategy and Innovation at Gazprom Neft, who also worked for Shell and Cambridge Energy Research Associates, commented on the arbitration decision:
“From the very beginning, it was clear that the reduction in supplies under various pretexts would introduce buyers into hefty losses (and some have already gone bankrupt) and they would turn to the courts and arbitration in search of justice and compensation. This has already begun to happen, and the first such arbitral award has recently appeared.
If you remember, one of the first actions of the Russian side in this confrontation was the appearance of a government decree requiring the export of gas only with payment in rubles, which in fact boiled down to the need to make payments through the Moscow Gazprombank (and not Luxembourg, as before).
Several companies, including the Finnish Gasum, refused, after which Gazprom stopped deliveries to them.
In my experience with these contracts, if the government with jurisdiction over one of the parties introduces a new requirement that makes the old course of action impossible without breaking the law, then the affected party declares a force majeure or invokes a clause in the contract. on changes in legislation (there are often such clauses in contracts). What exactly is written in the contract between Gazprom and Gasum, we do not know, these contracts are confidential, but we can assume that there are such articles in this contract. The party affected by the new law usually proposes to change the contract so that work under it continues to be legal. The party to whom this is proposed may either agree to the change, or offer to terminate the contract, or offer to freeze it for the duration of the proceedings.
Gazprom, apparently, did just that – declared force majeure and proposed changing the contract. Apparently, Gasum did not want to recognize force majeure, i.e. agree to a change in the order of payments, or break the contract, which would release Gazprom from obligations to supply gas, and Gasum itself would urgently have to look for new sources of gas in a market with a shortage and rising prices. But if the contract were considered valid, then then Gazprom, which did not supply gas in violation of its obligations, would have to cover Gasum's losses from purchases at higher prices than what was prescribed in the contract.
So, Gasum applied to the Stockholm arbitration and on November 16, 2022, the arbitration issued its decision – an extremely interesting one. Arbitration, generally speaking, is a private matter of companies, so its verdicts are not published and they can be judged either by leaks or by what the companies themselves consider it necessary to disclose to the public. Gasum's press release focused on that. according to the arbitration. Gasum was not obliged to agree to a change in the order of payments. And the Gazprom press release says that the arbitration, firstly, recognized the existence of force majeure, and secondly, recognized that Gasum did not fulfill its “take or pay” obligation and must pay €300 million (which “ Gazprom”, apparently, will calmly accept the old order, since this is not a payment for gas).
The irony here is that once Gazprom declared force majeure, it was no longer obliged to supply gas under the old terms of payment. The court held that Gasum was not required to agree to the new terms. But since Gasum apparently did not recognize force majeure, nothing happened to the “take or pay” obligation, it remained valid and binding on Gasum.
I'm not surprised that the court recognized as force majeure a government decree requiring Gazprom to change the settlement procedure for its existing contracts. This is how the world works: when governments enter into economic wars, impose export controls, restrictions, embargoes of various kinds, companies have no choice – either obey the laws or stop work, and no matter what is written in contracts – laws have more power. This is exactly what happened to many Western companies after February 24th. I am perhaps somewhat surprised by the tactics chosen by Gasum, although I can imagine what they were proceeding from and what they hoped for – for example, that a government decision could be recognized as inspired by Gazprom, or that the links between Gazprom and the state are so strong that they should be considered as related entities, so that the decision to change the order of payments should be considered introduced not by an external force, but by Gazprom itself. But this tactic was quite risky and apparently didn't work."