Ukraine government assumes control of Naftohaz

12 October 2016, Week 40, Issue 902

Ukraine’s Cabinet of Ministers has taken full control of national energy firm Naftohaz to oversee the unbundling of its transportation arm in line with the EU’s Third Energy Package requirements.

The 100% stake in Naftohaz previously held by the Ministry of Economic Development and Trade was transferred to the Cabinet of Ministers, reported Interfax-Ukraine on October 7, citing a company statement posted on the website of the National Commission for Securities and the Stock Market.

Late last month, a government resolution approved the move, which follows a stand-off between the country’s highest governing body and the Economic Development and Trade Ministry over Naftohaz’s transportation arm Uktranshaz.

On September 7, the ministry unilaterally renewed its charter over Uktranshaz, assuming all management duties and control over its investment plan. These responsibilities had previously belonged to Naftohaz. Europe’s energy watchdog, the Secretariat of the Energy Community, warned Kyiv that the transfer breached its Third Energy Package, which outlaws the ownership of both energy transmission infrastructure and production by one single entity. Ukrainian officials later reversed the decision, saying that it also threatened the US$17.5 billion in bailout agreements with international creditors, including the World Bank and the European Bank for Reconstruction and Development (EBRD).

The two lenders said that for the ministry to control both Naftohaz and its transportation unit jointly undermined investor confidence.

Ukraine is pressing ahead with plans to spin off Uktranshaz’s pipeline and gas storage arms, creating two separate companies that will be wholly owned by the government. These entities will operate independently of Naftohaz and its production operations, bringing Ukraine into line with European energy regulations.

“This decision will accelerate Ukraine’s full integration into the pan-European energy system”, Naftohaz CEO Andriy Kobolyev said in a statement after the government approved the unbundling plan in August.

Naftohaz said last week that it expected to return to profitability this year, following a string of losses that have weighed heavy on the cash-strapped country’s budget. Net profits for 2016 are estimated to total 18.4 billion hryvnia (US$714.6 million) – up from a net loss of 34.1 billion hryvnia (US$1.7 billion) in 2015. The surge in performance was on the back of an increase in retail and wholesale gas prices in 2016.

The company is also embroiled in a protracted legal dispute with Russia’s Gazprom over allegedly overstated gas import prices. Naftohaz is claiming over US$28 billion in compensation from the Russian firm.

Joseph Murphy

Edited by

Joseph Murphy


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