Finland money

Contracts can force Finland to buy Russian gas pipeline, or pay anyway | New

Gas has not flowed through the pipeline between Russia and Finland since the spring.

At that time, the Russian state company Gazprom demanded payments for gas pipeline deliveries in roubles, even though the contract with the buyer, the Finnish state company Gasum, specified payment in euros.

Gasum refused to accept payments in rubles, taking the contract to arbitration. Gazprom cut pipeline supplies at the end of May.

Even after that, however, imports of Russian gas to Finland continued in the form of liquefied natural gas (LNG) delivered by tankers.

Gasum told Yle that a resolution in the arbitration proceeding regarding payment for piped gas is within reach. The company expects a settlement to be finalized this month.

take or pay

If the dispute is resolved in such a way that the agreement between the companies is otherwise considered valid, but the Russian Gazprom is obliged to accept payments in euros, Gasum will, in practice, be obliged to resume the purchase of pipeline gas.

Gasum declined to take a position on this possible outcome until a settlement was reached. However, the company confirmed that it could, “in theory”, be forced to resume its purchases of piped gas.

This would be a consequence of the fact that Gasum and Gazprom have a long-term contract, known as “take or pay”.

Under this type of contract, the buyer is obliged either to buy a certain quantity of gas previously agreed or to pay for it, even if the delivery is not accepted. The purpose of purchase or payment contracts, which are common in energy trading, is to assure the parties to the contract that the energy products can be sold and will be made available.

A similar deal forced Helsinki-based energy company Helen to continue buying Russian coal. The only other option would have been for Helen to pay the Russian supplier, but let the coal be sold elsewhere.

Gasum could face a similar situation with respect to pipeline gas deliveries.

An unlikely unilateral decision

Gasum could only unilaterally withdraw from the contract by establishing a case of force majeure.

This could happen, for example, if the Finnish state imposed an embargo on natural gas, either within the framework of the EU or on its own initiative. However, the gas is not on the EU sanctions list and Finland has not imposed its own domestic sanctions against Russia.

What would Gasum do if Gazprom was forced by arbitration to continue to sell pipeline gas in euros, and Gasum was forced to continue purchasing in accordance with the agreement?

“No decision has been made one way or the other. First, we will see what the outcome of the arbitration board will be, and the situation will be assessed after that,” said Olga Vaisanenvice-president of communications and sustainable development at Gasum.

Gasum says that in addition to the monetary dispute, other issues will be resolved in the arbitration process that could affect the settlement and eventual continuation of the contract. The company, however, did not specify what these other issues are.

Russia’s Gazprom, on the other hand, could simply refuse to comply with the arbitration decision.

“There is no guarantee that Russia will abide by the decisions made in the arbitration. Russia has already done so,” notes an international business professor Kari Liuhto from the School of Economics of the University of Turku.

Furthermore, Gazprom could attempt to withdraw from the contract by attempting to invoke force majeure himself. The request for ruble payments originally came from the Russian government, not from the company.

russian options

Russia could react in at least two ways if arbitration settlement forces Gazprom to resume gas export via pipeline to Finland, says Russian Veli-Pekka Tynkkynenprofessor of Russian environmental studies at the Aleksanteri Institute of the University of Helsinki.

First, Russia could continue to restrict gas supplies as it does for most of Europe. The intention is to make daily life for Europeans cold and difficult, so that some countries will want to start buying more Russian energy again.

Russian gas is still transported by pipeline to, for example, Hungary and Italy, where gas demand is high.

The importance of gas in Finland’s energy mix is ​​significantly lower than, for example, in central and southern Europe. In Finland, gas is mainly used by industries and the transport sector, but industrial consumers have found it possible to replace gas with other energy sources. A floating LNG terminal to be set up off the coast, near Inkoo, will largely fill the void left by the shutdown of the Russian gas pipeline.

Another possibility, according to Tynkkynen, would be that Russia would start supplying gas via pipeline to Finland again.

In this way, Russia would try to destabilize the common EU sanctions front by putting countries in different positions. Citizens of gas-starved countries would hardly be happy to see Russian gas flowing into a neighboring country.

“Russia can make a game against Europe and Finland with small cracks in European unity,” Tynkkynen said.

Tynkkynen says energy is the main weapon in Russian efforts to create gaps between European countries.

Russian LNG at least in the new year

The requirement for payment in rubles for gas purchases applies only to gas pipeline deliveries. Deliveries of liquefied gas by tanker continued throughout the war in Ukraine.

Gasum’s LNG contract is also take-it-or-pay. Gasum would therefore have to pay for the LNG, even if it did not accept deliveries.

The LNG contract is long-term, but the company declined to reveal its exact duration.

“For example, it doesn’t end at the end of this year,” says Olga Väisänen from Gasum.

As is the case with pipeline purchases, withdrawing from the LNG deal would require a political decision from the EU or Finland itself.

Finnish Minister for European Affairs and Ownership Tytti Tuppurainen (SDP) told Helsingin Sanomat in August that LNG purchases from Russia should be stopped.

At the same time, Finland’s policy on sanctions has not changed. Finland supports common EU action and does not impose its own national sanctions.

Yle News’ All Points North podcast followed the trail of Finnish gas shipments from Russia.

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