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Eastern Europe
March 9, 2018 www.intellinews.com I Page 22
September, citing the “dismantling of reform by the government”.
“The reform process was quite successful at the beginning, but it’s now in a deadlock.” Wojciech Kononczuk, a specialist on energy policy in Central and Eastern Europe for the Centre for Eastern Studies, a Polish think-tank, told bne IntelliNews.
The unbundling of Naftogaz, the other key provision of the law on gas reform, has been another major point of contention. The law plans for the separation of Naftogaz’s transmission service from production and supply activities to put it in line with the EU Third Energy Package, but showed “insufficient progress”, according to the EBRD senior executive.
Some observers have warned that the overall reform plan could be effectively frozen until the next presidential election in 2019.
The backlash hasn’t surprised Vitrenko, who argued it was a logical consequence of the reform: “Ukrainian elites are afraid of this reform because they realise that proper market reform mean they are out of business, because their business model is not to be competitive but to steal from the government.”
Corruption also remains a concern for a company that used to be one of Ukrainian elites’ main channel for dirty money: in 2014, a Reuters investigation found out that Ukrainian oligarch Dmytro Firtash might have made up to $3b by buying gas from Gazprom “well below market prices” and selling it Naftogaz.
By most accounts, such corrupt deals have now all but ceased, and Vitrenko claims the company also dealt with one of the main sources of internal corruption in the procurement of equipment.
But Firtash, who is currently in Austria fighting
a US extradition request, allegedly still controls
a majority of Ukraine’s regional distribution companies, which act as intermediary between Naftogaz and the final customers. Naftogaz claims regional gas companies have accumulated UAH20.4bn ($714.8 million) of debts in 2017, and maintain an opaque system which encourages corruption. “We don’t need these intermediaries. They say they sell gas to households, but we cannot check, it’s all very murky,” according to Vitrenko. But the government remains reluctant to write off the debt as that would in effect put money into an oligarch’s pocket.
In September 2017, Naftogaz denounced a so- called “dead souls” scheme, in which a regional gas company in the Khirovograd region allegedly sold 9.8 million cubic meters of gas to more than 300 fictional addresses, while pocketing the subsidies.
This might explain that, despite real progress, Naftogaz’s leadership remains cautious about the company’s future prospects.
“We quickly realised that internal fights against vested interests can be more difficult than dealing with Gazprom or external powers,” Vitrenko says. “That's why, if we compare Naftogaz to some other companies I worked for, like PwC or private equity funds, we are still miles away from these standards.”