Ukrnafta Suspends Retail Sales of Oil Products

Ukrnafta (UNAF: SELL) yesterday suspended oil product sales via its network of 563 gasoline stations, according to a company press-release. The suspension was caused by an inability to make necessary wholesale purchases, which was the result of recent changes to legislation. Vladimir Nesterenko: Our understanding is that recent changes to to the law on state-financed purchases left Ukrnafta without a choice. On one hand, changes in tax treatment of commission sales could have made it unprofitable for Ukrnafta to sell oil products on commission, as it did in 2007. On the other hand, the legislation changes demand that the company makes wholesale purchases only through a public tender with at least three participants. Given that Ukrnafta is the largest retail player in Ukraine, it was not surprising that the company could not find enough large-volume sellers. While slightly negative for Ukrnafta (retail operations’ contribution to EBITDA is miserable), the news is positive for other retailers, like Galnaftogaz (GLNG: U/R), for which this creates an opportunity to improve their market share.