The court deemed the monopolization of the gas market by Naftogaz illegal

Photo: Reuters

The Kyiv District Administrative Court invalidated the decision of the Cabinet of Ministers obligating the largest industrial consumers to buy gas exclusively from Naftogaz. Market players are satisfied with the verdict, though it is too early to celebrate - the ruling will come into force, if the Cabinet does not file an appeal over the next two weeks.

For all the cash…

The Kyiv District Administrative Court passed down a decision on illegality of the Resolution of the Cabinet of Ministers No. 647 “On the Procedure of the Procurement of Natural Gas by Industrial, Power Generating and Heat Generating Companies” (in terms of industrial gas volumes), President of the Ukrainian NGO Union of Members of Liberalization of the Gas Market Oleh Bakulin reported to Capital immediately after the court hearing on Tuesday. He said that a panel of three judges invalidated paragraphs 1–4 of the directive, which obligated industrial enterprises to buy gas from Naftogaz. At the same time, the ruling does not apply to paragraph 5, which overturned the previous resolutions of the Cabinet on the mandatory purchase of gas from Naftogaz – No. 596 and No. 599.

Bakulin explained that the court announced only the operative part and that the full text of the ruling will be made public within five days, after which the Cabinet will have 10 days to appeal. Bakulin said the ruling was conceptual for the market: “It was pointed out to the Cabinet that this decision contradicts the law and its drafting was flawed”.

Bakulin says that in the process of examination of the documents submitted by the defendants, it became clear that the Ministry of Justice conducted a legal examination, though not prior to but after the ruling, which is a violation of the regulations of the Cabinet. He added that the Cabinet’s decision was never approved by the Anti-monopoly Committee and the State Service for Regulatory Policy and Development of Entrepreneurship.

The explanatory note to the draft resolution of the Cabinet stated that it was not a regulatory act. “Although this is not the case – the draft resolution should have been published and the comments of interested parties and the public should have been heard,” said Bakulin.

The night is young

In any case, despite the court’s ruling the Cabinet’s decision remains in effect. As Bakulin explained, the court's decision has not yet entered in force. “It will take effect after expiry of the period for appeal (10 days upon receipt of the full text of the ruling), if the appeal is not filed. Presuming that the appeal is filed, the ruling will take force upon its hearing, provided that the ruling of the first instance is confirmed,” he explained.

This information was also confirmed to Capital by one of the operators of the gas market present at the hearing. The source said that in court the defendant was represented by the lawyers of the Cabinet of Ministers and Naftogaz. The latter were much more vocal than their colleagues. “They tried to drag the hearing and filed numerous applications on prosecution of the National Commission for State Energy and Public Utilities Regulation, the Anti-monopoly Committee and the Ministry of Energy and Coal Industry on the side of the defendant, as well as on postponing the hearing of the case and disqualification of judges… But the court did not grant the application and ruled in our favor,” said the source and expressed confidence that the Cabinet and Naftogaz will file another appeal.

…it’s a gas!

The contested, albeit currently effective ruling, obligates 168 power and heat generating companies, as well as industrial enterprises to buy gas exclusively from Naftogaz over the period December 1, 2014 to February 28, 2015. However, the claim was filed only by Natural Resources, East Geological Union, Cube-Gas, Tysagaz, Energy Service Company, Esko-Pivnich, Naftogazvydobuvannya, the Poltava Petroleum Company joint venture and Naftogaz Alliance.

Head of the ArcelorMittal Kryviy Rih office in Kyiv Volodymyr Tkachenko said he believes the case is quite telling as it involved representatives of all players on the natural gas market – gas producers, traders and industrial consumers: namely, metallurgical and chemical plants.

“The Court conducted a thorough examination of all aspects of the case and the arguments of the parties. The court session lasted more than three hours. As a result, the court made an absolutely legal decision,” he said.

Tkachenko noted the obvious weakness of the legal position of the government and Naftogaz. “The Cabinet failed to explain its position neither on the legality of the decision per se, nor on the legality of the procedure of its adoption. We believe that the ruling in this case is extremely important for all players on the natural gas market and not only now. It will lay a solid legal foundation for the further liberalization of the natural gas market,” he emphasized.