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Eastern Europe
March 9, 2018 www.intellinews.com I Page 20
it the biggest taxpayer in the country. It is now moving on to develop new gas deposits and said in January that it hopes to make Ukraine self- sufficient in gas by 2022.
Since he arrived at the leadership of the company with CEO Andriy Kobolyev in 2014, Vitrenko
has overseen one of the more spectacular transformation in post-revolutionary Ukraine, helping to turn the strategic gas company from
a corrupt, debt-ridden state-run monopoly into a profitable firm. Asked whether he expected this outcome when he took the position of CCO in 2014, Vitrenko let out a short laugh: “No, I have to be open with you, I did not.”
He and Kobolyev were appointed just after the
fall of then-president Yanukovych in a period of major political uncertainty – and they did not expect to last long: “Presidential elections were coming and we have this “tradition” that the new president of Ukraine put his own men as heads of Naftogaz,” Vitrenko said. “So we thought we would be replaced after a couple of months.”
Instead, thanks to the support from Ukraine’s international donors, a quickly worsening economic and military situation and good initial results, the two men were kept on to drive Naftogaz’s reforms.
Their tenure quickly took the shape of a two- front war as Naftogaz tried to secure gas supplies amid a general breakdown of relations with Russia, while trying to turn what was, until recently, one of the symbols of the corruption of the Ukrainian elite into a “Western-style corporation”.
On both scores the new team have had some notable achievements. Gas supply was the most pressing issue, as Gazprom had announced in April 2014 it would cancel a previous gas discount to Ukraine. Prices jumped from $268.5 per 1,000 cubic metres to $485. Russia then cut off all gas supplies in June, saying Ukraine had failed to settle its debt.
Thanks to reverse flow from the West, a slight uptick in domestic gas production, and a sharp fall in gas consumption, Naftogaz was able to keep delivering gas without major cuts. It was one of the company’s “biggest success”, Vitrenko claims. “We managed to live without Russian gas, and for us it was an almost existential issue.”
In early 2018, the Stockholm Arbitration court that has been mediating the dispute between the two gas behemoths also rejected a claim by Gazprom that Naftogaz owed the company $56bn. The ruling was hailed as a major victory by Naftogaz, though the court also acknowledged a $2bn Naftogaz debt owed to Gazprom.
“The main thing is that Naftogaz managed to avoid tens of billions of dollars worth of claims on take- or-pay clauses; it could have been an unbearable burden both for Naftogaz and the state,” Fitch Ratings analyst Dmitry Marinchenko told Reuters.
Most impressive to outside observers, however, was the speed with which the company managed to improve its financial standing. Before the 2014 revolution, Naftogaz was routinely described as the “black hole” of Ukraine’s state budget, with a deficit as high as 5.7% of the country’s GDP. Just two years later, the gas company boasted a profit of about $984m, the first of its kind in five years, and became the biggest contributor to the state budget.
Partly, this was due to external factors. In 2016 and 2017, Ukraine entirely stopped buying Russian gas, which, combined with the fall of gas consumption that followed the major economic downturn in the country (between 2013 and 2015, consumption fell from 50.4 billion cubic meters to 33.8bcm) contributed to improve the company’s financial standing. “Before, money was flowing from Ukraine to Gazprom,” Vitrenko said. “Now we get $2.5bn from Gazprom each year for the transit services without buying gas, so it's a net inflow.”
But the turnaround was also the consequence of several internal decisions according to