Gas supplies to Kyivenergo will be reduced by 56%

Gaz Ukrainy yesterday ordered Kyivtransgaz to temporarily limit gas supplies to Kyivenergo (KIEN: HOLD) to 2 mln cm per day (down 56%). The reason for the gas cut is Kyivenergo’s USD 14.5 mln debt for gas consumption. Alexander Paraschiy: The reduction in gas supply to Kyivenergo’s CHPPs and boilers is positive for Kyivenergo: on one hand, the company has an excellent opportunity to reduce the loss-making production of heat energy in the short-term; on the other hand, now is a good time for Kyivenergo to appeal to increase heating tariffs and/or raise compensation for heating losses from the Kyiv city budget. Even though the law “On Prices and Pricing” stipulates full compensation for Kyivenergo’s heat losses from the city budget, currently Kyiv’s budget foresees USD 82 mln – only about 50% of the company’s estimated heat losses in 2008. We expect amendments to the city budget in the near future that would raise compensations.