Naftogaz Calls on Kiev for PSO Changes

Naftogaz Ukrainy has applied to the council of ministers with a request that it either cancel its public service obligation (PSO) regulation or amend it appropriately, it said April 17.

Naftogaz is bound by the terms of last October’s ministerial decree 867 that confirms the regulation of the PSO on gas suppliers. The decree means that Naftogaz must put up prices by 15% for households and for heat suppliers and other protected retail customers, or hryvnia 7184,8/’000 m³ before VAT and transport costs. 

But the market price of gas for May, as of April 16, according to the Ukrainian energy exchange, is hryvnia 6,800/’000 m³ including VAT; or 27% less than the price would be under the present formula. Market prices at European hubs are very low, as demand is weak. And even lower Asian spot prices have meant more US LNG heading to Europe.

Naftogaz has repeatedly asked the government to cancel decree 867 or to set a price linked to the market. Naftogaz cannot independently reduce the price of the commodity it sells to the above categories of consumer without violating its licence conditions or breaking the law, it said.

The PSO has been a bone of contention, normally because it forces Naftogaz to sell gas at a loss, so it is unusual to see it objecting to a mechanism that forces it to make money. But the company is state-owned, so the government gains financially while losing politically. The Energy Community Secretariat and the international finance community have also criticised Kiev for the PSO, seeing it as a market distortion and illegal state aid.