Games without rules

The Ministry of Energy and Coal Industry and Naftogaz of Ukraine demand businesses to prepay for gas, though delivery is not guaranteed

The Ministry of Energy and Coal Industry and Naftogaz of Ukraine demand businesses to prepay for gas, though delivery is not guaranteed
The government put private gas production on the back-burner
Photo: Reuters

At the end of last week the Ministry of Energy and Coal Industry in cooperation with the managers of Naftogaz of Ukraine held a meeting with representatives of the largest gas consuming industrial enterprises. As a reminder, back on November 7 the Cabinet of Ministers adopted Resolution No. 596, which ordered 90 of the largest industrial customers (among them — heat and power generating enterprises) to buy gas entirely from Naftogaz of Ukraine until February 28, 2015. Private gas-producing companies, which have lost their highest paying customers, were indignant and demanded that the decree be abolished and even challenged it in the courts.

At the meeting, Minister of Energy Yuriy Prodan, his deputy Ihor Didenko and Chairman of Naftogaz of Ukraine Andriy Kobolev insisted that industrial consumers sign contracts for the supply of gas with Naftogaz and abandon purchases from private companies and independent suppliers. As one of the participants of the meeting said on condition of anonymity, the arguments of officials were very simple: it was a temporary measure, it was necessary to tighten the belts and in conditions when Naftogaz sustained losses from the sale of gas at reduced prices to the population and district heating companies, there was no other way out. «Officials said it was impossible to find another solution,» said the source.

Money up front

Acting President of the all-Ukrainian NGO Union for the Liberalization of the Gas Market Oleh Bakulin said in order to buy gas from Naftogaz of Ukraine industrial enterprises would have to make a 100% pre-payment. «When buying gas from private suppliers many manufacturers resort to installment payments. They pay within a month or even upon delivery. This was very convenient,» said Bakulin explaining the difference in approaches of state-owned and private companies.

A participant of the meeting said many business representatives argue that it is virtually impossible to find money to prepay for gas, especially for those companies that have large volumes of consumption and a significant proportion of gas in the production cost. A representative of the company said that replying to consumers’ assurances of having no available funds to prepay for gas spokesmen of the Ministry of Energy and Coal Industry and Naftogaz made a counter offer: «They said, go to Oschadbank and take out loans. We understood that they will grant loans to anybody. This provoked laughter in the hall. When they asked why Naftogaz would not take out a loan from Oschadbank, the response was «We have already taken out so much that the institution would not give us any more money».

Representatives of gas-producing companies asked officials what they should do given the fact that Naftogaz deprived them of their most creditworthy customers. The representatives of the ministry and Naftogaz replied: the monthly gas balance is 1.3 bn cubic m, Naftogaz took those companies which consume a total of 0.7 bn cubic m, the remaining 0.6 bn is consumed by insolvent companies, which causes losses to Naftogaz — so take them. At the same time, Bakulin noted that private companies could not deliver gas to the population and heat generating enterprises, because it contradicts the Law On Principles of Operation of the Natural Gas Market.

Gas supply may be reduced to nil

Bakulin said that Naftogaz has already sent draft contracts for supplies of gas to industrial enterprises. Noteworthy is that those contracts contain the following provision: «The seller (Naftogaz) shall not be liable for failure to supply gas under this contract in the event of termination/limitation of gas supplies in accordance with applicable law and the terms of this contract and on condition of the absence of the necessary amounts of gas (i.e. reduction/termination of gas supplies from the Russian Federation)».

At the same time, Bakulin noted that such draft contracts did not comply with the standard treaty of the guaranteed supplier of gas, which is Naftogaz. This indicates the intention of the state-owned company to supply gas according to a non-regulated rate. At the same time, Resolution No. 596 does not allow Naftogaz to do so.

A business representative noted that if consumers did not sign the contracts sent by Naftogaz, they will not receive gas in December. In such a case, there is not much time for thinking and finding the money: for the December balance sheet gas companies must submit documents indicating their gas suppliers.

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