Ukraine court rules against Ukrnafta paying tax debt with gas

The Supreme Court of Ukraine has ruled to overturn the decision of the High Administrative Court that allowed oil company Ukrnafta (UNAF UK) to repay its UAH 13.6 bln tax debt with 2.06 bcm of natural gas, the epravda.com.ua news site reported on Oct. 25, citing the State Tax Administration. That will allow the state to collect money to compensate the tax debt owed by Ukrnafta, according to tax authorities.

Recall, Ukrnafta, controlled by businessman Igor Kolomoisky (even though its 50% stake is held by state holding Naftogaz), has accumulated over UAH 11 bln in tax payables at the end of 2015, and management later offered to compensate the debt with 2.06 bcm of natural gas.

Ukrnafta claimed it deposited that gas in underground storage in 2006, but Naftogaz expropriated it. In turn, Naftogaz claimed it purchased that gas from Ukrnafta in full compliance with regulations at that time. Naftogaz did not pay for that gas because Ukrnafta refused to sign the sale-purchase documents. Ukrnafta’s refusal was based on its claim that the then-existing regulated prices of natural gas were too low (based on then prices, 2 bcm of gas would cost about UAH 0.7 bln).

Alexander Paraschiy: With its latest court decision, Kolomoisky’s plan to pass Uknafta’s tax debt onto Naftogaz has failed. The company has no liquidity to repay its multi-billion tax debt, which means the risk that the company will go bankrupt is intensifying. But this is definitely not the end of the story about the “expropriated” natural gas – Ukrnafta shareholders have filed an almost USD 5 bln claim with an international court demanding compensation of their losses generated by that conflict. The total amount of gas taken by Naftogaz from Ukrnafta without payment is over 10 bcm.