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Gas conflict between Cabinet and Naftogaz: Will Ukrainians have heat in their homes this winter?

17:50, 12.06.2019
6 min.

Another conflict has erupted between the Cabinet and Naftogaz. This time it broke out against the background of the purchase of gas for the passage of the future heating season, taking into account the risk of a halt to the transit of Russian gas from January 1, 2020. Naftogaz said it had no money for these purposes. In turn, the government believes that the issue of the shortage of funds should be resolved by Naftogaz's "creative" management, which over the past three years has increased tenfold the expenditures on the company's management.

The conflict between the government and National Joint-Stock Company Naftogaz of Ukraine, which has been going on for years, has entered a new phase. While earlier it was Naftogaz management's premiums and gas prices for the households that were in focus, now it is the scandal surrounding the purchase of gas for the next heating season.

The moment itself is critical. After all, the "price of the question" is whether Ukraine will be able to survive the winter without trouble. On January 1, 2020, the contract with Gazprom on gas transit to Europe through the territory of our country expires. It is from the volumes pumped into the EU that Kyiv buys reverse gas from European suppliers.

The Russian side is betting on the scandalous project Nord Stream 2, bypassing our country. Although it promises, under the onslaught of the European Union and the United States, to fill our gas transmission system, the volume of pumping is announced at about 15 billion cubic meters of gas, which in fact means only technical support for the pipe. Trilateral negotiations in the Ukraine-EU-Russia format over the future transit contract have not yet taken place – they are postponed until the elections to the Verkhovna Rada have been held.

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To eliminate all risks, Naftogaz plans to pump 20 billion cubic meters of gas into underground storage facilities. Already pumped 12 billion cubic meters. And the moment of purchasing fuel is now the most suitable - gas at European hubs is cheap. On the Dutch stock exchange TTF and German NCG and GASPOOL, it now costs about 6,600 - in UAH plus VAT. The whole problem is that Naftogaz has money to buy fuel.

Naftogaz CEO Andriy Kobolyev said that a shortage of working capital could prevent the company from continuing to accumulate gas in underground storage facilities.

"As of June 1, there is 11.5 billion cubic meters in the Ukrainian subway, which is 1.8 billion cubic meters more than last year. If we continue to accumulate gas at such rates, by the beginning of the heating season, we will have reached the required level of 20 billion cubic meters. Then we will be ready for any actions of Gazprom, and Ukraine's position in the negotiations will be defended. But this may be hampered by a shortage of working capital at Naftogaz," Kobolyev wrote on Facebook, stressing that the situation requires urgent attention at the highest level.

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Among the factors provoking a shortage of funds, he called the debt for gas of gas sales companies and heat producers in the amount of UAH 61.4 billion, which is twice as much as is needed for a qualitaty preparation for the winter.

“Another factor of the deficit is the requirement of the Cabinet to pay 90% of our profits as dividends as early as by the end of June. Right now, when we need money to buy gas for the winter, this is an extraordinary challenge for us. We have to choose – dividends now or a safeguard against the crisis," said Kobolyev.

According to him, the company needs an installment plan until it starts selling gas. He considers attracting credit funds as another way out of the situation, for which permission and active participation of the Cabinet of Ministers as the sole shareholder of Naftogaz are also needed.

"So far, in filling the underground storage facilities we are moving on schedule. But if the liquidity problem is not resolved in the coming weeks, it will be impossible to purchase sufficient volumes of gas," concluded Kobolyev.

His main opponent, Prime Minister Volodymyr Groysman, didn’t touch on this important topic at a government meeting. He focused on gas prices for the households, saying that they should be reduced by another UAH800-900, and called Naftogaz an "insatiable monopoly." For the indicative "flogging" of Naftogaz, the government appealed to the Accounts Chamber, the Antimonopoly Committee, the State Fiscal Service, and the State Audit Office, so that they set up a joint group to check the pricing mechanism of Naftogaz.

Within the framework of a Q&A hour with the government in the Verkhovna Rada, Deputy Prime Minister supervising energy issues Volodymyr Kistion spoke on the topic of gas pumping. He believes that the "creative" management of Naftogaz, which since 2016 has increased the costs of maintaining the company's management tenfold, must answer for the shortage of funds for the purchase of gas for the passage of the heating season in case of termination of the transit of Russian gas via Ukraine.

