Ukrnafta Under Pressure To Sell Gas To Population.

The Cabinet has ordered state-run companies, including Ukrnafta (UNAF: HOLD) to sell the natural gas they extract to the population only. Acting Fuel and Energy Minister Ivan Plachkov said the government does not want to hurt low-income groups, therefore, it is asking state-run companies to supply the gas they extract to the population. At the moment, Ukrnafta is still selling gas solely to industrial consumers. Concorde Capital: Although the Cabinet’s order could result in Ukrnafta selling its gas at below market prices, we doubt it will be enforced. We maintain our view (see the report from May 11, 2006) that the company’s second largest shareholder, Privat group, won’t simply follow the Cabinets order, but fight, – in courts if needed. The order is legally questionable, and the probability of Privat wining a law suit is quite high. Even if enforced, we do not think the government’s decision will significantly affect UNAF’s financial stance, as gas sales account for less than 10% in UNAF’s gross revenues and their share will decrease further due to growing retail gasoline sales. Our forecast for UNAF’s yearly average gas price of USD 89/ths cm is conservative enough and factors in the possibility of selling gas at below market.