Gas producers sue Ukraine over granting Naftogaz exclusivity to top clients

The seven biggest private producers of natural gas in Ukraine filed a lawsuit contending the government’s decision to make state gas production and transit firm Naftogaz the exclusive supplier of gas to 90 of the nation’s top industrial consumers, the Interfax-Ukrayina news agency reported on Nov. 17, citing a lawyer involved. The claim was submitted on Nov. 14, according to the source.



Recall, the Cabinet of Ministers issued resolutions, made public on Nov. 11, ordering 90 industrial consumers to buy gas exclusively from Naftogaz between Nov. 11, 2014 and Feb. 28, 2015. With their claim, private producers asked the government to repeal its decision, which they said contradicts Ukrainian legislation and international rules stipulated by the Energy Charter and Ukraine’s membership in European Energy Community.



In related news, the Secretariat of European Energy Community sent a letter to Ukrainian Prime Minister Arseniy Yatsenuyk on Nov. 14 demanding an explanation for his Cabinet’s decision which “reintroduced the legal monopoly of state-owned Naftogaz”. The Cabinet is requested to respond no later than Nov. 20.



Deputy Energy Minister Ihor Didenko clarified that the 90 enterprises that are required to buy gas exclusively from Naftogaz consume 0.75 bcm of natural gas monthly, while total monthly gas consumption by Ukrainian industry is about 1.3 bcm, Interfax reported on Nov. 14. This means that the market niche for private gas producers is about 0.55 bcm per month, according to Didenko. Average monthly output by all private gas producers was 0.25 bcm in 9M14, we estimate.



Alexander Paraschiy: Didenko was accurate when remarking on the share of the gas market that remains available to private producers. However, he neglected to point out that this available niche consists of small and dispersed consumers. It requires more costs to supply gas to them, and for this reason such companies were usually a niche of Naftogaz, which is less efficient and consumer-friendly.



With its ruling, the Cabinet significantly limited competition on the gas market, so the private producers’ complaints are legitimate, in our view. As we stated last week, the Cabinet resolutions not only threaten the gas production of private companies, but also lacks logic. With such unprecedented pressure on the government from different sides (a lot of private production firms belong to Ukrainian tycoons), the government might revise its regulation soon, we believe.

Источник: Конкорд Капитал