Naftogaz Bets on Price Liberalisation, Direct Support to Poor Households

Naftogaz presented its development strategy on Thursday, saying that corruption and the company's outdated governance model are two of the many hindrances that had stopped the development of the Ukrainian gas market.

“We had to address a range of systemic and operational problems immediately. Widespread corruption [and] an outdated corporate governance model originating in the Soviet era, distorted pricing dictated by political or corrupt goals are just some of them,” CEO Andriy Kobolyev commented in the document. 

Given the challenges, the annual report of Naftogaz is published with a several-month delay compared to the international best practices for major companies.

"Ukraine was almost entirely dependent on Russian gas imports and had to buy gas at inflated prices," the company reported in a separate statement. "The inability of the previous governments and Naftogaz managers to resolve these issues, as well as the Russian military aggression against Ukraine, resulted in a record loss of UAH 88.4 billion (USD 5.6 billion at the prevailing exchange rate) in 2014."

The document reported that the company managed to cover its financial obligations and supply sufficient volumes of gas to consumers, adding that the new route of gas imports via Slovakia has been a key development.

According to Kobolyev, Naftogaz ensured for the first time ever a real diversification of gas imports to Ukraine.   

“As a result, the share of Gazprom supplies to Ukraine fell from 92% in 2013 to 75% in 2014 and 37% in the first half of 2015. Europe is the main gas supplier for us this year” Naftogaz CEO said in the report. 

Naftogaz said that Kiev’s strategy is to reform the gas market, with price liberalisation and direct subsidies to low-income households being “the only solution”. 

"A comprehensive gas market reform has been started," it said. "This reform will result in the implementation of standard EU business practices and regulations in Ukraine. The ultimate goals of these changes include an unobstructed competition between gas suppliers, the introduction of efficient anti-corruption mechanisms, as well as the establishment of an investor-friendly operating environment enabling [us] to attract FDI in gas production and energy saving in Ukraine."

In 2014, Ukraine was the fifth largest gas market in Europe after Germany, the United Kingdom, Italy and Turkey.