Ihor Didenko was a First Deputy Chairman of the Executive Board of NJSC Naftogaz of Ukraine in 1998-2000, an Acting Chairman of the Executive Board in 2000, a First Deputy Chairman of the Executive Board of NJSC Naftogaz of Ukraine in 2008-2010, a Deputy Minister of the Energy and Coal Industry of Ukraine in 2014-2015.
– What kind of emotions did you experience during the arbitration process, in particular, when being called as a witness by our party?
– My experience with courts tells me that emotions are not the best aide in establishing truth in any court instance. And in this case, we are talking about the Arbitration Institute of the Stockholm Chamber of Commerce, which is a competent and impartial legal institution. While getting myself prepared for the witness examination at the hearings, I was recalling everything that preceded the signing of those contracts. During the examination I had to control myself so that emotions from seeing Gazprom’s representatives, who had been misleading us systematically, did not prevent me to go back to the substance and tell the tribunal about factual circumstances of those times.
– It was you who did not consent to Gazprom’s proposal to use Russian law and arbitration in Moscow in the contracts. You insisted on applying Swedish law and arbitration in Stockholm. How come?
– To begin with, I was not Ukraine’s only representative in these negotiations, which were really sketchy considering the fact that the value of contracts in question was over USD 100 billion. Normally it takes quarters to get such contracts prepared. However, we found ourselves in a situation where we were given a few hours to prepare for signing something that seemingly had already been signed in the Kremlin, although it had not been signed in the Kremlin.
Could we have played for time and not entered into the final stage of negotiations? When I was working at the Ministry of the Energy and Coal Industry, I was once invited to a seminar on this topic taking place at Naftogaz. The seminar was conducted by an expert from the European Commission. He analyzed all available information and then said: there was a high risk that the gas compressor station “Bar”, which pumped the major part of gas from the West to the East, had broken down. Statements that we had gas in the underground gas storages, and thus we were able to hold our ground, rely on quite unprofessional conclusions.
As for Swedish law, in 2008 Naftogaz was faced with the task of getting prepared for the lawsuit filed by RosUkrEnergo regarding overdue payments. The total sum ran up to approximately USD 800 million. It was agreed in the corresponding contract signed by Naftogaz and RosUkrEnergo that all disputes would be governed by Swedish law. Somewhere in the second half of 2008 I got in touch with lawyers that were guiding us through the process. They explained to me all the pros of Swedish law.
That is why during our negotiations with Gazprom in December 2009 I insisted on Swedish law and Stockholm arbitration. I said we would not consent to Moscow arbitration. Having understood our point, the Russians proposed English law and London arbitration.
It was my understanding that if the contract is governed by English law, “300% of penalties” would mean nothing else but these very 300%. Under Swedish law, though, if you write in the contract even “1000% of penalties”, the court will look at the rates applied in Swedish law. Let’s recall the case between RosUkrEnergo and Naftogaz. The former claimed more than USD 800 million. In the end, according to the ruling of the tribunal, we paid only slightly more than USD 200 million. Considering time value of money and delays in our payments, it was acceptable.
– The arbitral tribunal deemed the take-or-pay provision in the supply contract unconscionable. This provision is one of the central ones. Had we not won the arbitration, we would have been obliged to pay Gazprom additionally USD 80 billion by the end of 2019. I criticised Yulia Tymoshenko for this, since she kept asserting that she had made a deal with Putin on the main provisions back in 2009, which were then specified in the contracts signed by the companies. On the other hand, in January 2009 the Ukrainian delegation came under strong pressure. Gazprom came up with this new provision and Naftogaz was lacking competence in order to analyze it properly. Even the European Commission could not help you out. Do I get this right?
– Correct. The tribunal did deem the take-or-pay provision unconscionable. It became so indeed, since the Russians had been misleading us. We asked them over and over again if the provisions of our contract were the same as those specified in Gazprom’s contracts with its European partners. They would avert their gaze and keep repeating their usual phrase “these are standard provisions”. As a result, we proved them wrong. As for what Tymoshenko said, that’s true; the issue of the contract was now being dealt with at the political level. I remember Oleh Dubyna coming back from Sochi in December 2008, where he participated in the final round of the negotiations with Miller. He said at a press-conference at Boryspil International Airport that this issue could no longer be resolved at the corporate level, which means that some of the provisions had effectively been agreed upon by prime-ministers. Nevertheless, without work of specialists and managers on the Ukrainian side, the contract would be the same, and it would not allow us to win in the arbitration. I said this during the hearings and I want to reiterate my thought once again – the contract in question became a symbiosis of political arrangements and managerial craftsmanship of the Ukrainian party.
