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Annex to Yamal LNG contract executed by PGNiG and Gazprom

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LNG Industry,

The annex signed between PGNiG SA and Gazprom confirms the application of a new pricing formula, as set out in the arbitral award. The parties also agreed that by 1 July 2020 Gazprom would transfer approximately US$1.5 billion into PGNiG’s account to refund the overpayments for gas supplied in 2014 - 2020.

“What happened goes to show that the effective policy pursued by our government and the staunch fight we put up to defend Polish interests have borne fruit. It is evident that if a consistent policy supported by compelling arguments is in place, success can be achieved even with a partner as demanding as Gazprom. Thanks to such policy and our good cooperation with the President, we can achieve tangible benefits for Poland,” said Jacek Sasin, Deputy Prime Minister and Minister of State Assets.

The Deputy Prime Minister stressed that the relations between Poland and Gazprom look quite different from what they did only five years ago. Thanks to the consistent policy approach, they are now based primarily on a business partnership.

“We are making continued progress on our policy to diversify the sources of gas supply to Poland. We maintain Poland’s energy security, ensuring the cheapest possible gas for Polish households and businesses,” added Jacek Sasin.

The annex to the Yamal contract was executed on 5 June 2020 in electronic form and then, by 15 June 2020, its original counterparts were signed and exchanged. It specifies how the pricing formula set out in the Arbitration Institute of the Stockholm Chamber of Commerce’s award will be applied in practice and how the financial consequences of its application to past gas supplies will be settled between the parties.

“The annex transposes into our contract with Gazprom the award issued by the arbitration tribunal in Stockholm on 30 March this year. It revised the pricing formula to pay for gas purchased from our Russian partner. We are happy to have smoothly reached an agreement to settle the issue and that we can have a normal business dialogue,” said Jerzy Kwiecinski, President of the Management Board of PGNiG SA.

The new pricing formula, as set out in the arbitral award, is linked largely to gas prices quoted on Western European markets. As a result, since March this year PGNiG has paid a lower price for gas imported into Poland from across its Eastern border. However, the new pricing terms set out in the award are effective as of November 2014, i.e. the date on which PGNiG requested Gazprom to revise the pricing formula. The arbitral award allowed PGNiG to take steps to recover the amounts overpaid for gas supplied from 2014 to 2020 at prices determined based on the previous formula, which was challenged by the Stockholm tribunal.

“When signing the annex, we agreed that the overpaid amount, estimated at some US$1.5 billion, would be transferred into PGNiG’s account by 1 July 2020,” said Kwiecinski. The PGNiG CEO added that the amount overpaid from November 2014 to the end of February 2020 shows how unfavourable the Yamal contract actually was to PGNiG.

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