Parliament on Aug. 14 passed legislation that clears the way for detaching the nation’s strategically valuable natural gas transportation system (GTS) from state-owned oil and gas monopoly Naftogaz Ukrainy.

Passed in the second reading, the bill allows the state to retain a controlling stake in the GTS and lets it offer up to 49 percent of its operating arm to a U.S. or European investor. It also ensures that the large gas storage network remains in state hands too.

The GTS, worth an estimated $25-35 billion, is the more valuable asset of the state gas behemoth Naftogaz and is slated to be “unbundled”from the parent company by the government of Prime Minister Arseniy Yatseniuk. With an input capacity of 233 billion cubic meters and an output capacity to Europe of 143 billion cubic meters per year, the GTS pumped just 86 billion cubic meters in that direction, earning the state over $3 billion, and a further 28 billion cubic meters from Russia and Europe to Ukraine as the terminus.

According to Naftogaz, the GTS has 33,000 kilometers of pipelines. Also highly valuable are the monopoly’s 13 storage facilities (including 1 in occupied Crimea) that have a capacity of 32 billion cubic meters.

Founded in 1998 during Leonid Kuchma’s fourth year as president, Naftogaz is a massively indebted and corrupt company. It has a $1.6 billion bond debt maturing in September alone and owes Russia’s Gazprom $2.2 billion for delivered gas, according to Kyiv authorities. This latter debt is in dispute in European courts. Meanwhile, utility companies and industrial consumers owe Naftogaz Hr 19.8 billion ($1.5 billion) as of Aug 13, the company reported.

The GTS is in need of urgent upgrades that neither the state nor the company can afford. So, in order make it more efficient and investment attractive, the government wants to break it up into three independent entities: GTS, oil and gas extraction, gas storage.

“Today we have taken two historic steps,”Yatseniuk declared at the bill’s final passage. “First –we actually took a step towards energy independence by adopting a law on the modernization of the Ukrainian gas transportation system operation with the participation of the EU and U.S. Secondly – we have shown that the country is able to defend itself by passing a law on sanctions.”

In order to attract (non-Russian) investment and bring the GTS up to European standards, the new company must be brought in line with the EU’s 3rd Energy Package by the beginning of next year. This means that if the GTS is state-owned, its operator cannot be, and vice versa. The new law anticipates a joint venture between the state and a private company with a 51-49 percent split in ownership.

The Ukrainian government has announced a public competition to attract investors for the modernization and operation of the GTS, and by law they can only belong to EU member states or the U.S. Also, for the sake of transparency, during the competition a company that is a resident of the EU or the U.S. is obliged to disclose all information about their assets and show all the beneficiaries who are the owners of the company.

Energy experts believe that only a select few investors would be interested in the GTS, whereas a wide pool of partners are ready to bid for the storage facilities.

“If the company that wins the competition decides to change its ownership structure, such a decision can be taken only if the Ukrainian side agrees,” said Yatseniuk. “It could happen that an EU resident company wins and then changes the ownership structure so that it belongs to a country-aggressor (like Russia).”

But not everyone is convinced that this law will offer much improvement by itself. “The economic value [of the gas transportation system] depends on the shipment of gas from the direction of Russia to Europe. Consequently it is critical to restore stability to the transit business with Gazprom before Ukraine can capture full value for its assets,” argues Edward Chow of the Energy and National Security Program at the Center for Strategic and International Studies. “Until transparent operation is established within Ukrtransgaz (operator of pipelines and storage facilities), it makes little business sense to separate gas transportation from gas storage as the value of each depends on the other.”

The prime minister added that the company that manages the GTS must for five years report to parliament.

He also gave the moment a political spin, emphasizing the need for Ukraine and Europe to be together on energy security. “For the EU to be consistent, since together we signed the association agreement, this means we help each other and not build the South Stream [Pipeline], which is designed solely to be against Ukraine,” added Yatseniuk.

Naftogaz was founded to concentrate the majority of the state’s oil and gas related companies into a single entity. Until recently it was the monopoly for gas extraction and transit in Ukraine. Scandal has dogged the company since its inception, as its murky structure and lack of accountability have allegedly made it a target for theft and fraud. Without substantial reforms to the company, international financial organizations have made it clear that they will be reluctant to credit Ukraine.