Ukraine under fire over gas group revamp

Posted on September 18, 2016

File photo dated 18/01/12 of gas rings on a cooker. Weeks of unusually cold weather have drained nearly all of Britain's gas supplies, sparking fears of a spike in energy prices, it has been reported. PRESS ASSOCIATION Photo. Issue date: Friday February 22, 2013. Households have been forced to turn up their heating as the freezing weather continues, pushing the demand for gas to 20% higher than normal in March, The Times reported. See PA story CONSUMER Gas. Photo credit should read: Yui Mok/PA Wire©PA

Ukraine’s creditors have warned that a surprise decision by the government to impose direct control over the war-torn country’s prized natural gas transportation company could jeopardise hundreds of millions of dollars of additional financing linked to a $17.5bn International Monetary Fund bailout package.

The news comes just days after the IMF approved and disbursed a long-delayed $1bn loan.

    “If all the facts we have learned from third parties are confirmed, we are very disturbed and this development is very serious,” said Anton Usov, a spokesperson for the European Bank for Reconstruction and Development. The World Bank, another primary lender to Ukraine and, more specifically, Naftogaz, the state gas company, is also understood to have raised objections.

    Concerns were raised after Stepan Kubiv, Ukraine’s deputy prime minister, moved to change Naftogaz’s charter, shifting control over subsidiary gas transportation operator Ukrtransgaz to the economy ministry.

    Mr Kubiv told local journalists the move was designed to unbundle Naftogaz into separate transit and supply businesses, meeting the country’s commitments to the European Union’s so-called Third Energy Package. The legislative packages govern energy market competition rules that Ukraine signed as part of its EU integration efforts.

    But in a statement, the Secretariat of the Energy Community, which oversees the implementation of energy agreements across the EU and neighbouring countries, warned Ukraine’s “unilateral move” violated rules by placing both Naftogaz and Ukrtransgaz under control of the economy ministry.

    “The secretariat calls upon the Ukrainian authorities to fully and swiftly implement the resolution on unbundling, and follow OECD guidelines on the corporate governance of state-owned enterprises, as agreed also with international donors,” the organisation said.

    “Failure to do so may cause enforcement action by the secretariat, jeopardise Naftogaz’s ongoing arbitration cases [with Russia over natural gas], and endanger the role of Ukraine as a gas transit country.”

    Questions remain over the government’s move, which was sharply criticised by Naftogaz’s management team. Long a loss-making company, the business became profitable after the government raised household gas utility tariffs to market levels as part of the IMF programme.

    “As a result of the unlawful actions of the ministry’s high officials, Naftogaz may not be able to receive a $500m loan from the World Bank, which is crucial for ensuring secure gas supplies during the winter of 2016-17 in Ukraine,” Naftogaz said in a statement. Additional financing from the European Bank for Reconstruction and Development also hangs in the balance.

    The faultlines emerged as diplomats and global leaders, including Johannes Hahn, EU enlargement commissioner, gathered in Kiev on Friday and Saturday for the annual Yalta European Strategy conference.

    Addressing the gas dispute at the conference on Saturday, Prime Minister Volodymyr Groysman said his government had “acted within its powers”.

    “But if this step is contrary to our obligations, the decision will be changed,” he added.

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