"The company is profitable, so where's the money? If you look at least how much money is spent on the maintenance of the management, since 2016, these funds have increased tenfold. While there was UAH 800 million, then more than UAH 3.5 billion is spent on the management in the form of wages," he said.

According to Kistion, the management of the company must answer for the efficiency of the use of the financial resources of the NJSC and the problem of a shortage of money for the purchase of gas.

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"If we analyze the effectiveness of the use of financial resources by Naftogaz and the question that is being raised today about the lack of financial resources for the purchase of gas in the period of the lowest price, I think this is a question, first of all, to be put forward before the creative management of Naftogaz who has been heading the company for more than five years," said the deputy prime minister.

"The management should answer these questions: Where can we get money? Through what procedures? For the past three years, Naftogaz has not approved a financial plan, that is, they've been working without a financial document. I think there are questions on which both MPs and law enforcement agencies need to work," he added.

In unison with Kistion, Minister of Energy Ihor Nasalyk says: "Naftogaz is a rather strange organization, from which we, as a ministry, cannot receive data on gas supplies and other economic activities."

In the meantime, while the parties to the conflict are fighting, the question of whether Ukraine will have h gas in winter is becoming increasingly relevant.

Wrong time to argue

Andriy Gerus, the president's envoy to the government, believes that the positions of the parties to the conflict are understandable and rational, but the main thing now is to find funds for the purchase of gas.

"There is rationality in both positions. The government needs a full budget. Naftogaz needs money to buy gas. And now is the right time for this in terms of price. We must find a way to raise funds. The Ministry of Finance and Naftogaz are currently working on this. We are talking about loan funds," Gerus said.

Director of Center for Energy Research, Oleksandr Kharchenko, believes that, on the one hand, Naftogaz's financial problems really arose due to the debt of regional gas companies and gas sales. But besides this, there is a place for the government to comply with the law on the gas market.

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"I hope that under the new president, this will be a pretext for a criminal investigation against members of the government. The law provides for the introduction of a mechanism of compensation from the government for the implementation of those special obligations, which the Cabinet of Ministers failed to do for almost three years, which is a clear violation of the law. And we are talking about UAH 45-60 billion. The gap in numbers is explained by the fact that you can count as you like because the Cabinet never approved the calculation method. As for the requirement to pay 90% of Naftogaz’s profit to the budget in June, this is exactly the case where gas is the cheapest on the market, that is, now is the best time to buy it. In such a situation, credit resources may be the only way to provide financing for fuel purchases. But this path is also being blocked by the government. Naftogaz is a state-owned company and is not eligible to take out a loan without the Cabinet's permission. I sincerely hope that there will be an objective investigation into the actions of the government’s energy bloc and all these games will be evaluated by law enforcement agencies. In a situation where an attack on transit on the part Russia is definitely expected in winter, and there will be problems with gas, it seems to me that the actions of the Cabinet in this area look absolutely clear," said Kharchenko.

Energy expert Valentyn Zemliansky believes that an audit will help figure out the situation with Naftogaz.

"Only the audit of Naftogaz will be able to answer all questions. But an attempt to shift the responsibility to regional gas sales companies and heat generators is pure manipulation. The reason for the debt is lowered tariffs for the regional gas sales companies and schemes for allegedly unauthorized withdrawal of gas by heat generation companies, where the sums then go to the benefit of Naftogaz. As for the question of where to get money for the purchase of gas, Kobolyev is positioning himself as a crisis manager, so let him showcase these qualities. As for the loan, most likely, it is at the Cabinet's field of responsibility. Kobolyev is all about playing safe, so he will not go against the regulations," concluded the expert.

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The Cabinet and Naftogaz have chosen the most inappropriate moment for a harsh argument. At stake is the fate of the future heating season. Right now the question is being decided whether the batteries in households will be hot when winter comes. Therefore, they shouldn't be fighting about who is right, but rather look for a way out of this situation, together. There is very little time for this.

Nana Chornaya

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