EDF’s Edison Seeks Arbitration Against Gazprom, Eni on Gas Price

Edison SpA will seek arbitration as the Italian natural-gas arm of Electricite de France SA failed to renegotiate long-term deals with OAO Gazprom on Russia supply and Eni SpA over Libyan supply to better reflect market prices.

“There wasn’t another solution,” Edison Chief Operating Officer Pierre Vergerio told a Paris energy conference. “High risk, high reward” action against suppliers takes an average 21 months and “arbitration doesn’t exclude negotiation,” he said.

Utilities are seeking supply deals that track lower market rates rather than the current link to crude-oil prices, which rose in the past four years. While weak demand in Europe pushed gas market prices lower, exporters argue that the 40-year-old supply link to oil secures flows, fair pricing and investment.

Gazprom, Russia’s natural-gas export monopoly, said in July Edison had been seeking revised prices since the end of 2012.

“Buyers didn’t sign long-term gas contracts to lose money,” Vergerio said. Italy has become a “battleground.”

Eni supplies gas from Libya, while Edison also has long-term supply contracts for the fuel from Algeria and Qatar.

Edison won lower prices from Algeria’s Sonatrach through international arbitration in April, and from Libya and Qatar in September 2012 after a previous round of talks failed in 2010, Vergerio said. It agreed on a Gazprom deal without arbitration.

New Agreements

A second round resulted in new agreements in July with the Algerian state supplier and Qatar, he said. The Edison board decided to seek arbitration on Libyan and Russian contracts.

“All of our clients are asking for prices that are hub based,” Alessandro Della Zoppa, senior vice president, long-term gas supply negotiation at Eni, told today’s conference. “It’s up to suppliers to acknowledge this new reality.”

EDF and French utility GDF Suez SA face government pressure to win spot-market rates from suppliers as the country seeks to cut energy bills. GDF Suez contracts include a requirement to seek arbitrage should it fail to reach agreement with suppliers, according to Philippe Vedrenne, head of long-term gas supply.

“When we prepare to enter into discussions we prepare for possible arbitrage,” he said in an interview. The company’s policy “hasn’t been to systematically go to arbitrage.”

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