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Ukraine to prepare GTS operator privatization by end-2014

Ukraine to prepare GTS operator privatization by end-2014

20 August 2014

The Ukrainian government will prepare a tender for the privatization of a natural gas transmission system (GTS) operator company by the end of this year, Energy Minister Yuriy Prodan informed journalists at an Aug. 19 press conference. The ministry will prepare a presentation of the GTS operator for potential investors in September.

 

Last week, Ukraine’s parliament adopted a law that permits the sale of a 49% stake in an operator state enterprise that will lease the nation’s GTS from the state and will operate it. Investors from the EU and U.S., which are licensed gas transportation operators under EU rules, will be allowed to participate in the privatization tender.

 

At the same press conference, Prodan said Ukraine can import annually from EU countries up to 16 bcm of natural gas. Over the last two years, Ukraine imported 30.5 bcm of gas p.a., on average. In 2013, Ukraine consumed 50.4 bcm of gas.

 

Alexander Paraschiy: Attracting EU-based investors into the Ukrainian GTS project should decrease the probability that EU operators will pursue alternative gas transit routes from Russia. The planned September discussion with potential investors should show whether this strategic goal is achievable.

 

The 16 bcm p.a. import capacity from the West is clearly not enough for Ukraine to satisfy its demand for gas. At the current level of internal gas consumption, Ukraine will still need to import at least 10 bcm (or 20% of its consumption) from other sources. Clearly, the best solution for Ukraine would be to persuade EU-based gas holdings to amend their contracts with Gazprom to buy gas at the Russian/Ukrainian border (instead of the Ukraine/EU border). This will enable Ukraine to buy gas at “the European market” on its own territory, instead of pumping it from the EU. Theoretically, the privatization of Ukraine’s GTS operator will make such a scenario more probable, while it would require a lot of time to fulfill.

 

Meanwhile, Ukraine has accumulated 15.3 bcm of natural gas in its underground storage tanks as of Aug. 17. At the traditional level of gas consumption, Ukraine will reach a minimum of stored gas (7 bcm) already in February 2015 (providing gas imports from the EU will be at the government’s declared maximum and assuming no radical changes in internal gas production). To survive the heating season of 2014/15 smoothly, Ukraine will have to cut its gas consumption in the winter by at least 25%, which will be not an easy task.

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