Photo from UNIAN
Ukraine's Naftogaz, the giant publically-owned Ukrainian oil and gas company with 80,000 employees, used to be a synonym for wastage, corruption and opacity. But it looks like it might have turned a corner, according to Georg Zachmann's op-ed at bruegel.org.
"Thanks to a new management team, a fourfold increase in gas prices and the beginning of legal reforms, its losses in 2015 will be down to 3.1% of Ukraine's GDP, from 5.5% in 2014, according to the International Monetary Fund. The impact on the deficit could fall to 0.2% in 2016, and Ukraine's dependence on Russian gas has been markedly reduced," Georg Zachmann wrote in his article titled "Helping Ukraine to reform Naftogaz's gas transmission business" at bruegel.org on November 23.
At the same time, the "reform of Naftogaz is stalling," the author believes. Though they adopted a gas law in April, Ukraine's politicians have not been able to agree a model for the unbundling of Naftogaz's different business lines, or on which should be prepared for privatization."
Read alsoUkraine able to ensure gas supplies whatever Russia does: Naftogaz chiefZachmann goes on saynig: "The risk is that if Naftogaz is not quickly and comprehensively reformed, the bad old habits of redistribution and political corruption will resurface. Because of the importance to Ukraine of Naftogaz, this could undermine the country's association process with the European Union. In addition, the income from gas transit, from which Naftogaz currently earns about $2 billion, might drop to zero should Russia's Gazprom finalize its attempts to circumvent Ukraine's gas transit system via the Nord Stream II pipeline."
The only sensible response to both challenges is to complete the reform of the regulatory framework and to fully unbundle Naftogaz, Zachmann said.
As a solution, the author proposed Ukraine sell a share in its gas transmission business to the European Bank for Reconstruction and Development (EBRD) "which has built up expertise in Ukraine's gas sector over two decades and has experience of pre-privatization deals."
Read alsoUkraine, EBRD sign loan agreement for $300 mln to finance gas purchases"From the perspective of the mainly European taxpayers that fund the EBRD, such a transaction is justified by self-interest," Zachman wrote. "The EU would stabilize gas transit through Ukraine, enable gas sector reforms that are crucial for Ukraine's political stability and might even extend its internal gas market to a country with significant gas storage and production potential."
"To enable the deal, the Ukrainian government would have to commit to a regulatory framework enabling the EBRD to make profits if the gas transmission business is well managed. Based on this commitment, the EBRD could bring in western expertise and money to restructure the business. The aim of the operation would be full privatization of the state and the EBRD shares some years down the road. The expected revenues when this final privatization step takes place would be a major incentive for the Ukrainian government to stick to its commitments to the EBRD," the author concluded.