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Aug 14, 2012

Ukrnafta - Gets permission to sell 0.27 bcm of gas to industrial consumers

Ukrainian Energy

The government permitted Ukrnafta, Ukraine’s largest oil producer, to sell 0.27 bcm of gas to industrial customers this year.

Dragon Capital comments on the news: The news is very positive for Ukrnafta as the aforementioned gas volume implies up to $118m of additional revenues and EBITDA in 2012. This comes on top of a recent government decision to permit Ukrnafta to sell another 0.6 bcm of gas to affiliated nitrogen fertilizer producer Dniproazot by end-2012. The company needs to receive special authorization to sell gas to industrial customers because, being a 50% state-owned company, it is formally required to sell its gas output to state oil and gas monopoly Naftogaz Ukrainy at a below-market regulated price (currently $58/tcm) for further supply to households. However, Ukrnafta has failed to meet this requirement since 2006, arguing that the regulated tariff does not even cover production costs. Later Ukrnafta succeeded in recovering some of the volume pumped into the gas transit system by securing court rulings allowing it to supply the fuel either to industrial consumers or directly to Dniproazot.

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