Naftogaz warns 11 oblasts of gas cuts over unpaid $3 billion bill

Naftogaz warns 11 oblasts of gas cuts over unpaid $3 billion bill

Naftogaz, Ukraine’s state-owned oil and gas monopoly, has threatened 11 oblasts with gas supply cuts for falling drastically behind on their bills totaling some $3 billion, which, coincidentally, is the rough equivalent of what Russia’s Gazprom said Ukraine owed it.

Naftogaz said on Feb. 13 it will imminently reduce gas deliveries to a “technical minimum.” Company spokesperson Olena Yurieva said that means enough will be given for pipes to not freeze.

Energy experts disagreed on how much room temperatures will drop as a result. Oleksandr Todiychuk, head of international energy club Q-club, told Kommersant that temperatures could drop to as low as 10 C, whereas Dmytro Marunich of the Energy Strategies Institute told the Kyiv Post temperatures won’t be less than 18 C.

Curiously, Naftogaz forgot to mention its largest debtors are located in Kyiv, and in Donetsk, Luhansk, Dnipropetrovsk and Kharkiv where President Viktor Yanukovych’s political base lies. Their combined debt is $1.8 billion as of Jan. 1, according to investment house Dragon Capital. After Kyiv, Donetsk was the largest debtor, owing some $500 million to Naftogaz. The 11 municipal heating companies that Naftogaz mentioned were in Vinnytsya, Zhytomyr, Zaporizhya, Lviv, Chernihiv, Cherkasy, Kherson, Sumy, Odesa, Volyn and Kirovohrad.

Some of the oblasts Naftogaz fingered have rebelled against President Viktor Yanukovych. Militant activists have seized government buildings in Zhytomyr, Lviv and Volyn while Chernihiv, Cherkasy and Sumy have witnessed large-scale anti-government protests. So-called national councils have been created in these regions to rival local governing councils that protesters say are not doing their jobs, according to lawmaker Taras Stetskiv.

Local courts have ruled that they are illegal.

Acting Deputy Prime Minister Yuri Boiko specifically mentioned the delinquent oblasts where national councils operate in an interview with TSN TV.

“Overall, the bill has increased in those oblasts where so-called national councils hold power,” said Boiko. “We really have seen arrears rise for gas in those specific regions.”

But when asked to comment on why the eastern oblasts weren’t mentioned in the Naftogaz news release, Yurieva of Naftogaz said she “just publishes what other departments give me…I don’t know who the largest debtors in eastern Ukraine are.”

A separate Kyiv Post inquiry emailed to Naftogaz wasn’t answered.

However, Marunych of the Energy Strategies Institute downplayed any political undertones in Naftogaz’s news release.

Although Naftogaz this week paid $1.5 billion to Gazrpom, mainly with proceeds from a domestic bond issuance that the nation’s central bank scooped up, it still owes another $1.8 billion. Ukraine presumably was going to pay the difference with a $2 billion eurobond issuance that Russia promised to buy, but Dmitry Peskov, Russian President Vladimir Putin’s spokesperson, said on Feb. 20 that political turmoil in Ukraine first must calm down.

Marunych mentioned Naftogaz is always due money from municipal heating companies, a trend that has existed for seven to eight years.

What complicates the matter is that each region has its own gas price which is lower than the cost and ranges 20-30 percent, and sometimes higher. The state covers the difference via sub- sidies sent to local governments, which often is delayed, said Marunych.

“In fact, households usually pay their gas bills, as do industrial consumers who can be easily cut off by gas distribution companies…it is usually local governments who don’t pay the difference owed to Naftogaz,” said Marunych.

Payment to Naftogaz got sloppier, said the energy expert, after 2011 when the state wrote off the state-owned company’s debt. The move impacted “payment discipline,” said Marunych.

Specifically, according to Dragon Capital analyst Dennis Sakva, the government wrote off Hr 4.9 billion in debt of municipal heating companies, and Hr 7.4 billion that regional gas distributing companies had to Naftogaz as well as wrote off Naftogaz’s debts to the state budget.

Naftogaz is the nation’s largest employer with nearly 180,000 employees. Global auditing consultancy Deloitte ranks it the third most money-making energy and resources company in Central Europe. According to a recent Deloitte report on energy companies, Naftogaz had 9.45 billion euros in revenues in 2012. However, the company’s net loss for the first nine months of last year reached 956.7 million euros, exceeding 2012 net losses for the same period by 2.4 times. Naftogaz is a financial headache for the state and constantly needs capital injections from the government to stay afloat.

Kyiv Post editor Mark Rachkevych can be reached at

A company official inside one of Kyivenergo’s thermal energy plants that belongs to Rinat Akhmetov, the nation’s richest billionaire, speaks on a phone. The city’s municipal heating company owes more than $500 million to Naftogaz for unpaid gas. (Ukrafoto).

Largest Naftogaz debtors by region as of Feb. 1


Debt before Naftogaz (hryvnia)

City of Kyiv

5.03 billion

Donetsk Oblast

4.64 billion

Dnipropetrovsk Oblast

3.76 billion

Kharkiv Oblast

2.95 billion

Luhansk Oblast

2.88 billion

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