Future aid to Ukraine in jeopardy over gas monopoly takeover

A man walks past the headquarters of the Ukrainian national joint stock company NaftoGaz in central Kiev, Ukraine. © Valentyn Ogirenko
Ukraine may lose hundreds of millions of dollars in aid after a surprise decision by the government to take direct control over the country's gas production and transportation company.

The takeover may be in violation of the $17.5 billion bailout deal with international creditors and comes just days after Kiev received a $1 billion tranche from the International Monetary Fund (IMF).

“If all the facts we have learned from third parties are confirmed, we are very disturbed and this development is very serious,” said Anton Usov, a spokesperson for the European Bank for Reconstruction and Development, quoted by the Financial Times.

According to the newspaper, another lender to Ukraine, the World Bank, is also concerned about the situation with Naftogaz.

Kiev has changed the charter of Naftogaz to shift control of the company to the energy ministry. Deputy Prime Minister Stepan Kubiv said the move was made to unbundle Naftogaz into separate gas transit and supply businesses to comply with the EU’s Third Energy Package.

Naftogaz opposed the government’s decision. “As a result of the unlawful actions of the ministry’s high officials, Naftogaz may not be able to receive a $500 million loan from the World Bank, which is crucial for ensuring secure gas supplies during the winter of 2016-17 in Ukraine,” said the company in a statement.

European energy watchdog, the Secretariat of the Energy Community, warned Kiev that it’s unilateral move” violated rules by shifting control of both Naftogaz and Ukrtransgaz under the control of the economy ministry.

“The secretariat calls upon the Ukrainian authorities to fully and swiftly implement the resolution on unbundling, and follow OECD guidelines on the corporate governance of state-owned enterprises, as agreed also with international donors,” the watchdog said.

“Failure to do so may cause enforcement action by the secretariat, jeopardize Naftogaz’s ongoing arbitration cases [with Russia over natural gas], and endanger the role of Ukraine as a gas transit country,” it added.

In September, Naftogaz and Russia’s Gazprom have a court hearing where both sides claim more than $65 billion in compensation. Gazprom says Ukraine's Naftogaz owes the Russian company almost $32 billion after failing to buy the contracted amount of gas.

In return, Naftogaz is suing Gazprom for $25.7 billion. The Ukrainian state company is seeking $14 billion for alleged overpayments for gas, and $11.7 billion for Gazprom's alleged violation of the transit contract.

Last week, the IMF provided Ukraine with $1 billion tranche for first time since August last year. The funding was delayed due to discontent with Kiev's progress in tackling corruption, slow privatization of state assets and delays in reforms.