Gas consortium - a topic for the presidential candidates

Julia Tymoshenko has declared that her idea for the development of the Ukrainian gas transit system is radically different from that of Mr. Yanukovich and Mr. Tigipko. Both Yanukovich and Tigipko said that they support the idea of a gas consortium to manage Ukrainian gas transit system. While Yanukovich was less clear about the membership in the consortium Tigipko was more clear: 50% in Ukrainian ownership, 25% in Russian and 25% in European. That kind of consortium according to Tigipko would guarantee that the consortium is stable and guarantees Ukrainian interest.

In the recent Focus on Ukraine note from German Marshall Fund its Senior Fellow Jorg Himmelreich seems to support Mr Tigipko (or vice versa):

But more than this: the EU should think about buying into or leasing stakes in Naftogaz by the European Bank for Reconstruction and Development (EBRD) or other international financial institutions. Such an EU investment touches Ukrainian sensibilities about its sovereignty, because gas pipelines and storage capacities are perceived as assets of Ukraine’s sovereignty. But the EU stakeholdership should also be seen as strengthening Ukraine’s negotiating position with Gazprom. The European Union as a stakeholder could then enforce the transparency of Naftogaz and Ukraine’s energy sector—and that would unblock Ukraine’s political and economic transformation.

 Recipy from GMF is enticing. Indeed the time has shown that Ukraine is unable by itself to untangle the gas knot named Naftogaz. European and Russian participation in the gas consortium would seem to guarantee the bright future of the enterprise. However, Russia is interested in making its gas more competitive and EU also wouldn't mind cheaper gas. These interests make Russia and EU perfect collaborators in taming Ukrainian side.

Dead gas consortium to rise?

Victor Yanukovich, possibly next president of Ukraine, made a statement regarding so-called gas consortium. According to Interfax news agency he said that he will make a proposal to create a consortium to manage existing gas transit system in Ukraine, and to conduct system’s reconstruction in order to raise the volumes of gas transit.



These goals for the consortium seem to have little to do with reality. First, raising volumes of gas transit doesn’t depend on Ukrainians’ efforts now. Due to economic downturn, the demand for Russian gas in Europe is falling. In 2009, only 95 billions of cubic meters of gas was transported from Russia through Ukraine towards EU, which is 24.4 bns lower than in previous year. Total capacity of Ukrainian gas transit system is at least 140 bns per year. Obviously, it is not necessary to expand these capacities, especially if we consider that Gazprom’s gas production is falling down.

Second. The funniest thing here is that the consortium had already been created long time ago, during late Kuchma’s era. Literally the goal for it was the same. However, the child was born dead – the consortium didn’t manage to fulfill the role of operating center for Ukrainian gas pipeline system.

Naftogaz to have $4 bn deficit in 2010?

According to prediential representative on energy security Mr. Sokolovsky Naftogaz should have about $4 bn deficit in 2010. In a simple addition substraction game he told that in 2010 Naftogaz should pay Russia about $10 bn for gas, while Ukrainian market is forecasted to generate in payments about $5 bn. Where will the other $5 bn come? Mr. Sokolovsky thinks that there will be a contraction in gas demand for about $1 bn. In the end we have 10-5-1=4, which is $4 bn that Naftogaz will miss. Source.

Gas distribution networks - civil gas war

Instead of having a usual winter gas war in Russia Ukrainian authorities decided to move the gas war to domestic terrain this year. The idea is that the state wishes to take control over the gas distribution networks previously rented out by private gas distribution companies - oblgases. January 1, 2010 rent agreements become void and the state decided that it does not want to prolong these agreements that easy. Temporary contracts may be signed, but there is no talk about long term contracts so far. Needless to say that the private owners of the distribution companies are getting the value of their companies diminishing to zero dollars. The big fight between the state and owners is ready to begin.

The management of the gas distribution networks is to be accumulated under the roof of Naftogaz - state monopolist in the gas sector. After that the state will have a second wave of privatization in the gas distribution sector giving long-term management contracts to new firms, or may be will condescend to giving these contracts to good old owners of oblgas enterprises, but on entirely new conditions. Naftogazmerezhi, an enterprise that will now manage all state gas distribution networks, is ready to start a long fight or getting all the networks under its control, with litigation if necessary.

Businessmen like Mr. Firtash, oligarch mainly known for owning intermediaries in Ukraine-Russia trade, may be pushed out of the distribution market. Instead Gazprom is likely to enter, perhaps through new chain of intermediaries. Certainly, the result of the civil gas war in Ukraine will be fully determined by who is going to be in power in Ukraine after presidential elections. Should Yulia Tymoshenko win it is most likley that the state will win the control over the distribution networks and Gazprom is likely to enter the market. In case of Viktor Yanukovich unlikely victory status quo in the industry is likely to be preserved.

National Bank will evaluate banks early January 2010

 

Martin Reiser, World Bank (WB) director for Ukraine, Belarus and Moldova, said that National Bank of Ukraine (NBU) will conduct new diagnostic evaluation of Ukrainian banks in the first weeks of 2010. Such an evaluation will be used by WB for the decision on aid for rehabilitation of Ukraine's banking sector. First such evaluation was conducted in early 2009.

WB reps think that the worst scenario for Ukraine's banking sector was averted. Now the banks should work more on transparency of their ownership and protection of their clients.

Another point of critique is the policy of management of Ukraine's state banks. Oschadbank is said to be in a risky position due to issuing loans to Naftogaz, Ukraine's oil and gaz state holding. WB reps think that institution like Oshadbank should be restructured or liquidated. Interfax.

Steel and chemical industry get cheaper gas in 2010

Dec 2, Cabinet of Ministers announced gas price forecast for 2010 to be at USD 331 per thousand cubic meters. Apparently is is the price of import Russian gas at the border of Ukraine. Naftogaz reps say that this price is inflated because it is based on the oil price forecast of USD 90 per barrel.

Razumkov Center expert Volodymyr Saprykin says that realistic gas price of imported gas at the border is the one Gazprom is quoting, that is USD 280 per tcm. However, he notes that with add-ons (such as VAT, transportation and distribution tariffs as well as profit margin of Naftogaz and distribution companies) the gas for industrial companies will be more expensive. Also, he thinks that population will also get more expensive gas in the second quarter of 2010.Steel industry and metallurgy will get their gas cheaper and will likely to be cross-subsidized by more profitable sectors.

Its apparent that the gas for population and for heat will not get more expensive in the first quarter due to presidential elections. This is likely to be a reason of a blow to financial stability of Naftogaz in the beginning of the year due to inability to charge cost-covering prices and because of slacking payment discipline. Source.

Gas price formula may be changed

Dubina, Head of Naftogaz, noticed that the formula used to set the price of gas for Ukraine is up to negotiation. There was no reaction from Gazprom, however, Dubina thinks that his questioning of the forumla will not lead to the gas war with Russia this year.