Our work covered many aspects involving a full-service team of corporate, energy, regulatory and employment specialists, as well as real estate experts for the due diligence on the actual gas pipeline, estimated at USD 14bn.
At the beginning of 2020, Ukraine completed a landmark split of Naftogaz, the state-run energy giant. The aim was to align itself with the EU’s Third Energy Package, which requires a separation of gas transmission systems from supply and production.
This unprecedented move resulted in the creation of Gas Transmission System Operator of Ukraine (GTSOU). This new, independent system operator is separate from Naftogaz’s gas production, supply, distribution and storage entities.
CMS lawyers advised the World Bank, the Energy Community Secretariat and Main Gas Pipelines of Ukraine (MGU PJSC) on this process. Maria Orlyk, a Corporate / M & A partner at CMS in Kyiv and the lead legal expert under the European Commission-awarded contract, said that identifying the right unbundling model was especially challenging given that the legislative and regulatory environment had to be developed in line with EU rules. “Our work covered many aspects involving a full-service team of corporate, energy, regulatory and employment specialists, as well as real estate experts for the due diligence on the actual gas pipeline, estimated at USD 14bn,” she explained. CMS’s reputation and expertise in all these areas was key to winning the matter.
The Kyiv team’s collaboration with other CMS offices, particularly Vienna, was crucial in handling EU legislative issues. The unbundling from Naftogaz through acquisition of GTSOU by the specially established state company MGU PJSC, wholly owned by the Ministry of Finance of Ukraine, involved complex M&A work and corporate governance advice. Additionally, the split from Naftogaz resulted in the transfer of some 12,000 workers, requiring extensive employment advice from the CMS team. The whole process was initially complicated by then open arbitration claims between Gazprom and Naftogaz, which were settled in December 2019.
The gas transmission system unbundling has paved the way for a new gas transit contract with Russia’s Gazprom and an uninterrupted gas supply to Europe. The Ukraine gas pipeline run by GTSOU is now one of Russia’s primary gas transit routes into Europe. In December 2019, a new deal was eventually signed with Gazprom to transport gas to Europe for another five years.