Ukraine boosts Naftogaz equity by UAH 31.5 bln

Ukraine’s Cabinet of Ministers ordered on Jan. 23 an increase in the charter fund of state natural gas monopoly Naftogaz by UAH 31.5 bln via a contribution of government bonds with a maturity of up to 10 years and coupon rate of 14.5%, according to a government decree made public on Jan. 26. Naftogaz can use funds from the sale of these bonds to cover its operating expenses, including the purchase of imported gas, the decree stated. Last year, the Cabinet contributed UAH 96.9 bln to Naftogaz equity via printing of local bonds.

Alexander Paraschiy: The UAH 31.5 bln amount is the entire planned state contribution to Naftogaz that was earmarked in the 2015 state budget, and it’s a part of UAH 88 bln in quasi-fiscal financing planned by the government this year (which also includes provisions for bank recapitalization and the deposit guarantee fund). This money would be enough for Naftogaz to cover its operating expenses only if the government significantly increases its natural gas rates for households and/or heating companies.

These two categories of consumers pay currently less than USD 80 per tcm of consumed gas, while Naftogaz is importing part of the gas that they use at about USD 340/tcm-380/tcm. As assumed by Naftogaz’s CEO during our conference call on Nov. 12, 2014, Naftogaz’s 2015 deficit could reach USD 3.0 bln (more than UAH 50 mln) without boosted gas rates. A significant increase in gas rates for households and heating enterprises was announced by Ukraine’s prime minister in late 2014, though its timing is not clear yet. We expect the decision on heightened gas rates will be adopted in the first half of 2015, most likely in March-April.