Ukraine's Ukrtransgaz placed under government control

By bne IntelliNews September 19, 2016

Ukraine has brought Ukrtransgaz, the most valuable asset of state gas company Naftogaz, under government control, rendering it vulnerable to deep corruption still plaguing government structures. 

The move violates Ukraine’s agreements with the European Bank for Reconstruction and Development (EBRD), which has loaned Ukraine $300mn to buy gas - funds that may now be held up despite the impending start of the heating season. “These funds are essential for gas purchases that will allow Ukraine to get through the winter season in a stable manner,” Naftogaz said in emailed comments, Reuters reported.

The EBRD said Naftogaz must adhere to the terms of the deal. “The EBRD is looking into this, if the development is confirmed, this is a very serious matter. We do expect that our partners [Naftogaz Ukraine] will honour their commitments and continue building Naftogaz into an example of corporate governance reform,” an EBRD source told the news agency.

The move was announced by Energy Minister Stepan Kubiv on September 16 but was authorised by resolution several days earlier. It also came on the same day that Ukrainian President Petro Poroshenko publicly demanded renewed action by his government against corruption. 

Naftogaz board chairman Andrew Kobolev told Hromadske TV that the step would reawaken earlier graft issues around the company. “Now there is an attempt to go back to the time when Naftogaz was, in fact, the donor for all private, criminal and corrupt business, and it is our hope that the country’s leadership understands and draws the appropriate conclusions.”

However, the economy ministry claimed in a statement that the move complied with a Western-backed plan to separate the different businesses of Naftogaz.

“The Ministry of Economy was well within its rights to do that, and there has been frustration over the slow pace in unbundling of Naftogaz enterprises, but there is concern as to how this was done,” Nomura International strategist Tim Ash commented in a note. It also notably comes before the Stockholm arbitration ruling for Ukraine in its case against Russia’s Gazprom, with some decision possible therein in 2017.

Ukraine has not directly bought any gas from its traditional supplier Russia since last December, instead importing gas from Europe. In 2015, Ukraine produced 19.9 bn cubic metres of gas and imported 16.5 bcm, including 10.3 bcm from the EU.

With Ukrtransgaz controlling both the national gas pipeline network and the transit route that transports gas from Russia to Europe, the transfer of control can have several negative results for Ukraine. Since the EBRD’s credits are secured by Ukrtransgaz’s profits, the lender could revoke its credits, potentially bankrupting Naftogaz.

With the ministry in control of Ukrtransgaz’s profits, these profits can be expected to disappear once again, given the company's long history of being plundered. It is estimated that $3bn of its profits were stolen between 2010-2013.

The transfer of control is also likely to see a resumption of corrupt schemes like Ukrtransgaz giving businesses of favoured oligarchs a super-low gas price, with these in turn being likely to pay kickbacks to Ukrtransgaz’s management and state officials. The company’s huge procurement and maintenance operations also open up opportunities for corruption.

The move will likely impact broader recent success in improving corporate governance, say analysts. “Naftogaz has been leading the way therein in these reforms which are important in terms of the anti graft/corruption agenda,” Nomura strategist Ash added. "It would seem that old habits die hard with some politicians still seeming to think they can act at will, and override structures put in place to ensure proper management, governance and supervision of SOEs.”

Related Articles

Azerbaijan's Socar to list minority shares in subsidiaries on local bourse

Azerbaijan's state-owned oil company Socar is considering listing minority shares in some of its subsidiary companies on the domestic bourse, Socar's president Rovnag Abdullayev said on ... more

Russia's independent Lukoil looks to place $1bn Eurobond

Russia’s second-largest oil company private Lukoil is considering placing $1bn worth of Eurobonds in the coming two to three weeks, Interfax reported on October 18, citing unnamed financial market ... more

EPH mine frets as Polish takeover of EDF power plant looms

Polish miner PG Silesia, owned by Czech-based energy holding EPH, could face problems if its bid to buy a power plant from EDF is blocked by the government, local media reported on October 11. ... more

Register here to continue reading this article and 2 more for free or 12 months full access inc. Magazine and Weekly Newspaper for just $119/year.

If you have already registered, enter the information below with the same email you used previously and you will be granted immediate access.

IntelliNews Pro subscribers click here

Thank you. Please complete your registration by confirming your email address. A confirmation email has been sent to the email address you provided.

Thank you for purchasing a bne IntelliNews subscription. We look forward to serving you as one of our paid subscribers. An email confirmation will be sent to the email address you have provided.

To continue viewing our content you need to complete the registration process.

Please look for an email that was sent to with the subject line "Confirmation bne IntelliNews access". This email will have instructions on how to complete registration process. Please check in your "Junk" folder in case this communication was misdirected in your email system.

If you have any questions please contact us at

Subscribe to bne IntelliNews website and magazine

Subscribe to bne IntelliNews website and monthly magazine, the leading source of business, economic and financial news and commentary in emerging markets.

Your subscription includes:
  • Full access to the bne content daily news and features on the website
  • Newsletters direct to your mailbox
  • Print and digital subscription to the monthly bne magazine
  • Digital subscription to the weekly bne newspaper

IntelliNews Pro subscribers click here

bne IntelliNews
$119 per year

All prices are in US dollars net of applicable taxes.

If you have any questions please contact us at

Register for free to read bne IntelliNews Magazine. You'll receive a free digital subscription.

If you have already registered, enter the information below with the same email you used previously and you will be granted immediate access.

Thank you. Please complete your registration by confirming your email address. The confirmation email has been sent to the email address you provided.

IntelliNews Pro offers daily news updates delivered to your inbox and in-depth data reports.
Get the emerging markets newswire that financial professionals trust.

"No day starts for my team without IntelliNews Pro" — UBS

Thank-you for requesting an IntelliNews Pro trial. Our team will be in contact with you shortly.