Local and regional gas distributors now owe almost Hr 60 billion (about $2.2 billion) to Naftogaz of Ukraine, the state oil and gas company, its CEO Andriy Kobolyev wrote on his Facebook page on Jan. 28.
The sum is enough to fully finance Naftogaz’s 10-year modernization plan, launched in 2018, according to Kobolyev. Under this plan, Naftogaz and its subsidiary Ukrtransgaz would rebuild four compressor stations, further develop underground gas storages, and bring the nation’s main pipelines into compliance with European safety and environmental standards.
According to Kobolyev, regional gas distributors, also known as “oblgaz” companies, owe Hr 30.4 billion. That is alarmingly higher than the Hr 19.7 billion of oblgaz debt that Naftogaz estimated in September 2018.
On top of that, local gas distribution and sale companies, called “gazsbuti,” owe the state company Hr 29.3 billion, for a total of roughly Hr 60 billion, Kobolyev said. Naftogaz had previously accused the “gazsbuti” of being de-facto subsidiaries of the regional distributors.
Both local and regional distributors make money from fees for supplying gas to local homes and businesses.
Naftogaz had repeatedly accused regional and local distributors of fraudulent and anticompetitive business practices such as stealing gas, underpaying the state-owned company, overcharging customers, and denying them access to other providers.
Naftogaz released a statement in December, saying that the regional distributors are trying to “disrupt the demonopolization of the gas market by any means necessary.”
The National Energy and Utilities Regulatory Commission of Ukraine (NERC) said in December that it was launching an investigation into distributors that violate the law. Prime Minister Volodymyr Groysman stated that all regional gas distributors would be investigated.
However, it was Groysman’s team who in 2017 eliminated a regulation that forced oblgaz companies to pay Naftogaz via specialized government-controlled accounts with automatic payment on delivery. This allowed the distributors to delay payments to Naftogaz, making the debt skyrocket.
Furthermore, lobbying by oblgaz representatives, especially those with ties to prominent Ukrainian oligarch Dmytro Firtash, succeeded in continually pushing back market reforms that would address this indebtedness, according to an article in the Atlantic Council by Oleksandr Kharchenko, the director of Ukraine’s Energy Industry Research Center.
Firtash, living under house arrest in Vienna, owns roughly three quarters of Ukraine’s oblgaz companies.
To make matters worse, new regulations in Jan. 2018 allowed regional distributors to keep up to 15 percent of their cash flow, up from 2.5 percent previously. Furthermore, the regional distributors often keep gas subsidies intended for Ukraine’s poorest residents, according to Kharchenko.
Naftogaz representatives have expressed doubts that the state enterprise will ever be repaid the money.
