Naftogaz: Ukraine may cease to be a net importer of gas by the end of 2020

KYIV, 25-Oct-2017 — /EuropaWire/ — Implementation of Naftogaz’ strategy and the transformation of the energy market of Ukraine may contribute more than 7% to Ukraine’s GDP and result in state budget revenues in excess of USD 8 billion. Furthermore, Ukraine may cease to be a net importer of gas by the end of 2020. Naftogaz CEO Andriy Kobolyev stated this at the 20th International Conference Oil & Gas 2017 when presenting Naftogaz’ strategy “Affordable energy for Ukraine”.

The strategy provides for maintaining Naftogaz as a strong vertically integrated company after unbundling of the gas transmission function. The company will continue to be a driver of change in the Ukrainian energy market and will operate in all areas that are important for the development of the energy market. The expected 600 mcm increase in gas production this year has become possible, among other things, due to the effect of the company size, which enables it to secure significant low-cost funds, Andriy Kobolyev noted. Naftogaz has raised US$800 million of credit funds from the EBRD and the World Bank, at a weighted average cost of less than 2% p.a.

Naftogaz CEO noted that vertically integrated oil and gas majors are a traditional driving force behind increase in production of energy resources. He mentioned that the demand for the hydraulic fracturing services generated by Naftogaz in recent months have contributed to the establishing of this market segment in Ukraine. In the result, the price of these services has decreased by 3-4 times, making them more affordable for all market participants.

Andriy Kobolyev also discussed efficient mechanisms of control over large state-owned enterprises in Ukraine, including Naftogaz. “People often ask me: who can guarantee that Naftogaz will not become a Ukrainian Gazprom? There are a number of mechanisms. First, the introduction of the corporate governance according to the OECD principles and with an independent supervisory board will not let that happen. Second, private competitors in an open market are an effective tool to keep a state-owned company in check. Finally, the potential partial IPO of Naftogaz offers all opportunities for effective control, as the standards for listed companies require maximum openness and transparency,” Andriy Kobolyev explained. He estimates that potential state budget revenues from the placement of Naftogaz’ minority package might amount to nearly USD 10 billion.

“In the emerging markets, 70% of oil and gas companies are in the hands of governments. Primarily due to energy security and independence issues,” McKinsey Managing Partner Georges Massoud said, advocating the Ukrainian government’s need to have a major vertically integrated oil and gas company. According to him, the total government take from Naftogaz in the coming several years, including tax revenues, dividends and IPO proceeds, could amount to USD 20 billion, which is very important for Ukraine’s financial stability. Mr. Massoud believes that only a big group like Naftogaz is able to ensure USD 4 billion of investment to fulfill the plan to increase gas production by the state-owned company by nearly 1/3 to 20 bcm by 2020 (“Strategy 20/20”).

Ambassador Extraordinary and Plenipotentiary of the United States to Ukraine Marie Yovanovitch said in her opening speech that no country must use energy to make pressure on Ukraine. She assured that both the U.S. and the EU were fully supporting the establishment of a transparent energy market in Ukraine. Marie Yovanovitch believes that the planned reforms will help Naftogaz ensure Ukraine’s energy independence.

Deputy Director of the EBRD in Ukraine Marina Petrov expressed the EBRD’s support as well: “It is highly likely that the EBRD will continue to engage with Naftogaz in future, but the corporate governance reform and the reform of the gas sector need to continue.” She also emphasized that there should be no protracting with making fundamental decisions at this stage. “When we started our cooperation with Naftogaz, it was a bankrupt company in a bankrupt country. In 2015, the IMF program was in its making, and Naftogaz was a major contributor to the deficit of the budget. It was a very challenging decision for us and reason why we engaged in this transaction was a gas reform program that was agreed by the government of Ukraine with the Energy Community Secretariat, the IMF, the EBRD and other donors. The corporate governance reform was an important objective for us,” Marina Petrov commented. She highlighted the significant progress that was achieved by Naftogaz and Ukraine since then and reiterated the need to proceed with the gas market reform and the corporate governance reform of Ukrainian state-owned companies.

Please click here to read Andriy Kobolyev’s presentation at the conference.

SOURCE: NJSC Naftogaz of Ukraine

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