Ukrnafta welcomes Naftogaz UAH 3.8 bln debt recognition, requests more

Ukraine’s biggest oil producer Ukrnafta (UNAF UK) commented on Mar. 31 on the UAH 3.75 bln debt for natural gas that was taken for free by its parent company Naftogaz. In its IFRS report for 2013 published on Mar. 27, Naftogaz explicitly recognized that it has to compensate for 10.1 bcm of gas that was produced by Ukrnafta in 2006-2011. Naftogaz supplied this gas to households without any payment to the producer. Naftogaz has estimated its obligations to Ukrnafta for the expropriated gas at UAH 3.75 bln (implying UAH 372/tcm, or roughly USD 60/tcm based on the average exchange rate).

In its Mar. 31 press-release, Ukrnafta welcomed Naftogaz’s recognition of debt for the unpaid natural gas, but has stressed that the value of the gas should be higher than Naftogaz has estimated. At the same time, Ukrnafta has not provided its own estimate of Naftogaz’s possible debt. Earlier this year, minority shareholdersof Ukrnafta estimated the company’s total losses from Naftogaz’s expropriation of natural gas at over USD 5 bln (or over USD 495/tcm).

Alexander Paraschiy: Despite being owned by 50% by Naftogaz, Ukrnafta has powerful minority shareholders who are usually associated with the tycoon Igor Kolomoiskiy. With its debt claim, Ukrnafta is protecting the rights of these “minorities”, who are considered to fully control the company’s management. Therefore, in this dispute over Naftogaz’s debt we are observing simply a battle for control over Ukrnafta between powerful “minorities” and the government which is the majority shareholder.

The encouraging news for Ukranfata’s portfolio investors is that such a battle might result in some real compensation from Naftogaz to Ukrnafta. This should turn into the recognition of a large profit and the payment of large dividends by Ukrnafta. However, we believe the large compensation should not be treated as a very likely scenario. One of the possible outcomes of the dispute would be – Naftogaz will continue to delegate operating control over the company to “large minorities” in exchange for some peaceful solution of the debt dispute. Needless to say, such an outcome will not benefit the true minority shareholders of Ukrnafta very much.