Gazprom Drops One Arbitration Case Against Lithuania
Amid the new legislative and business environment Russia’s gas giant Gazprom has pulled out from an arbitration case against Lithuania in the Permanent Arbitration Court in Hague.
While Lithuania insists the outcome could be predicted considering “groundlessness” of the claims, the Russian gas giant, however, argues arbitration launched against Lithuania in 2012 “was no longer relevant” since the company had sold the assets in companies that were the subject of the court case. The other arbitrary dispute between sides on the possible Russian gas price overcharge sits with the Stockholm Arbitration Court yet.
Lithuania expected the outcome
The unbundling of gas supply, transmission and distribution is in line to the European Union’s Third Energy Package requirements and launch of Lithuania's its own LNG facility pushed Gazprom out of the gas market, so its withdrawal in one of the two legal cases against Lithuania has been “expected”, Lithuanian officials say.
“Lithuania has always maintained that the claims by Gazprom are unfounded, so one could expect the outcome like this. Lithuania has carried out reforms in its gas sector pursuing a strategic objective –a diversified and effectively-operating common gas market, in which consumers have a choice and monopolistic (gas) companies cannot abuse the dominating situation (in the market). At the moment, Lithuania has completely unbundled natural gas transmission, supply and distribution activities. That has created favorable conditions for the expansion of the LNG facility and establishment of a regional gas market,” statement by Lithuanian Energy Minister Rokas Masiulis read.
Lithuania unbundled gas supply, transportation and distribution
Gazprom initiated the investment arbitration against Lithuania in 2012 aimed at the-then new Lithuanian Law on Natural Gas, following the adoption of the EU Third Energy Package.
Lithuania opted out for the full ownership unbundling model, which Gazprom called as the “most stringent”.
Available EU gas activity unbundling models required elimination of any possibilities and incentives to protect the related gas supply companies at the competitors’ expense. Thus, under any unbundling model, a gas production or trading company would not have been able to interfere in the activity of a gas transmission company.
The Russian gas company deemed the Lithuanian requirement on separation of gas transmission activity from distribution and supply as violations of the bilateral investment protection treaty between Lithuania and Russia.
Gazprom sought to stop the implementation of the EU Third Energy Package on the basis that that unbundling equated to expropriation. Lithuania disagreed with Gazprom’s position, arguing that the state has the sovereign right to issue laws for the public needs.
Latvia should be encouraged
Underscoring that the arbitration was about the gas activities’ unbundling, Lithuanian Prime Minister Algirdas Butkevicius said Gazprom had sought to hamper the ongoing Lithuanian gas sector reform.
“I see the outcome very positively. We have succeeded in reforming our gas sector while aiming at the strategic goal - gas market diversification,” the PM told Lithuanian media.
The former Lithuanian Prime Minister Andrius Kubilius and former Energy Minister Jaroslav Neverovic pointed out that now Latvia, struggling with the Third Package Implementation, ought to follow into the footsteps of Lithuania.
“The aspect (of the matter) at the moment seems even more important - the Gazprom withdrawal gives only satisfaction that we have been right, but it is a lot more important for our future and in the sense it shows our neighbors, Latvians, what they need to do to have a free gas market in Lithuania, Latvia and Estonia,” the former Energy Minister told.
Announcing of the claim’s pullout, Gazprom said that a 2012 arbitration case against Lithuania was no longer relevant since Gazprom had profitably sold its interests in Lithuania’s “Lietuvos Dujos”(Litgas) and “Ambergrid”, which, according to Gazprom, were the subject of the court case.
“Background is positive”
Meanwhile, the former Energy Minister in the Kubilius-led Conservative- Center government, Arvydas Sekmokas, hinted that the pullout from one of two arbitrations may have “an impact” on Lithuania’s lawsuit against Gazprom in Stockholm’s International Arbitration Court.
Lithuania is seeking around $1.65 billion in compensation from the Russian company for having possibly been overcharged for gas supplies between 2004 and 2012. The dispute still waits adjudication at the Stockholm Court.
“There’s no a direct clout on the latter case, but the background is positive,” Sekmokas, the former minister, said.
The Energy Ministry, however, said the two cases should not be linked.