Ukraine TSO in Deep Financial Trouble: Naftogaz

State monopoly Naftogaz Ukrainy has warned that unless the regulator increases the low ‘temporary’ transport tariffs and addresses the unauthorised offtake of gas, the high-pressure network operator (TSO) Ukrtransgaz faces bankruptcy. Its poor finances are already limiting owner Naftogaz’ ability to inject more gas into storage for winter, it said June 24.

Transit is a major revenue-earner for Ukraine and any suggestion it cannot fulfil Gazprom's nominations owing to the pipeline's poor technical state should be of concern to Kiev.

But so far its warnings have fallen on deaf ears: repeated warnings to the energy market regulator about the "destructive influence" that its decisions have had on Ukrtransgaz’ financial stability have not led to a higher tariff, or to a revised network code to prevent local distribution companies from taking large amounts of gas without prior agreement, said Naftogaz.

“We have said for the last half year that Ukrtransgaz could become bankrupt owing to the artificially low tariffs and unauthorised gas offtakes. Unfortunately, the responsible organs have chosen to ignore bad news and the situation has become critical,” said CEO Andrei Kobolev. “Naftogaz supported Uktransgaz, to the extent possible, and is its biggest creditor. But this cannot go on. We have to inject gas into storage for winter and we do not have sufficient cashflow,” he said.

“We welcome the desire to establish who is responsible for this unacceptable result. We are ready to offer all the necessary materials for analysis and discussion,” he added.

In November, Ukrtransgaz submitted reasoned objections to the regulator’s “temporary tariffs’ which slashed its income by 40%, Sadly the regulator did not consider the arguments and adopted the lower tariffs, from May.

In February, Uktransgaz submitted proposals to amend the temporary tariffs, but these proposals have not so far been examined. These decisions have not only left Ukrtransgaz with limited cash for investment but have also left it unable to buy fuel gas for the compressor stations.

Further, Ukrtransgaz and Naftogaz have drawn the regulator’s attention more than once to the regional gas distributors’ habit of taking gas from the system which they have not contracted to take, and the distribution companies in their turn say the tariff is too low for it to settle their accounts with Ukrtransgas for the offtakes of gas.

Because of the artificially low tariff and the unauthorised offtake, the TSo is in deep financial trouble and and has run up debts of over hryvnia 4bn ($153mn) to its suppliers, including Naftogaz. It was also unable to complete some gas tenders for June.

Naftogaz and Ukrtransgaz are working on urgent measures to ensure that the TSO is functioning smoothly. But only the active co-operation of the regulator will correct the problem, it said.