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    Naftogaz Ukrainy Launches Strategy

Summary

The state company is planning to fatten itself up for a partial sale.

by: William Powell

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Naftogaz Ukrainy Launches Strategy

State-owned Naftogaz Ukrainy launched a three-pronged corporate strategy February 18, covering its business-to-business, utility and low-carbon activities.

The corporate transformation is intended to double the group's value and to ready the company for partial sale by 2025. Operational efficiency will add $1-2bn; commercial efficiency $2-3bn; development and growth projects will add $3-4bn and the low-carbon business will add "at least $1bn" it said.

Upstream also fits into the plan: the company's licences hold an estimated 600bn m³ of resources. To realise these reserves will cost some $20-25bn, of which about $7bn will be spent in the first five years. It will farm down stakes in licences that are deemed commercial in order to share risk and costs.

Naftogaz Ukrainy CEO Andriy Kobolev said that the company would promote the transformation of energy markets, attract professionals and partners, acquire knowledge and technology with an eye on operational Šµfficiency. To fully implement the announced strategy, Naftogaz will focus on developing key strategic business platforms and reducing its presence in others.

Naftogaz will also enter the European gas market and start trading in forward physical and financial products which will give it access to more profitable markets and increase its ability to hedge risks.

To become a full-fledged vertically integrated company working directly with end users, the Naftogaz Group will develop the B2C/Utility Platform. Its goal is to acquire 35% of the market over the five years of the strategy. Kobolev said this "should be a crucial year for the group in building a platform for retail gas sales. If successful, the company plans to go beyond the sales of exclusively gas and to offer consumers quality and competitive integrated energy solutions."

There are obstacles to overcome, including political interference, but "if we succeed, the Naftogaz Group will become a catalyst for economic growth and prosperity of the country. We are talking about significant budget revenues, greater partnership opportunities for financial institutions and businesses," he said.

The International Monetary Fund also sees risk from political interference, which explains its failure to disburse the latest tranche of funding, according to the Atlantic Council's analyst Anders Aslund. He said: "No agreement was concluded between the IMF and the Ukrainian government recently because they fundamentally disagree about pretty much everything."