Ukraine raises domestic gas storage rates

Ukraine’s National Energy Regulation Commission (NERC) raised the tariffs for pumping natural gas into state underground storage facilities and for its storage there, the mass media reported on June 26, citing a NERC representative. The total rate for gas being pumped in, stored and pumped out, which was flat since 2006, will increase 3.4x to UAH 112.0/tcm starting the next month, according to media reports.

Last week, the Ukrainian government ordered private gas production companies to pump at least 50% of gas to be produced between July 1-October 15 to the underground storage facilities.

Alexander Paraschiy: The NERC decree is more discouraging news for independent gas producers Regal Petroleum (RPT LN), Kulczyk Oil (KOV PW), JKX Oil & Gas (JKX LN) and Cadogan (CAD LN). Not only do they have to delay sales of half of their products over the next 3.5 months, but they will be additionally charged for this delay. Naftogaz’s revenue from this mandatory storage for private producers at new rates will be only about UAH 41 mln. The maximum benefit of Naftogaz from higher tariffs till the year end will be UAH 0.4 bln, we estimate, which is little compared to the deficit that Naftogaz seems to have this year.

In particular, Interfax reported on June 26 that a draft of Naftogaz’s 2013 financial plan, prepared by the Energy Ministry, estimates a UAH 32.2 bln cash deficit. Of this amount, the state budget covered only UAH 8 bln. The government has refused to approve Naftogaz’s plan since it demands extra financing from the state budget of UAH 24.2 bln. So we should be prepared either for a long-anticipated gas tariff increase for households and heating companies, or some other creative measures from the government that will allow for financing the Naftogaz deficit at somebody else’s expense.