EnVal: Gazprom’s Nord Stream 2 faces ‘big-freeze’ in Switzerland

In May 2018, Naftogaz of Ukraine initiated enforcement proceedings to recover the $2.6 billion debt from Russia’s Gazprom, as per the 22 December 2017 and 28 February 2018 final awards of the Stockholm Arbitration Tribunal.

As Gazprom has refused to comply with the final arbitral awards, enforcement proceedings under Article 5 of the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards were initiated in Switzerland, the Netherlands and the U.K. Per contra, in April, Gazprom launched proceedings against the Stockholm awards in the Swedish courts and initiated a new arbitration to reverse the outcome of the awards. Nonetheless, it is to be noted that under international law, Gazprom’s challenge proceedings against do not prevent the enforcement of the awards in every country signatory of the New York Convention.

In July, the District Court of Amsterdam provisionally seized Gazprom’s assets in the Netherlands and its shares in its Dutch subsidiaries (including the operator of the Blue Stream pipeline) to secure Naftogaz’s right to fully recover the amount awarded from Gazprom. In the same month, a Court in London granted a freeze on all Gazprom’s assets in England and Wales with a value greater than $50,000.

In Switzerland, Naftogaz obtained a similar decision from the Swiss courts earlier this year, and on November 12 the Swiss courts issued an injunction on Gazprom’s shares in Nord Stream AG and Nord Stream 2 AG, thereby barring the operators of the Nord Stream gas pipeline from making payments to Gazprom. All payments from Nord Stream AG and Nord Stream 2 AG to Gazprom are now directed to the Swiss bailiffs.

Although Gazprom intends to challenge the injunction before the Swiss national courts, this development is likely to slow progress on the Nord Stream 2 project, and possibly delay its completion indefinitely. This gives more time for the US to act, as over the course of 2018 the administration has repeatedly warned the European investors in the Nord Stream 2 project that they are at risk of sanctions.

It remains to be seen whether Gazprom’s European partners, OMV, Uniper, Wintershall, Shell and Engie, will be able to effectively fund the North Stream II project, under current circumstances.

This is an excerpt of our newsletter focusing on energy geopolitics in Europe, the EnVal.  To get it in your inbox, every two weeks, register here – it’s free!