Ukraine’s largest oil producer Ukrnafta controlled by the state and connected to oligarch Ihor Kolomoisky is no longer the country’s largest tax debtor.
Ukrnafta has paid off its “historic” $1 billion tax debt to the state budget, the company stated on Dec. 23.
The successful payment took place after the parliament passed a bill on financial recovery of Ukrnafta.
In short, in accordance with the bill, the state paid Naftogaz the money it owed, Naftogaz paid off its debts to Ukrnafta, and Ukrnafta paid off its $1 billion debt to the state.
In detail, the Energy Ministry paid $1.15 billion to Naftogaz as a “compensation for losses” for supplying gas to citizens, religious and state organizations below market price in 2015–2019.
The next step: Naftogaz paid Ukrnafta $540 million it owed for 2 billion cubic meters of natural gas that was bought in 2006. It paid additional $870 million as a pre-payment for future gas supplies.
In the end, Ukrnafta repaid its tax debt, which was mainly accumulated in 2015–2016 and included a fine for the delayed payment. The company also paid back to the state budget $117 million of profit taxes.
Read more: Naftogaz agrees to pass Ukrnafta’s debt to Ukrainian taxpayers
The settlement is an “excellent example” of how efforts between the government and the two companies crucial for the Ukrainian economy can work in the interests of the state, Peter Van Driel, chief financial officer at Naftogaz, said in the statement.
After the two companies paid profit taxes on transactions, the state received a total of $367 million. About 85% of this money will be transferred to the COVID-19 fund to fight the disease in Ukraine. The rest will be used to pay off salary debts to miners, according to Yuriy Boyko, former acting energy minister.
According to Alexander Paraschiy, head of research at investment company Concorde Capital, the deal is “very helpful for the state budget, which is (currently) suffering.”
Now, as all the parties are happy with the result, Ukrnafta plans to focus on “strategic tasks and ensure sustainable increase in oil and gas production in the interests of Ukraine’s energy security,” said Oleg Gez, chairman of the board at Ukrnafta.
The roots of Ukrnafta’s debt, where state-owned energy giant Naftogaz owns a 51% share, go to 2006–2012. During those years, Naftogaz received 2 billion cubic meters of natural gas from Ukrnafta for the needs of the population, but never paid for it.
Ukrnafta, as a result, didn’t have enough money to pay taxes.
In 2014, the Supreme Court of Ukraine ruled Naftogaz to pay Ukrnafta, but it had no effect. The same year, as a response, Ukrnafta stopped paying rent for oil and gas production after the parliament doubled the rent price. The move was reportedly dictated by Ukrnafta’s shareholder Kolomoisky through associated with him board members and top managers of the company.
Gradually, Ukrnafta transformed from one of the largest taxpayers into Ukraine’s largest debtor with colossal fines for missing payments. Now it’s over: Ukrnafta’s bank accounts unfrozen and the company can invest in its development.
Founded in 2004, Ukrnafta owns over 530 gas stations in Ukraine and nearly 2,000 oil and gas wells. As of October, the company’s net loss reached $110 million. For reference, in 2014, Ukrnafta’s profit was $522 million.
