Naftogaz Steps in, Says Kiev Delays Pipeline Work

State-owned Naftogaz Ukrainy will "step in to make sure Ukraine's gas transmission system (GTS) modernisation plan is developed," the gas supply and transport owner said June 23. This can start even before the unbundling process – where the pipelines will be spun off into a new entity – is done, it said. International consultants PwC won the tender to advise on unbundling.

Naftogaz said it shared the "recent concerns of some members of the Ukrainian parliament regarding the absence of clear plans on the future development of the GTS. This task was supposed to be performed by the new transmission system operator envisaged by the unbundling plan which was adopted by the government in July 2016. However, since a number of ministries have significantly delayed the plan's implementation, no conditions have been created for this work. Naftogaz will therefore step in to make sure the GTS modernisation plan is developed."

Naftogaz has said that unbundling can only happen after the arbitration court in Stockholm has decided on the ship-or-pay contract dispute with Gazprom, signed in 2009 and due to expire in 2019. The decision is expected in a few months.

Ukraine's energy and coal ministry was supposed to ensure that the corporate governance structure of the new transmission system operator – as defined by the European Union's third energy package – was established in line with its corporate governance action plan by the beginning of October 2016. The new company would have its own supervisory board and management, the latter tasked with modernising the GTS. But "unfortunately, the government has not started carrying out the new TSO’s corporate governance plan," it said.

“As Ukrtransgaz shareholder, Naftogaz continues to ensure proper funding for all necessary activities to maintain secure operation of the system. We were expecting for the appointment of the new operator management, however this process is stalled. We agree that further delaying the development of the system's modernisation plan is unacceptable", said Naftogaz CEO Andriy Kobolyev.

Naftogaz did not comment on the scope of the modernisation work at time of press. Independent surveys show that the ageing system needs billions of dollars spent on it. And the Soviet-era legacy of a single transport system for Russia and Ukraine, means that there is no separation of the transit pipelines from the domestic supply pipelines.

William Powell