BAKU, Azerbaijan, April 8. The new rouble payment mechanism imposed by Russia for European gas buyers is an even more urgent challenge for the buyers and is in itself a ‘take-or-pay’ proposition, where the buyer, in any event, would need to bear the cost consequence, Trend reports with reference to Oxford Institute of Energy Studies (OIES).
“Various considerations (financial, operational, political, and reputational) are at stake, which suggests that the response to the new payment mechanism under the Decree on the Special Procedure for the Fulfilment by Foreign Buyers of Obligations to Russian Natural Gas Suppliers is unlikely to be a smooth exercise. A supply disruption in response to the perceived failure to comply with the rules under the Decree as early as May (when payments for gas delivered in April are due) is, therefore, an eminently plausible outcome,” OIES said in its latest report.
OIES analysts note that as a forced solution, the Decree completely ignores the contractual context and potentially interferes with the rights and obligations of the parties under gas supply contracts.
“In that regard, the Decree is not a step back from the earlier demands for the currency switch since any change to contractual provisions – whether it is a major change in the contract currency or a minor modification in bank transfer rules – must be agreed upon by the parties in accordance with the process prescribed by the relevant contract. Clearly, the Decree transforms an ordinary contract adjustment issue into a political test, where the threat of a delivery ban could serve as a strong incentive for some buyers to agree to the new payment mechanism,” reads the report.
OIES point out that delivering a set of instructions that must be implemented on short notice (but also leaving scope for individual exemptions), the Decree discourages the re-opening of gas supply agreements with Gazprom where EU buyers might have some demands of their own, mainly with respect to volume provisions, as they prepare to address EU plans to make Europe independent from Russian energy.
“The related objective of reducing Russian gas imports by two-thirds by the end of 2022 leaves ‘a substantial gap’ between the target import level and contractual take-or-pay levels and therefore puts pressure on the take-or-pay position of EU buyers of Russian gas,” the report says.
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