Gazprom Faces Arbitration With Edison After Ruling on RWE Price

By Anna Shiryaevskaya and Tara Patel

OAO Gazprom (GAZP), the Russian gas exporter forced to revise contracts with RWE AG (RWE) last month, is set for further legal wrangles after Electricite de France SA’s Italian unit initiated arbitration proceedings.


EDF’s Edison subsidiary is seeking long-term supply terms that are in “line with gas-market prices,” EDF said today in a regulatory filing. Gazprom confirmed Edison had filed for arbitration against its Promgas unit and said the Italian company had been seeking price revisions since the end of 2012.


“We are confident that a mutually acceptable solution will be found outside arbitration,” Gazprom Export said in an e-mailed response to questions. The proceedings may take months or even years and their initiation doesn’t preclude negotiation of an alternative compromise between the parties, it said.


A tribunal last month ordered Gazprom to link a long-term contract with German utility RWE to spot-market prices, the first time contract changes have been forced on the Moscow-based company by arbitration. State-run Gazprom, which supplies a quarter of Europe’s gas needs, is in talks with other utilities including Eni SpA (ENI) and GDF Suez SA, which are also seeking to revise terms after market prices fell below contracted rates.


Arbitration between Gazprom and EON SE, Germany’s biggest utility, and with Poland’s Polskie Gornictwo Naftowe i Gazownictwo SA was dropped last year after the companies agreed on lower prices through talks.


African Supplies


Edison, which buys gas from Russia, the Middle East and North Africa, is also in arbitration with Rome-based Eni over gas supplies from Libya, according to today’s statement.


Edison won lower prices in a contract with Algeria’s Sonatrach through international arbitration in April. It was the first time the country had lost such a decision, Edison Chief Executive Officer Bruno Lescoeur said today. This month, the company successfully concluded a second round of contract talks with the Algerian state-run supplier, and reached a deal with Qatar’s Ras Laffan Liquefied Natural Gas Co.


Utilities are pushing for long-term supply deals that track the gas market rather than crude-oil prices, which have risen the past four years. Gas exporters argue that the 40-year-old system of linking contracts to oil guarantees secure flows and fair pricing.


Results from arbitration with Gazprom and Eni are unlikely before 2014 “unless suppliers make us proposals we can’t refuse,” Edison’s Lescoeur said in a presentation. In the first round of talks, Gazprom was the only one of Edison’s suppliers to make such a proposal, he said in a subsequent interview.


EDF Profit


Contract renegotiations have helped boost income at Edison’s parent EDF, which today reported a 6.9 percent increase in first-half earnings before interest, taxes, depreciation and amortization to 9.7 billion euros ($12.9 billion).


Like EDF, fellow French utility GDF Suez (GSZ) has faced government pressure to obtain spot-market rates from suppliers as the country seeks to lower utility bills for consumers.


Even so, the national energy regulator has warned that curbing reliance on long-term agreements may weaken security of gas supply, saying in June that raising the share of volumes indexed to the spot market “could be a problem.”