Ukraine's Naftogaz loses monopoly on natural gas sale and supply

By bne IntelliNews October 1, 2015

bne IntelliNews -


Ukraine's state-owned natural gas giant Naftogaz lost it monopoly both on the supply and on the sale of natural gas under a new gas market law that came into effect on October 1, the government says.

The law "radically changes the whole system of coordinates and gas market in general", Ukrainian Prime Minister Arseny Yatsenyuk said in a statement released by the cabinet's media office on September 30.

According to the premier, a number of steps have already been taken to reform the gas market. In particular, "the oligarchs, who controlled the Ukrainian gas market and gas supply to Ukraine, faded into oblivion", he claimed. "Over the past 18 months there has been no oligarchic monopoly for the supply and distribution of gas in Ukraine," Yatsenyuk said without elaborating. 

He added that the Ukrainian government is now awaiting the entry into force of a trilateral protocol between Ukraine, Russia and the European Union (EU) and bilateral agreement between Ukraine and Russia on natural gas supplies and gas transit to the EU. "This gives us another very clear prospect that Ukraine will be provided with natural gas," Yatsenyuk said.

On September 25, the sides reached an agreement in Brussels to secure winter gas supplies. Ukraine will pay a price for Russian gas of just over $237 per 1,000 cubic metres (cm) in Q4, including a discount provided by Moscow, according to Ukrainian energy minister Volodymyr Demchyshyn.

Currently, Ukraine imports natural gas from Russian clients in Europe, primarily Slovakia and Poland, by reverse flow.

More cash needed

Meanwhile, the board of directors of the European Bank for Reconstruction and Development (EBRD) finally approved a $300mn loan to Naftogaz for buying natural gas on the European market to filling the country's storages during the winter heating period.

"The loan will strengthen Ukraine's energy security by supporting diversification of natural gas suppliers and delivery routes," a statement published by the EBRD on September 30 reads.

Shortly before this statement was published, Yatsenyuk specified that Ukraine will use these funds for buying gas "on the western border to satisfy the needs of the Ukrainian economy".

The premier added that an overall package of funding necessary "to endure the winter" is about $1.3bn. "The sum of $500mn already went onto the accounts of Naftogaz; regarding the $300mn, we hope for a positive decision by the EBRD; $500mn will be granted by the World Bank for Naftogaz by the end of this year under state guarantees," Yatsenyuk said.

Meanwhile, Naftogaz reported a UAH4.468bn ($211.6mn) net loss in January-June, which is down by 86.3% compared with the same period of 2014, the company said on September 30. 

Naftogaz net revenue grew by 49.1% or UAH17.641bn ($836mn), to UAH53.555bn ($2.539bn). Gross profit in H1 totaled UAH6.687bn ($317mn) compared to UAH3.68bn ($174mn) of gross loss in the same period of the previous year, Interfax news agency reported.

"The key factors that influenced the company's performance were the following losses: UAH12.5bn ($592.5mn) of net loss from exchange rate differences; UAH8.9bn ($422mn) of loss from sale of natural gas to households; and UAH1.9bn ($90mn) of loss linked to illegal consumption of gas in the anti-terrorist operation zone [in the Donetsk and Luhansk regions]," the company's report reads.

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