PM Tymoshenko proposes boosting capital of Naftogaz

11:50, 18 June 2009
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To 10-18 billion hryvnias ($1.3-2.4 billion)

Ukrainian Prime Minister Yulia Tymoshenko on Wednesday proposed boosting the capital of state energy company Naftogaz and to use the funds to cover the costs involved in limiting gas price increases to domestic consumers, Reuters reported. The financial state of Naftogaz has been at the focus of political debate in Ukraine, with President Viktor Yushchenko accusing Tymoshenko, his estranged ally turned arch rival, of pursuing policies that will drive the company to ruin.

Tymoshenko denies the charge and says she is taking measures to ensure the company`s solvency.

Addressing reporters after a cabinet meeting, the prime minister proposed boosting the company`s capital to 10-18 billion hryvnias ($1.3-2.4 billion) from 5.6 billion at present.

She said some of the funds could be channelled to making up losses incurred by charging consumers lower prices than that paid to import gas from Russia.

"We have decided that we must immediately get results on two issues -- provide Naftogaz with the resources to cover the difference in prices for (utilities) and also have the funds as part of Naftogaz`s capital to make it stronger," she said.

The boost in capital, Tymoshenko said, "could be from 10 to 18 billion hryvnias depending on what parliament decides". Any such decision would require amendments to current legislation.

She gave no details which laws would have to be amended or where the money would come from.

On Tuesday, Tymoshenko said after talks with European Union officials in Luxembroug that Ukraine needed $4 billion in credits to buy Russian gas for its underground storage and hoped to raise the funds through European banks.

Improving Naftogaz`s finances was one of the conditions imposed by the International Monetary Fund in negotiations to restore the flow of credits under a $16.4 loan programmme clinched with Ukraine last year. Suspended in February, the credits were restored last month.

The government has boosted the capital of state banks and also moved to capitalise three private banks having difficulties in meeting payments.

In all instances, domestic government bonds were issued, refinanced by money issued by the central bank.

Yushchenko has been particularly critical of the practice of issuing new credits to ensure Naftogaz meets its monthly payment to Russan giant Gazprom (GAZP.MM: Quote, Profile, Research) for gas supplies -- due on the seventh day of the month following the purchases.

The cost of gas imports from Russia has risen sharply since 2006 and is always the subject of tense negotiations with Gazprom. But tariffs for local gas consumers have been deliberately kept low, making Naftogaz`s finances precarious.

Russian President Dmitry Medvedev and other officials in Moscow have expressed doubts about Naftogaz`s ability to pay in the aftermath of a 10-year supply deal clinched by Tymoshenko in January after a more than two-week cutoff in gas flows.


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