We have shown that we are not afraid of the Russians, nor of certain companies, nor of energy giants. If we have to, we will slap them again”. This winged remark was uttered in 2012 by the then Deputy Prime Minister and Minister of Finance Simeon Dyankov, when an arbitration case was being held that the Russian “Atomstroyexport” wanted Bulgaria to pay for ordered equipment for a nuclear power plant. Then the case, conducted in the Court of Arbitration in Paris, ended with the loss for Bulgaria on one of the claims of the opposite party.
Now, probably, “Bulgargaz” will also appear in a situation to seek its rights in an arbitration case after another Russian company – “Gazprom Export” – unilaterally stopped the supply of gas to Bulgaria at the end of April.
There are not many public details on the subject, and politicians see a chance of success in such a case.
Who says what
In several interviews, former Deputy Prime Minister Asen Vassilev says that Bulgaria’s chances of winning an arbitration case against Gazprom Export due to the termination of gas supplies on April 26 are high. Despite the fact that Bulgaria refused to pay in rubles. “We fulfill the contract as signed by Borisov’s government. Every day we submit requests, but Gazprom Export does not fulfill them. We have and we return the payment. At the end of the year, when the gas supply contract expires, we will be able to we will present the arbitration demands,” Vassilev said recently in a television interview.
He explained that requests for quantities are sent every month so that at the end of the year, when the contract expires, “Bulgargaz” will have fulfilled all the clauses in it. “This is a practice we have put in place from the moment the contract was unilaterally suspended so that by the end of the year when the contract expires, we will have fulfilled 100% of the clauses. After that, we can take the arbitration actions for the fact that the other party has not fulfilled its obligations,” he pointed out.
According to him, the chances of Bulgaria, in the person of Bulgargaz, winning such a case are “very good” because it fulfills what is written in the contract.
Ivan Topchiyski, chairman of the board of directors of the gas company, defends such a thesis. He told BBC that it was “very likely” that by the end of the year, when the contract expires, enough documents would have been collected to proceed with arbitration. According to him, Bulgaria can claim foregone benefits in the form of the higher price of gas that it paid after supplies from Russia were stopped.
In the situation that has arisen, “Bulgargaz” EAD is still trying to resolve the case in the spirit of mutual understanding and cooperation. If the attempt is unsuccessful, either party to the contract may seek resolution of the dispute before the Court of Arbitration in Paris, France. This type of proceeding should be conducted according to the Swiss law, the source, who is clear about the commitments under the contract, told “Dnevnik” on condition of anonymity.
Is Bulgaria vulnerable because of the “take or pay” clause
The “take or pay” clause is an essential part of the contract with Gazprom Export and one of the few publicly known. It means that Bulgaria undertakes to receive the agreed quantity and even if for some reason it does not want it or considers that it does not need it, it must pay for it.
This gives rise to various commentators to claim that it makes Bulgaria vulnerable as it does not pay. In fact, according to the contract, Bulgaria even undertakes to prepay every month the future delivery, which, according to Topchiiski, is worth BGN 200-300 million.
The expert told “Dnevnik” that the clause refers to a case of refusal by “Bulgargaz” EAD of the minimum delivery amounts required under the contract. It is verified that after the shutdown, the state gas company continued to submit schedules for receiving quantities under this contract and such a refusal on the part of the Bulgarian side was not implemented.
The payment issue comes after three decrees by Russian President Vladimir Putin that show how Gazprom Export should treat your customers and how you should pay. In the contract with “Bulgargaz” it is written that the payment is in dollars – another of the little-known public clauses of the document, and to a specific bank account specified in it. After Putin’s decree, counterparties are required to open a ruble account in one of the few that, outside of EU sanctions, enter Russian banks, which, in addition, convert incoming currencies into rubles at a rate that is beyond the payers’ control.
Who gave advice
When in the first days of April “Gazprom Export” proposed the unilateral change in the contract of “Bulgargaz”, the cabinet turned to the legal consultant of the agreement White & Case. Based on the legal analysis prepared by the office, which is also cited in the conclusion of the temporary cabinet parliamentary committee on the case, it decided not to take action to implement Gazprom Export’s proposal to unilaterally change the terms of payment, and Bulgargaz sends a written request to the supplier to provide additional clarifications on the proposed proposal and their discussion.
The contract, which is still in force, states that all amendments and additions to it will be effective only if they are made in writing and signed by the people entitled to own the country. And also that the agreements are binding for the pages and cannot be changed without mutual agreement in writing, the expert familiar with the texts told “Dnevnik”.
The attached comments from White & Case contain an analysis of the possible risks of accepting or rejecting the offer, in the context of the clauses of the current contract, applicable substantive law (in the case of Swiss) and the resolution of disputes between the two parties as stipulated in the contract.
Based on this, “Bulgargaz” considers that the unilaterally proposed risks of new conditions on the part of “Gazprom Export” bring enormous financial and legal uncertainty. They estimate that there is a risk of the suspension of supplies, in their opinion, in violation of the bilaterally signed contract. In addition, the implementation of the threat to cut off gas also carries reputational damage due to the EU sanctions imposed and Ursula von der Leyen’s specific clarification that paying in rubles would be a violation/circumvention of the sanctions imposed on Russia.
