Naftogaz receives USD 1.5 bln prepayment from Gazprom for gas transit

According to Fuel and Energy Minister Yuriy Boyko, Naftogaz has received USD 1.5 bln from Russia’s Gazprom as a prepayment for future gas transportation services to Europe. In return, Gazprom will pay for about 84% of gas actually transited gas through Ukraine over the next five years. We see the step directed toward maintaining Naftogaz’ stable financial position stable in the near future, as according to an agreement with the IMF,  the government will cease supporting NAftogaz from the state budget at the beginning of 2011.  To maintain Nafrotaz’ financial stability, the government is also expected to increase gas prices for households by another 50% in March 2011 (the first 50% increase came in August 2010) and ensure that higher domestic gas prices will be passed through to utility prices. Earlier in October, Naftogaz received a UAH 7.4 bln (USD 0.9 bln)  equity injection from the government via UAH sovereign debt. The bonds were later swapped into cash through REPO transactions with state-owned Oshadbank and Ukreximbank. The prepayment from Gazprom should contribute to stability in the domestic forex market and the USD/UAH exchange rate in the months ahead, and well as ease pressure on banking system liquidity.