Ukraine cancels its decision to spin off Ukrtransgaz from Naftogaz

Ukraine’s Economy Ministry cancelled its decision amending the charter documents of natural gas state monopoly Naftogaz, according to a Sept. 19 Cabinet press release. The release also reported that Ukrainian Prime Minister Volodymyr Groysman agreed with IFI representatives, as well as U.S. Ambassador to Ukraine Marie Yovanovitch, to accelerate reforms of Naftogaz in a transparent way.

The cancelled amendments to the charter stipulated that Naftogaz loses control over one of its two key assets, the gas transit monopoly Ukrtransgaz. Such a decision, adopted without consultation or public discussion by the Economy Ministry on Sept. 7 and uncovered on Sept. 16, was criticized the same day by the top management of Naftogaz and the EBRD, one of the holding’s lenders. Moreover, on Sept. 19, three deputy economy ministers issued a public statement that they were not aware of the decision and did not participate in its approval. In this way, they laid full responsibility for the questionable decision on Economy Minister Stepan Kubiv.

Alexander Paraschiy: The Economy Ministry’s decision to cancel the Ukrtransgaz spinoff is what we expected yesterday. It was too risky for the government to keep that decision valid and thereby put Naftogaz under the risk of technical default. The outcome is more damage to the image of Kubiv, who also serves as the first deputy prime minister. As a positive externality, the scandal may end up accelerating the reform (unbundling) of Naftogaz, which has been in “transition” status for more than two years, without any tangible results.