Naftogaz of Ukraine has written an open letter to the Secretariat of the Energy Community and Ukrainian natural gas market participants, in which the company outlined its proposals for the establishment of proportionality and non-discrimination in the natural gas market. Naftogaz considers the principle of proportionality to include fair distribution of obligations to provide natural gas to all categories of consumers and the responsibility to create a strategic reserve of gas in underground storages.

These principles are consistent with the requirements of European legislation, including the Treaty Establishing the Energy Community (ratified by the Law of Ukraine № 2787-VI on 15.12.10), European Union Directive 2009/73/EC on the natural gas market, and Ukraine’s Association Agreement with the EU.

Naftogaz is currently discriminated against due to its legal obligation to provide preferential terms to certain categories of consumers

In some cases the prices paid by protected categories of consumers in Ukraine to Naftogaz are as much as ten times below market rates. Such consumers in the first 11 months of 2014 received 19.6 billion cubic meters of gas (including 5.8 billion cubic meters of imported gas) from Naftogaz. This state of affairs does not conform to the principles of proportionality and non-discrimination in Ukraine’s natural gas market.

Naftogaz does not have effective mechanisms to ensure timely payments due to the special status of certain categories of consumers. The debts of heating companies to Naftogaz stand at 12.4 billion Ukrainian hryvnia.

During the first 11 months of this year Naftogaz sold only about 3.4 billion cubic meters of natural gas to industrial customers. The selling price set by National Commission for State Energy and Public Utilities Regulation does not always cover the company’s direct costs for the purchase of imported gas, in particular, due to foreign exchange fluctuations and interest on loans raised to finance working capital.

In addition, Naftogaz has the status of guaranteed supplier of gas to all categories of consumers, which means the need to invest an extremely large amount of working capital in the maintenance of gas reserves in underground storage facilities to ensure supply security.

Private providers enjoy preferential terms

Private sellers of natural gas, on the other hand, have the opportunity to sell exclusively to industrial customers at market rates. Private companies also have the opportunity to receive advance payments for gas to prevent bad debts and protect themselves against unfavorable price conditions or other negative developments.

Our goal is market based, non-discriminatory conditions for all market participants, as well as high quality services at competitive prices for consumers

Naftogaz’s priority is to create an open and efficient natural gas market in Ukraine through establishment of fair conditions for all suppliers and consumers.