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    Bank, EC Condemn Ukraine Economy Ministry

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Summary

Ukraine's economy ministry has taken control of the national pipeline operator UkrTransGaz, it emerged this week.

by: William Powell

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Natural Gas & LNG News, Europe, Security of Supply, Energy Union, Corporate, Corporate governance, Import/Export, Political, Ministries, Infrastructure, Pipelines, News By Country, EU, Ukraine

Bank, EC Condemn Ukraine Economy Ministry

Ukraine's economy ministry has taken direct control of the national pipeline operator UkrTransGaz, it emerged this week initially from media reports, by amending the charter of the sole shareholder, Naftogaz Ukrainy.

Naftogaz Ukrainy said in a statement dated September 16 that according to its corporate governance action plan, the economy ministry should have developed and published its ownership policy a while ago. This policy would serve as guideline for its supervisory board. Instead, the ministry has taken measures give it control over the pipeline company.

"The decision may also significantly complicate further negotiations of Naftogaz with its western partners who do not see the logic behind this step,” said Naftogaz' chief commercial officer, Yuriy Vitrenko.

A major lender, the publicly-funded European Bank for Reconstruction and Development, and the Energy Community, a group which comprises the European Union and member states including Ukraine, also condemned the ministry's action.

The Energy Community said September 17 that the move was not in line with the July 1 resolution on unbundling, nor was there any warning it would come. An earlier resolution envisaged that a new transmission system operator would be established under the control of the energy ministry to gradually take over Ukrtransgaz’ activities.

"By contrast, control by the same public body – the ministry of economic development and trade – over both the transmission system operator and Naftogaz’ gas production and supply activities violates the unbundling provisions applicable under Energy Community law," it said. 

The secretariat calls upon the Ukrainian authorities to "fully and swiftly implement the Resolution on Unbundling and follow OECD rules relating to corporate governance in the public sector, as agreed also with international donors. The failure to do so may cause enforcement action by the secretariat, jeopardise Naftogaz’s ongoing arbitration cases and endanger the role of Ukraine as a gas transit country."

The EBRD said in an email to NGW September 16 that it was looking into this and "if the development is confirmed, this is a very serious matter. We do expect that our partners will honour their commitments and continue building Naftogaz into an example of corporate governance reform." The EBRD lends Ukraine money to tender for gas from buyers from all over Europe. In its statement, Naftogaz said the implementation of its corporate governance plan was a prerequisite for a $300mn EBRD loan to buy gas.

Naftogaz Ukrainy is suing Gazprom over a ship-or-pay contract. The unbundling of UkrTransGaz was intended to happen after that case had been settled. Gazprom is counter-suing Naftogaz on alleged breach of its take-or-pay commitments.

 

William Powell