I am often asked the exact same question: are the contracts good or bad? Well, I suggest that you consider the fact that they were concluded for a term of 11, not 10 years. It was I who put forward an idea of having the contracts cease to have effect not on 19th January, but on 31st December 2019. It’s for this reason that we have been receiving these USD 2.5 billion in the course of 2019. Two billion dollars to, let’s say, the Ukrainian government’s pocket, can be considered as an achievement.
Let me draw an analogy with using a car. Imagine you have a cool “Rolls-Royce” or “Ferrari”. However, you neglect it: you fail to change oil, undergo tech inspection, etc. In 6 months or a year, your car will not be that cool any more. We had a contract; it was neither a “Rolls-Royce” nor a “Ferrari”. Nonetheless, we had to work on it every day, fine-tuning it, as a car enthusiast would do it. The contract had to be worked on by the Ukrainian government from 2010 till 2014, before a new team came after the Revolution of Dignity. Back then the work on such contracts was very poor. We could have initiated Stockholm arbitration at the end of 2010 or at 2011. Our win might have turned out to be way more lucrative.
The European Commission is worth mentioning in this regard. Somewhere between the 1st and the 17th January, or thereabouts, we repeatedly came into contact with the Directorate-General for Energy of the European Commission, namely with Bensarsa, Wiegand, Piebalgs. We asked them to provide us with experts or to show us some contracts. Their answer would be the same: we can’t do that, please search for the information you need on the internet. Like I said, we were extremely pressed for time, so we had to use those bits of information that we did manage to find. We were better prepared for the transit contracts thanks to the expertise of our colleagues. The same can’t be said about the supply contract. However, in 2009 and in early months of 2010 we did manage to learn something. If we had had the chance to keep working after 2010, we would have achieved more. But for that purpose, we needed a different President.
– Let me provide two examples. In 2009 Naftogaz sent a request to Gazprom to revise the transit tariff. This request was submitted without involvement of international lawyers. The arbitral tribunal ruled that this request did not comply with the formal requirements specified in the contract, which is why our claim was not satisfied. However, the Tribunal did recognize our right for the tariff revision. Another example: Naftogaz engaged international lawyers when RosUkrEnergo went into litigation with it. Your successors lost the case in 2010. The international lawyers did not help. What kind of cooperation between the management and international lawyers is needed to achieve a positive result?
– Well, I have had an experience in going through a difficult criminal case opened against me in Germany. In the end I was acquitted of all the charges. My lawyer then was a Munich University professor. By the way, he looks very much like the leader of our Norwegian team of lawyers. Once the professor told me one thing: the best expert in your case is you. You have to tell me, your lawyer, about all the facts, your thoughts on how to prove your case, and I, knowing the specifics of the process, will dissect it and describe in way that is called “witness statements”, “questions to witnesses”, “objections”, “claims”. It is extremely important to have qualified lawyers by your side.
You’ve mentioned the third process that I took part in, the one with 11 billion of cubic meters of RosUkrEnergo’s gas. In this case lawyers played a role of a wind vane. When Oleh Dubyna was Naftogaz’s Chairman of the Executive Board (I was then his First Deputy), lawyers gave us excellent chances of winning the case. After we resigned, those very lawyers got some written instructions to, let’s say, lose the case, from Naftogaz’s new management (with Yevhen Bakulin being its Chairman of the Executive Board and Serhii Vynokurov the Head of the Legal Department). It is now a question of consciousness of the lawyers who, in return for big money, agreed to exchange the legal position for some political and corrupt will of their client. Eventually, the tribunal did not hear the case – it just approved a peaceful settlement between RosUkrEnergo and Naftogaz. Some time ago I had appealed to the President, to the Prosecutor General, to the Prime-Minister in this regard. Nothing came out of it. That’s about it.
*The feature series "Naftogaz Against Gazprom" is running in partnership with Yuriy Vitrenko, Executive Director of Naftogaz Group. Opinions expressed in these features do not necessarily reflect the views of Naftogaz Group or the NV editorial team.