UPDATE 2-Gazprom dealt pricing blow as loses court case to RWE

Thu Jun 27, 2013 12:54pm EDT

Related Topics

* RWE says tribunal rules Gazprom must make repayments

* Reimbursements apply to payments made since May 2010

* Tribunal also adjusts price formula of long-term contract

* Gazprom declines to comment on ruling (Adds analysts, details, background)

By Christoph Steitz and Vera Eckert

FRANKFURT, June 27 (Reuters) - Russian gas export monopoly Gazprom's efforts to keep a link between the price it sells gas and costlier oil were dealt a blow on Thursday, when a court ruled it had to include market pricing in the rates it charged Germany's RWE.

Gazprom must also reimburse Germany's second-largest utility for overpayments it made on gas purchases, RWE said on Thursday, adding to pressure on the Russian firm from European clients who say they have lost billions of dollars on long-term supply deals agreed at higher prices than current market spot rates.

Citing a ruling by the International Court of Arbitration of the International Chamber of Commerce, RWE said Gazprom had to reimburse it for gas purchases since May 2010, but declined to comment on the size of the expected payout.

Analysts said it was the first court ruling to impose spot pricing on Gazprom, which includes some spot pricing in its contracts, but has largely stuck to reducing oil-linked pricing to placate customers that have suffered losses on its gas.

"Clients will continue to demand this in court. This is a certain precedent, although I am not sure it will lead to a flood of lawsuits, because there is already a spot element in many contracts," UBS analyst Konstantin Cherepanov said.

"It is another sign that the balance of power between Gazprom and its consumers is shifting in favour of the consumers and Gazprom is not ready for that."

Gazprom declined to comment on the ruling. A Russian gas industry source said it was a "compromise decision, which only partially satisfied the demand to change the price formula out of all of RWE's demands."

Gazprom resists pressure from European customers to base its pricing on European gas hub trade, saying the hubs lack liquidity and fail to provide financial security to underpin costly investments in gas infrastructure.

It also cites the need to secure its investments in its complaints against the European Union's so-called Third Energy Package, which bars suppliers from simultaneously controlling gas market infrastructure.

"For me it is an evidence of huge shift in the European attitude towards the sanctity of contracts," Tatiana Mitrova, the head of the oil and gas department at the Russian Academy of Sciences Energy Research Institute, said.

"I am afraid it will have further destructive consequences not only for the EU-Russian energy relationship and as a result for the security of European gas supply at the end of the day, but also for the very gas market development."

Analysts previously forecast RWE would receive a payment of about 300 million euros ($390 million).

Gazprom has said it had reserved 200 billion roubles ($6 billion) for rebates this year.

A WELCOME BOOST

RWE can do with the money as its profits have come under pressure from Germany's decision to exit nuclear power more quickly, tepid demand for energy in its core market of Europe, and the rise of renewable power which elbows out that produced by its fleet of conventional generation plants.

It said it was analysing the award and the effect on its full-year outlook, adding the group would shortly make a further statement. RWE expects core profit of about 9 billion euros and recurrent net income of about 2.4 billion this year.

European utilities have been arguing over prices and terms of gas purchase contracts for the past three years with suppliers such as Gazprom and Norway's Statoil.

Last year, Gazprom offered RWE rival E.ON a price cut on long-term gas supplies, which resulted in a 1 billion euro boost to E.ON's half-year results.

RWE said the tribunal also adjusted the purchase price formula of its long-term gas supply contract with Gazprom by introducing a "gas market indexation", reflecting relevant conditions on the gas market at the time of the price revision in May 2010.

The case was taken to the court after direct talks between RWE and Gazprom on an out-of-court settlement failed.

($1 = 32.9664 Russian roubles)

($1 = 0.7691 euros) (Additional reporting by Denis Pinchuk, Melissa Akin and Vladimir Soldatkin in Moscow; Editing by David Holmes and Mark Potter)

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