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Gas price caused a quarrel between Ukraine’s Cabinet and Naftogaz

Author : Olena Holubeva

16:30, 21 July 2017
Gas price caused a quarrel between Ukraine’s Cabinet and Naftogaz

Author : Olena Holubeva

The Cabinet has reviewed the financial plan of the Naftogaz of Ukraine, according to which gas prices for the population should increase by 19%

16:30, 21 July 2017

Read the original text at 112.ua.

 

Open source

July 19, Ukraine’s Cabinet has reviewed the financial plan of the Naftogaz of Ukraine, according to which gas prices for the population should increase by 19% - up to UAH 5,873 per thousand cubic meters (without VAT). As the press service of the Cabinet, the financial plan was approved without raising the price of gas for consumers. Naftogaz, jointly with the Ministry of Economic Development, the Ministry of Finance, and the Ministry of Energy, were ordered to adjust the revenue side of the plan "in accordance with current prices."

As 112.ua source in the Cabinet noted, the debates behind closed doors were really tensed. “Financial plan of Naftogaz was conditionally agreed. Prime Minister Groisman did not sign it. He would do it when the revenue part would be recalculated in terms of gas prices as of April 1, 2017 (that is, at current prices, - Ed.),” said our source. According to him, the Cabinet expressed dissatisfaction with the work of the supervisory board of Naftogaz, which "demonstrates not quite adequate economic activity." "In pursuit of financial performance, the company is ready to rip off a simple Ukrainian, a consumer," our interlocutor claimed. In addition, there were serious complaints about the timing of the financial plan submission: "The current plan was to be submitted in February-March, and it was submitted only now." Naftogaz filed the old finplan in 2016, that is, in fact, retroactively."

Related: Decision of Stockholm tribunal allows Naftogaz to demand gas price reduction, — Poroshenko

A little later, there was an explanation of the Naftogaz itself, in which the company explained that ... it did not even think to raise prices. “The cost of UAH 5,873 per thousand cubic meters was the result compliance with the requirements of Resolution No. 187, which contains a detailed formula for determining the price," the company said on Facebook.

The protocol of disagreements, which was prepared after the meeting of the government, also says that in the financial plan presented by the company, the growth of expenses by 49% (212.6 billion UAH) outstrips the growth of revenues by 39%. Naftogaz could have eliminated this point, in particular, by reducing the wage fund, which, according to the financial plan, was increased from 465.3 million UAH in 2016 to 642.2 million UAH in 2017. To balance income and expenses, the company could reduce the planned costs for capital construction.

Related: Stockholm Arbitration satisfies Naftogaz claim against Gazprom

Another claim was that the draft financial plan foresaw an increase in debt on loans (without accrued interest) by UAH 14.1 billion to UAH 81.3 billion. Also, the financial plan provided for the accrual of a reserve of doubtful debts of UAH 25.6 billion. The Cabinet declares that this will reduce the level of tax collection and "testifies to ineffective work with debts." Experts explain that it is a question of setting up a reserve fund for Naftogaz (similar to banks), and the costs of its creation will be charged to the cost of goods, which automatically leads to a decrease in the company's profits and, accordingly, tax deductions to the state budget.

Among the claims is sale of buffer gas of Ukrtransgaz (UTG) for gas storage in the amount of UAH 3.3 billion, which "leads to illegal cross-subsidization between licensed activities of Ukrtransgaz (and such expenditures are not included in UTG tariff)." In addition, there are no approved development strategy and investment plan for medium-term enterprises (3-5 years). Also, the government considers as unfounded the reasons for the sale of the company's assets in Egypt, which should yield an income of UAH 507.7 million. This is an oil field in Egypt, where commercial production is being carried out since 2012.

Related: Naftogaz is awaiting separate decision of Stockholm Arbitration on dispute with Gazprom

There were claims to the financial plan of Ukrtransgaz for losses of 3.8 billion UAH, which they were provided for, as well as purchase of buffer gas for UGS facilities at UAH 40.8 billion.

The tough position of the Cabinet regarding the financial plans submitted by Naftogaz revealed a confrontation that has long been observed between Prime Minister Groisman and the head of Naftogaz Andriy Kobolev. According to experts, the prime minister had a good reason for revenge over the top manager, and he took full advantage of it.

"Kobolev has great support from the West, in particular, he is supported by the IMF, and under his leadership, Naftogaz has indeed become a profitable company. Although, rather, it was due to higher price for gas for the population than due to the special management efficiency," a source close to Naftogaz said.

Related: Gazprom raises money claim to Naftogaz in Stockholm court to $37 million

He points out that during the visit of US Secretary of State to Ukraine, Rex Tillerson did not meet with Groisman. At the same time, Tillerson met with "young reformers," including Kobolev.

However, it is unlikely that the matter will end with a public confrontation or personnel reshuffle. A source in the Cabinet assures that Kobolev will not be fired. Groisman is watching after implementation of the state budget, and the price of gas for the authorities is an acute issue, since preparations for elections are in full swing.

"I would not call this situation an opened conflict, most likely this is a normal dispute between the two entities, each of which pursues its own interests. Naftogaz, which is a semi-state entrepreneurial structure, counts money in order to achieve the best financial performance. The Cabinet, on the one hand, has international obligations under the loans that it takes outside Ukraine (IMF) on the condition that the budget balance should be established on the basis of real costs and market mechanisms. And on the other hand, it tries to preserve electoral preferences," said expert Vadym Bodaev.

He is sure that a compromise will still be found, in a kind of a certain magnitude of the gas price increase.

Related: Naftogaz ex-deputy chairman Katsuba released from Lukyanivska Prison

In addition, the dismissal of Kobolev now is a very difficult issue for the Ukrainian authorities, since the new US Administration will more likely support the "young reformer" in this dispute. "The hight time to fire Kobolev has passed. And now the West will not allow it. It is simply unprofitable for the authorities to go to such an aggravation, despite the desire to take Naftogaz under their control," said a source close to the state-owned company.

Related: Gas pressure on entering the Ukraine’s gas transportation system drops to record low, - Naftogaz

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