Naftogaz criticizes Cabinet gas accumulation plan, Ukrtransgaz spinoff

The Ukrainian government will have accumulated enough natural gas if 15.1 bcm is stockpiled in underground storage by Nov. 1, Naftogaz CEO Andriy Kobolev told the zn.ua news site on Sept. 18, rejecting the Cabinet of Minister’s target of 17 bcm by Nov. 1 that was approved on Aug. 31. This target was based on the possible risk that about 2.5 bcm of gas will need to be burned by thermal power plants if coal stockpiles aren’t sufficient, he said. Electricity produced from natural gas will cost UAH 2.5/kWh, which is too expensive (thermal power plants are selling power generated from coal at UAH 1.1/kWh). He also stated that purchases of excess gas, that would cost about USD 500 mln, will create additional devaluation pressure on the local currency. Such a decision also means that Naftogaz will have to purchase additional gas directly from Russia, which “de facto refused to sell us natural gas,” he said.

In other news, Naftogaz of Ukraine issued a Sept. 16 statement criticizing a decision by Ukraine’s Economy Ministry to subordinate directly state gas transit monopoly Ukrtransgaz, which used to be controlled by Naftogaz. The ministry’s decision – which changed Naftogaz’s charter – was adopted on Sept. 7 and was revealed by the media on Sept. 16. The decision contradicts a Naftogaz reform plan and a USD 300 mln financing agreement with the EBRD, according to Naftogaz. It also puts under risk a possible provision of a USD 500 mln loan to Naftogaz from the World Bank. Naftogaz’s statements were backed by EBRD Managing Director for Eastern Europe Francis Malige, who commented to Interfax-Ukraine on Sept. 17 that the ministry’s decision should be cancelled. The same day, PM Volodymyr Groysman promised to study the issue in depth and “react accordingly,” according to Interfax-Ukraine.

Alexander Paraschiy: It is worrying to see that Naftogaz and the government have different visions on the reform of the gas sector and even on more routine things like the amount of needed gas stockpiles. While in the distupe about Ukrtransgaz Naftogaz seems to have backing from international financial organizations (and thus it may win), it has no such support in the question of target amounts of accumulated gas. This means that the state holding will have to fulfill the government’s order to accumulate the targeted 17 bcm of natural gas by Nov. 1, which may result in temporary pressure on the Ukrainian currency in October 2016.