Ukraine in firing line for EU gas crunch costs

BRUSSELS - With EU experts heading to Russia and Ukraine on Friday in a bid to restart gas flows, one EU company has launched the first legal salvo - against Ukraine - to get its money back.

Vienna-based law firm Wolf Theiss on Thursday evening (8 January) filed a complaint at the EU court in Luxembourg on behalf of Hungarian gas provider Emfesz against Ukraine state owned gas transit company Naftogaz.

The legal complaint is based on a 1994 EU regulation to help European firms enforce rights under international pacts, especially World Trade Organisation (WTO) rules. Ukraine joined the WTO in May last year.

Emfesz also filed a second lawsuit against Naftogaz in a Budapest court, in what could be the start of a domino effect of legal challenges to recoup lost income by EU companies.

The Hungarian heating firm has a supply contract with Swiss-registered RosUkrEnergo, which re-sells Russian gas to Naftogaz. The complaint alleges that RosUkrEnergo owns gas which is being held in Naftogaz storage tanks and which Naftogaz has failed to deliver to RosUkrEnergo customers.

The size of Emfesz' financial loss is hard to calculate as the gas crisis continues to unfold in its ninth day. But the Hungarian company is responsible for 20 percent of the country's gas market and for heating 100,000 households.

The Bulgarian Confederation of Employers and Industrialists has meanwhile estimated that the crunch is costing the country €250 million a day.

With 18 EU states from France to Greece affected by the crisis so far, the total cost of the gas interruptions is likely to run into several billion euro, potentially dwarfing the €1.5 billion or so at stake in Russia-Ukraine 2009 gas price negotiations.

Russian supply firm Gazprom on Thursday said Ukraine is liable for the losses under its obligations in the Energy Charter Treaty (ECT), a 1994 multilateral pact to help protect Western commercial interests in post-Soviet countries.

Ukraine has argued that Gazprom is liable because it halted supplies and because EU firms have contracts with Gazprom or Gazprom subsidiaries and middlemen, such as Gazpromexport, Overgas or Wintershall.

Gazprom's ECT argument could end up rebounding. A group of former shareholders in Russia's extinct oil giant, Yukos, last year launched legal proceedings in The Hague to prove that Russia is also bound by the ECT because it has signed the charter, even though formal Russian ratification never took place.

Neither the Russian nor the Ukrainian side can afford a major financial hit.

Gazprom has about €44 billion in corporate debt and may have trouble paying for planned acquisitions, such as Belarus transit firm BelTransGas. Ukraine is facing an economic crisis and was forced to take a €12 billion International Monetary Fund loan last year to avoid financial collapse.

Lack of transparency has so far prevented the EU from blaming either Russia or Ukraine for the crisis.

A meeting of EU, Russia and Ukraine energy experts in Brussels on Friday morning put the finishing touches on an international mission to end the gas crunch.

The deal had earlier been outlined in a three-way agreement between European Commission President Jose Manuel Barroso, Russian Prime Minister Vladimir Putin and Ukraine President Viktor Yushchenko.

Under the project, EU officials, delegates from 12 European energy firms as well as Russian and Ukrainian experts will fan out across Russia and Ukraine later on Friday to oversee arrangements for a restart of EU supplies.

Russia has promised to switch gas back on once the team is in place, with EU customers set to get their supplies back 36 hours down the line as Ukraine's 22,000 km-long pipeline system fills up.