Who is the Take-or-Pay trading principle good for?

2024 Author: Henry Conors | [email protected]. Last modified: 2024-02-12 02:43

Any major supplier is interested in optimizing their sales volumes. To solve this problem, it is necessary to predict the volumes of products shipped to customers and, on the basis of these quantities, carry out planning. Trade in hydrocarbons is the most complex marketing system; both their stability (what consumers are interested in) and the systematic receipt of profits depend on the optimization of flows. Recently, in connection with gas supplies to Europe and Ukraine, the term Take-or-Pay is often used in comments. What is it and why does the introduction of this principle cause dissatisfaction among some of Gazprom's foreign partners?

Ukrainian contract 2009

It was the terms of the agreement concluded in early 2009 that led to the introduction of the mentioned principle as one of the three conditions for settling an interstate economic dispute. In addition to Take-or-Pay, the future relationship included the liquidation of the intermediary firm (RosUkrEnergo) and an increase in the price of the sold goods. The contract is beneficial to the Russian side and infringes on the economic interests of Ukraine, butnevertheless it was signed. And if the price to this day seems to many to be “unfair”, “enslaving”, despite the fact that the contract was endorsed by the high negotiating parties voluntarily, then the “take or pay” condition cannot be attributed to some unusual conditions. According to him, Ukraine is guaranteed to receive the agreed amount of gas. In case of a shortfall, she is obliged to pay a certain amount, less than the established maximum, but more than actually received. At the same time, such payment cannot be considered a fine. Why?

Pros of the principle

The very principle of Take-or-Pay ("take or pay") is not so bad for any two parties entering into a contract. Cursing Gazprom for its imperial stance, Ukrainian analysts usually forget to explain that the volume of gas paid for but not selected is not lost, but is transferred to the next period, when consumption is expected to grow. Since hydrocarbon prices have a steady upward trend, there is nothing wrong with having a reserve of blue fuel that has already been paid for. This volume can be taken into account (with a minus sign) when drawing up an application for the next year, this makes it possible to more reliably calculate the size of future needs. The Take-or-Pay condition imposes obligations not only on the buyer, but also on the supplier, who, after the entry into force of the contract, can no longer refuse to provide the declared volumes (of course, in case of timely payment).

How is Russia?

In favor of the principle“Take or pay” says at least the fact that European countries that import gas from the Russian Federation also work this way (after our country's accession to the WTO). Ukraine is not some special country against whose interests a special enslaving rule is used. Moreover, the same principle applies within Russia in relation to large consumers. Small enterprises experience difficulties when connecting to gas pipelines, since the amount of funds guaranteed to be withdrawn from circulation annually is difficult to predict. In the event of a warm winter, the administration of such plants and factories lends a considerable amount to Gazprom, and this is not beneficial for everyone. If anomalous cold weather sets in, then the situation may turn out to be even worse, the declared volume of gas simply will not be enough. In this regard, small and medium-sized businesses are closely watching how the economic dispute with Ukraine will end. If the Take-or-Pay regime is canceled, a legal precedent will arise that will also affect their relationship with the state gas monopoly.

You need to pay…

Besides the important principle of planning the supplied and consumed volumes, there are generally no other advantages to the "take or pay" principle. If the country's macroeconomic indicators are good, the external debt is low, and the balance of payments is positive, then it is acceptable not only for the seller, but also for the buyer. It is another matter to work in the context of a global macrocrisis, when every penny (every billion euros) counts. And it becomes very difficult for a country that is waging war. It's no longer up to Take-or-Pay, when it's easy to paynothing. The Americans invented this principle, but they also have another common expression: no money - no drink ("who does not pay, he does not drink"), written on the walls of many bars.