REUTERS
National oil and gas holding Naftogaz of Ukraine and its subsidiary, Ukraine's largest state-run gas producer PJSC Ukrgazvydobuvannia, ask Ukraine's Cabinet of Ministers to reimburse them UAH 111 billion (US$3.8 billion) for their two-year fulfillment of unprofitable state obligations, that is gas supplies to households via privately owned regional intermediary gas companies, according to Naftogaz's press service.
"The current special obligations model harms the state, consumers, and the development of the market. Its existence in the past two years has cost a considerable amount of money, which we estimate at over UAH 110 billion," the press service quoted Naftogaz CEO Andriy Kobolyev as saying.
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"According to our estimates, the compensation for the special obligations by Ukrgazvydobuvannia... totals about UAH 74.8 billion [$2.6 billion]," Ukrgazvydobuvannia CEO Oleh Prokhorenko said.
The holding's total losses are estimated at UAH 36.2 billion [$1.3 billion], of which UAH 12.1 billion [$419 million] Naftogaz failed to receive as the Cabinet earlier set a price that did not meet the justified level, plus UAH 24.1 billion [$834 million] in the debts that the regional gas companies accumulated before Naftogaz.
"At the same time, Naftogaz paid to the national budget all taxes related to gas sales on time and in full. For comparison, settlements for gas delivered over this period to counterparties that are not part of the special obligations accounted for almost 100%," the press service added.
"The current system leads to multi-billion dollar losses of the state. It must be urgently abolished and replaced by transparent market conditions... We have repeatedly suggested that the government introduce a mechanism of market pricing and free competition for each consumer, while market revenue should be used to increase output and renovate the energy sector," Kobolyev said.
He also emphasized that without the completion of the gas market reform, ambitious plans to increase production, refuse from gas imports, reduce gas prices for households and implement large-scale energy efficiency measures would only look good on paper.
Naftogaz also noted that last year the company won a number of lawsuits against the Cabinet. The court ordered the government to develop a procedure and find sources of compensation.
As UNIAN reported, the holding earlier said that the regional gas companies did not create real value added in the gas sales chain and bear no price risks, while Naftogaz was obliged to sell them fuel. At the same time, the state-owned company is deprived of the right to supply gas directly to households, thus creating competition in the retail gas market.
In the middle of July 2017, Kyiv's District Administrative Court upheld Naftogaz's lawsuit against the Cabinet and ordered the government to determine the procedure and sources of compensation for Naftogaz. In turn, the government noted that the high level of the holding's profit makes it impossible to pay any compensation to the company. In early October last year, the Cabinet appealed against the court ruling. However, Kyiv's Economic Court of Appeals has dismissed the claim.
On January 17, 2018, Kobolyev said that the mechanism of special obligations on the gas market for two years caused $1 billion in state losses.
UNIAN memo. NJSC Naftogaz of Ukraine is the largest state-run vertically integrated oil and gas holding whose subsidiaries account for about 90% of oil and gas production in Ukraine. Naftogaz develops oil and gas fields, produces crude oil and natural gas. Its core business is also transportation and trade in fuel through its own network of filling stations.
Over 70% of the Ukrainian regional gas companies and distribution companies belong to the structures of Ukrainian businessman Dmytro Firtash.