Turkey Will See Russia in Court Over Gas Prices

Turkey’s decision to file an international arbitration case against Russian gas monopoly Gazprom over gas prices is not related to the planned Turkish Stream gas pipeline but to existing gas contracts, an ex-CEO of Turkey’s Botas told New Europe.

Gokhan Yardim, who headed Turkey’s state pipeline operator when Blue Stream was constructed from Russia to Turkey, said on October 28 that the dispute involves contracts for 16 billion cubic metres of Russian gas through the Blue Stream pipeline and 4 billion cubic metres through the Transbalkan pipeline, known as the Western line in Turkey.

Turkey initiated court proceedings against Gazprom on October 26. Last December Botas and Gazprom signed a memorandum that envisaged a yet-to-be-defined price discount for gas supplies in 2015, the Turkish company said in a statement. Since an agreement defining the price discount has yet to be signed, Botas is entitled to seek arbitration, it said.

Private importers got a 10.25% price reduction starting from January 1, 2015, Yardim said. Botas was expecting to get a similar reduction. But Gazprom was expecting an Intergovernmental agreement (IGA) for building four lines of Turkish Stream, he explained. Discussions were not finalised and Gazprom did not sign the price reduction amendment, Yardim said, adding that the Turkish government did not sign the IGA because the ruling party AK Party founded by Turkish President President Recep Tayyip Erdogan lost its parliament majority in June.

After talks stalled over last summer, Russia scaled down its vision for the Turkish Stream pipeline, cutting its planned 63-billion-cubic-metre capacity in half. Gazprom has said the deal is possible after the country holds parliamentary elections. "So there is a new election on 1st of November. If confidence vote government is established – either one party or a coalition – all those matters will be solved. Otherwise problem continues,” Yardim told New Europe.

Turkish Stream is an alternative to Russia’s South Stream pipeline project to bring gas to Europe bypassing Ukraine. Russian President Vladimir Putin dropped South Stream in December 2014, citing objections from the European Commission.

Gazprom CEO Alexei Miller, addressing an industry conference on October 6, said Gazprom now planned to supply up to 32 billion cubic metres via Turkish Stream because it also plans to expand Nord Stream gas pipeline, which runs on the bed of the Baltic Sea to Germany.

Turkish Stream across the Black Sea would supply Turkey with 16 billion cubic metres of gas. Gazprom plans to deliver the rest of the gas to the Turkish-Greek border in order to supply the Balkans and Europe.

Gazprom, which had already spent billions of dollars improving infrastructure on the Russian side of the Black Sea and ordering pipes for the now scrapped South Stream project, had wanted a quick agreement on Turkish Stream. But Ankara’s insistence on a discount slowed down the negotiations.

Turkey is Gazprom’s second-largest export market after Germany, accounting for 27.3 billion cubic metres of its gas sales last year, while Russia supplies more than half of Ankara’s gas imports.

Ties between Moscow and Ankara have deteriorated following Russia’s decision to launch air strikes in Syria. Upset over Russian incursions into Turkish airspace, Erdogan warned that Turkey could find other suppliers for its gas and other countries that could build its first nuclear plant.