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Eastern Europe
March 9, 2018 www.intellinews.com I Page 21
Simon Pirani, a senior visiting research fellow at the Oxford Institute for Energy Studies: “They’ve managed their cash flow much more transparently, separated the divisions within the company so that they can see what's going on, they dealt with obvious sources of waste and of course, gas prices for households have gone up sharply.”
In 2013, some Ukrainians were paying as little as UAH725 ($80 at prevailing exchange rates in 2013) for the first 2,500 cubic meters of gas. But In 2016, prices rose to UAH6,879 hryvnia ($272) per 1,000 cubic metres of gas used, a move which largely contributed to filling Naftogaz’s coffers.
Gas prices proved to be a particularly sensitive issue, however. One of the main items in the law on gas reform adopted in April 2015, the sharp hike in household tariffs – and increase of almost five-fold – went from a hurdle to overcome to the source of a protracted struggle between Naftogaz and Ukrainian’s political elite, which, observers argue, has led to a major slowdown of the pace of reform.
After a first price rise in 2016, the Ukrainian government reneged on a promise to the IMF to boost household gas tariffs in October last year, just as the heating season got under way, arguing that higher prices would hit poor Ukrainians first and foremost.
President Petro Poroshenko had already seen
his popularity plummet and the government calculated that the political cost of hiking gas tariffs was too high. However, the tariff increase is a key plank of the IMF imposed reforms.
"There are no plans to increase the gas prices," the ukrinform.net online outlet quoted Energy Minister Ihor Nasalyk as saying on October 2. "The prime minister has clearly stated that there are no economic justifications for this [gas price increase], and the ministry can confirm this."
Vitrenko argues however that this defence of
low gas prices is due to “resistance from vested interests.”
“Surgery can be scary,” he added.
Western backers have also been critical of the way the Ukrainian government still tries to make Naftogaz pay for public service obligations,
the complex system of subsidies still in place despite demands by Naftogaz to abolish it. “The government should pay for those, not Naftogaz,” an EBRD senior executive told bne IntelliNews, which has also played a crucial role in funding the company. In October 2015, Kyiv secured a $300mn loan from the EBRD to buy gas on the European market to cover the country’s heating needs during that winter.
But in April 2017 the bank’s president Sir Suma Chakrabarti lambasted the government for foot- dragging over reforms to the management of the company, especially a failure to introduce a corporate governance code, which had prompted several of its independent directors to resign.
“Naftogaz also need to become, as originally agreed, an entity of private law,” Chakrabarti said in a strongly worded letter to the prime minister. “I am asking you to do all that is necessary to have Naftogaz’s new charter and necessary enabling legislation in place before the end of this month [April].”
The conflict between Naftogaz and Ukrainian authorities only grew stronger in 2017, as the independent supervisory board appointed the previous year complained of increased political meddling.
In April, Ihor Prokopiv was appointed deputy energy minister. The announcement was interpreted as a particularly poor signal, as the man now effectively in charge of supervising Naftogaz had been fired from the company only a few months earlier for alleged misappropriation of funds. One member of the board resigned immediately in protest, and two more in