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    Energy Community Ups Pressure on Kiev


Opacity in Ukraine's gas market has not gone away and the Energy Community has told the government to put a stop to it.

by: William Powell

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Energy Community Ups Pressure on Kiev

The Energy Community secretariat (ECS) sent a new letter to the Ukrainian fuel and energy minister to extend the grounds for non-compliance of Ukraine with the Energy Community Treaty, it said July 23.

It has come to the "preliminary conclusion that the provision of natural gas to Naftogaz, natural gas retail suppliers (Oblgazes) serving household customers and religious organisations as well as to district heating companies at regulated prices under the regulations on public service obligation (PSO) constitutes illegal state aid," it said.

Naftogaz is obliged to market and sell the natural gas for the needs of district heating companies (directly) and households indirectly. The latter quantities are sold to suppliers (retailers, Oblgazes) under the imposed PSO, which in turn sell it to households. All the prices in this chain are regulated, said the ECS.

ECS told NGW that companies are able to acquire gas at regulated prices which are below natural gas prices available on the market.  Ukrgazvydobuvannya and Chornomornaftogaz have to sell their gas to Naftogaz at regulated prices significantly lower than the prices on the non-regulated wholesale gas market. NGW infers that this is how the oblgazes make their money.

Naftogaz also has to sell gas to retail suppliers serving household customers and religious organisations and heat producers for households and religious organisations at regulated prices that are also much lower than the prices paid by other retail suppliers and non-eligible customers.

An industry observer told NGW that oblgazes are half state-controlled, and half controlled by the oligarch Dmytro Firtash. "The population cannot pay more than it pays now, even though the price of gas is still subsidised. This dual pricing of gas poses problems of its own. This social problem would be mitigated if the population was paid cash to compensate for gas price increases, instead of in-kind as gas."