Ukrnafta released a statement that it has halted sales of oil products throughout its network of 563 gasoline filling stations as it lacks the necessary crude oil-processing capacity, and the government prohibits the company from supplying its own gasoline for tolling processing to be sold at its own filling stations, according to the Dragon Research Team. Based on the estimates of the Dragon Research Team, sales of oil products accounted for over 60% of Ukrnafta’s 2007 revenues, which means the company will have a high risk of failing to meet our 2008 target of $1.4bn in net sales unless the problem is solved soon.

Ukrnafta is required to sell all the oil it extracts at oil auctions. Last year it was buying oil products from independent parties to be sold at its own filling stations based on “commission agreements”. At present, however, these agreements are no longer in effect. Based on the law “Regarding state purchases”, the company is required to call a tender to buy oil products, where at least three sellers must offer similar products for sale in order for the tender to be valid. The first auction help recently failed and the next one will take place on March 4. Ukrnafta hopes it will be allowed to cut the number of sellers to just one. "We think these latest moves by the company are an act of protest against the current law and the company is lobbying hard to push its own ability to sell oil products at its filling stations processed from its own crude. We think Ukrnafta is unlikely to fully halt its retail sales but the effect on any cut in sales will have a negative impact on the company’s 2008 performance nevertheless", the Dragon Research Team notes.