Gazprom claims Naftogaz owes USD 3.3 bln

Naftogaz of Ukraine (NAFTO), the state natural gas production and transit monopoly, owes USD 3.29 bln for gas it bought from Gazprom (GAZP RM) in 2013 and January 2014, the Russian monopoly reported on February 3. In January alone, Naftogaz imported 2.45 bcm of gas from Russia for a total consideration of USD 658 mln, according to Gazprom. The monopoly’s CEO met with Acting Deputy PM of Ukraine Yuriy Boyko to discuss debt repayment, Gazprom stated on February 3, not declaring any results of the discussion.

Alexander Paraschiy: It looks really worrying that Naftogaz, having been a prompt payer during the last four years, started delaying its settlements with Gazprom since September 2013 and has stopped payments altogether since 2014. We understand that Naftogaz’s attempts to delay payments are related to the wish of Ukraine’s government to keep foreign reserves at a “reasonable level” for as long as possible. Had Naftogaz settled its debt to Gazprom in 2013, the NBU end-2013 reserves would have been USD 19.1 bln, or a worrying 2.2 months of future imports, not 2.4 months as they have been reported.

Such a postponed use of NBU reserves could have worked well when Russia’s macroeconomic support was secure. But now that Russia has officially put offits financial support, the government is forced to choose between declaring Naftogaz temporarily insolvent or allowing for a rapid decline in NBU reserves, which may lead to a severe downgrade of Ukraine’s ratings and a currency shock.

Ironically, Naftogaz’s debt to Gazprom raises the likelihood that the Russian government will extend its promised financial support to Ukraine, if merely for the simple goal of restructuring Naftogaz’s debt into the government’s liabilities. Needless to say, such loans will add little to the stability of Ukraine’s currency and sovereign solvency.