On 2 June 2017, the Ukrainian Regulator placed at its website draft changes to the Model Gas Storage (Injection, Withdrawal) Agreement (the “Model Agreement”). The changes are referred here to as the “Draft” (available in Ukrainian).

The Model Agreement is used as a template for all gas storage agreements concluded by PJSC Ukrtransgaz (“UTG”), the Ukrainian gas storage and transmission system operator (GTO), and its customers regarding gas storage services.

Under Ukrainian legislation, the parties to a gas storage agreement may not deviate from the text of the Model Agreement. This has presented challenges for international transactions.

According to the Draft, if the customer of UTG is a non-resident (i.e., foreign) company, any and all disputes arising from the storage agreement may be resolved by final and binding international arbitration.

This is a long overdue change as Ukrainian law has long recognized and permitted international arbitration in cross border disputes and even among domestic Ukrainian companies if at least one of them is foreign owned or with foreign investment.

According to the Draft, the parties to the agreement are free to chose the arbitration forum, rules and venue. Basically, they are free to insert their preferred arbitration clause. The Model Agreement, unfortunately, remains a Ukrainian language document. Although the Ukrainian language law allows for dual language documents with foreign language governing, this does not appear to be an option under the Model Agreement.

Per the Draft, however, the privilege of international arbitration apparently does not extend to Ukrainian companies with foreign investments. They would have to submit all their disputes to Ukrainian commercial courts. This remains inconsistent with current Ukrainian law and we would hope that a revised draft would address this inconsistency.

The arbitration option for foreign companies in agreements with UTG was advocated by a number of international gas traders and financial institutions. It will be also reasonable to envisage the arbitration clause in the Model Gas Transportation Agreement so foreign players can hear their disputes against UTG at international arbitration. If the arbitration option would be available for Ukrainian resident companies with foreign investments, it will be also reasonable to amend Model Gas Transportation Agreement and Gas Pledge Agreement, respectively.