What the lawyers say
If you reach arbitration, it is more important what the lawyers think about the outcome of it, not the politicians, although politics will probably be a factor in such a case, Traicho Traikov, former Minister of Economy and Energy, commented to “Dnevnik”.
According to him, it is very important in such a case what positions the public representatives of the various countries take on the matter. He gave the example of arbitration with “Atomstroyeksprot”, which in 2016 was a complete loss for Bulgaria. Then NEK, a party to the contract, was ordered to pay 550 million euros to its Russian counterparty for ordered equipment for the Belene NPP. Traikov points out that at that time, the Russian side in the case used for arguments and statements of representatives of the Nuclear Regulation Agency, according to which the project for the equipment was before final approval. While we claimed that the project was not approved and that was the case, Traikov stressed.
“And now I also see that various politicians and experts are coming out, saying that Bulgaria is not right, that the payment can be done in another way, because others in Europe have done so, and all this will undoubtedly be used in the arbitration “, he thinks.
His assessment is that arbitration is a regular thing to have because the party that feels the feelings must seek their rights. “I think that’s who we are,” he says. “But this is extremely a matter of very precise legal details,” emphasizes Traikov.
The other option is not to go to arbitration, but to reach an agreement outside of it. However, this will be at the cost of additional agreements that will have to be made by one of the parties, which will not be public, and this entails risks.
We can talk in principle
Whether such an arbitration case will be successful or not will depend on whether it is possible to prove the non-fulfillment of the contract, lawyer Blagovest Punev, who heads the Arbitration Court at the Chamber of Commerce and Industry, told “Dnevnik”.
If it is assumed that the opposite party has unilaterally terminated the performance of the contract, then Bulgaria will have grounds to sue for compensation. But it must be established what the specific terms of the contract are and under what circumstances it is considered that there is a breach and compensation is due, he pointed out. With the proviso that he speaks in principle because he does not know this contract.
It seems to me in this case that the contract was unilaterally terminated before its expiration and payment was demanded in rubles instead of dollars as agreed. And it can certainly be considered that it is a unilateral action, which in practice means non-fulfillment, the lawyer points out.
When the gas crisis unfolded, lawyers commented that there was an opportunity to approach it differently, by avoiding arbitration and acting on behalf of Bulgaria, not Bulgargaz. According to Punev, in this case it is still a commercial contract and he does not see why public legal entities should be included in a private law contract, regardless of Gazprom Export’s obvious dependence on the authorities in Russia.
“Unless it is assumed that by the action of the power in the person of the Russian president, as a third party, it caused harm. President, the supply of gas has been suspended,” predicts Punev.
In this case, according to him, the case may be on behalf of Bulgaria and be before the Bulgarian court and be based on damages caused by the third party – the Russian state, which is not a party to the contract, but prevents the implementation. “But such a case would be outside the terms of the contract, not one based on it,” says the lawyer.
Nobody pays without a fight
Arbitration cases are not the kind of thing that makes a lot of noise. According to the publication Global Arbitration Review, as early as this May, the Finnish state gas supplier will submit arbitration claims to Gazprom Export. Finland is among the countries to which the supply of Russian gas has also been suspended. The same was reported for Poland’s state-owned gas operator.
Internationally, no one pays without a fight or gives up these opportunities when such huge sums are involved. This lawyer comments Metodi Baikushev, quoted by “Capital” on the occasion of lost arbitration by NEK for the equipment for “Belene”. According to him, then Bulgaria did not use the opportunities to seek annulment of the decision, but returned immediately to pay the awarded amount.
According to him, now there is not a single objective obstacle for the Russian company to deliver, nor for the Bulgarian company to pay for gas, and gradually there is a violation of the contract. He commented on this in response to opinions that “Gazprom Export” is in the conditions of force majeure – sanction the EU, which prevents it from supplying. Or that the owner of the company – the state in the person of President Putin – does not allow him.
His opinion is that from a legal point of view the situation is simple – contracts have the force of law and cannot be changed unilaterally, including in terms of currency.
Before this release three Bulgarian lawyers, some of whom work in foreign offices, however, believe that, from a legal point of view, a possible (commercial) arbitration claim by “Bulgargaz” against “Gazprom Export” has no chance of success. The reason is that the thesis of changing the currency in which Russia wants to be paid is well protected by the decrees of the Russian president. In addition, the lawyers believe that even if it is successful, such a claim will be economically impractical, because “Bulgargaz” will spend more on the case than it would receive as compensation for the gas not received for eight months.
They believe that it is more expedient and cheaper to send a direct claim to the Bulgarian court for an impermissible obligation from “Bulgargaz” to the Russian Federation before the Bulgarian court. They specify that such an approach sounds avant-garde for Bulgaria, but it is an established practice around the world. Lawyers point out that this is much cheaper than an arbitration dispute and will create the conditions for Bulgargaz to become a pilot claimant representing the political interests of all EU suppliers.