Page 7 - FSUOGM Week 38 2019

FSUOGM COMMENTARY FSUOGM
Naftogaz reports $1bn of profits in 1H19
The Ukrainian gas company saw earnings lifted by its integrated gas business and transit revenues
UKRAINE
WHAT:
Naftogaz doubled its profits in the first half.
WHY:
Its integrated gas business was the biggest earner.
WHAT NEXT:
Naftogaz is set to lose valuable transit revenues in January if it cannot agreeanewtransitdeal with Russia.
UKRAINE’S national gas company Naftogaz posted UAH24.7bn ($1bn) of net profit over the first six months of 2019, which is almost twice as much as for the same period of the previous year, the company said in a press release on September 24 that includes a link to its full accounts.
Total 1H19 pre-tax profit was UAH31.9bn, which exceeds the 2018 result by more than 79%. The Integrated Gas Business and Gas Tran- sit segments were major contributors to the increase in profit (the segment result is operating profit/loss adjusted to operating exchange differ-
ences), the company said.
The company’s 1H18 pre-tax profits were
reduced by UAH4.8bn VAT compensation aris- ingfromanarbitrationawardinthetransitcase with Russia’s national gas company Gazprom.
Integrated Gas Business
Total gas sales under the public service obliga- tions (PSO) decreased by 1.2bn cubic metres (bcm) or 11% over 1H19 compared to the same period of the previous year, due primarily to warmer weather in 1Q19 compared to 1Q18.
Changes in the balance between imported and own gas, along with lower market gas prices in 1H19, decreased the cost of gas sold under PSO by UAH6.4bn.
Gas sales beyond PSO fell by 0.5 bcm over 1H19 compared to the same period during the previous year, which reduced the segment’s result by UAH3bn.
Accounts receivable (without doubtful debt
allowance) arising from gas sales increased by UAH8.4bn, or 14.9%, as of June 30, 2019 against the same period the previous year.
“This debt grew primarily due to heat produc- ers, as a result of the increase in regulated prices for this category of customers and their impaired payment discipline. The latter was also caused by amendments to the CMU Resolution #867 of 19 October 2018, which lowered the mandatory payment level for heat producers from 90% to 78% for the heating season 2018/2019. Thus the increase in revenue due to higher prices for heat producers servicing households had a positive effect on the segment’s overall result, while it failed to increase cash flows because of lower paymentrequirementsasmentionedabove,”the company said in its press release.
Gas transit
Although Ukraine has not bought any gas from Russia directly for about three years, it continues to transit Russian gas to its customers in Europe and earns some $3bn from transit fees.
Gazprom is on course to deliver some 191 bcm of gas to Europe this year, slightly down from the 200 bcm it delivered last year, the lion’s share of which goes through the Ukrainian tran- sit system.
However, this business is in danger of being cancelled when the current transit agreement contract expires on January 1, 2020. Naftogaz repeated recently that its base case assumption is Russia will halt gas transits via the Ukrainian
Source: Naftogaz.
Week 38 25•September•2019 w w w . N E W S B A S E . c o m
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