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    Chances of Deal Trending towards Zero: Naftogaz CEO


Andriy Kobolev provides an update on Russian transit, Naftogaz unbundling and the new transmission system operator.

by: William Powell

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Chances of Deal Trending towards Zero: Naftogaz CEO

The chances of reaching a deal on transit with Russian exporter Gazprom by January 1 are very close to zero and becoming nearer with each passing minute, the CEO of Ukraine's gas monopoly Naftogaz Andriy Kobolev said at a briefing December 18. He was speaking through an interpreter and the event was broadcast on Naftogaz' subsidary Ukrtransgaz' Facebook page.

The transit contract between the two expires at midnight December 31, but Gazprom will be relying on Ukraine to transport its gas to customers in Europe as it does now, because Nord Stream 2 is nowhere near complete. It is also unclear when gas will flow from TurkStream 2 into Bulgaria.

As of the morning of January 1, Kobolev said, transmission operations will be carried out by an independent system operator Magistralnye Gazoprovody Ukrainy (MGU), which has cleared the European Union's hurdles in terms of its separation from gas supplier and trader Naftogaz, its present owner. The MGU will be owned by the finance ministry, and all assets and shares will be transferred to MGU on January 1, when the ministry signs the contract. Some of the legacy contracts will remain with Ukrtransgaz, leaving only the verifiable and compliant contracts with the new company. It will need to be able to justify its contracts to any possible new investor, said Kobolev.

Storage facilities are not being unbundled: Kobolev said that it would be best for the same company, Naftogaz, to control both the gas and the flexibility, in case of interruptions of flows from Russia.

Kobolev said that if there is no deal with Gazprom, then it will be difficult to finance the operations of the unbundled TSO beyond the first quarter. The tariffs will be published December 26, he said, but according to the economic calculations, they will not cover all the expenses of the operator without the transit tariffs.

The gas in the pipeline system will have to compensate, he said. For the second quarter onwards, the tariffs will need to be reviewed. However there are some 379 other contracts signed with other companies, for shipping gas into and within Ukraine. Excluding Gazprom's transit fees, independent auditors have valued the system at hryvnia 34 ($1.45)bn. Next year, Naftogaz will see a hryvnia 13bn reduction in net revenues.

Also speaking was the former gas regulator from the UK, Clare Spottiswoode, now Naftogaz board member, who said the biggest problem she had faced when working on unbundling in Kiev was the complicated environment. In Britain, she said, she designed her unbundling plan from scratch in the 1990s and had it approved by parliament without interference, whereas in Kiev, many more people's views had to be considered.