Naftogaz Ukrainy Moves to Hasten Unbundling

State Naftogaz Ukrainy has decided to circulate its plan to fully unbundle its gas transport system as the schedule for completing the process is already five months late.

Naftogaz has opted for full unbundling with an independently-owned transmission system operator (TSO), according to the European Commission’s third energy package, but it urged the rest of the company be left as it is, and no further assets to be spun off.

It says it sent its proposals last year to a number of Ukrainian state agencies such as the energy ministry, the ministry for economy and trade, the antimonopoly commission, and representatives of its foreign lenders, the World Bank, and the European Bank for Reconstruction and Development.

According to the legal timetable for reforming the gas sector, the energy ministry was to have agreed with other state agencies a draft plan for unbundling the transmission system operator and sent it to the Secretariat of the Energy Community by the end of October and this would have triggered a series of new laws by January 31, 2016.

But as of the end of March, there was still no approved plan for the separation of what will be known in English as Transmission Gaslines Ukraine. Given this five-month delay and the urgency of the reforms, Naftogaz said it sent its detailed proposals to a number of interested parties.

“The effective separation of the functions of the TSO from market players who carry out different activities in the gas market, in particular gas production, trade or supply is an essential condition for development of a free and competitive gas market,” it said. “Delaying the adoption of the plan to unbundle the TSO unjustifiably prolongs the existence of non-market practices, examples of which are to be found in Naftogaz’ proposals,” it said.

An unbundled TSO, which Naftogaz said should be in the hands of the state property fund initially, should attract a qualified international investor, which, in turn, would mean that the European gas industry could trust the Ukrainian TSO.

Unbundling the TSO must not threaten the economic interests of Ukraine, and in particular it must not threaten the arbitration proceedings it is directing against Gazprom or lead to a default on Naftogaz’ bonds, including those guaranteed by the state. The TSO will be protected from political interference or from abuse for personal gain by OECD principles of corporate governance, it said. The future of the other assets of the group will be considered but Naftogaz urges the unbundling not to be used as an opportunity to remove other assets from the group if they are unaffected by the demands of the third energy package.

The strategy for each asset will be a matter for discussion with independent analysts, potential backers and strategic partners, it said.

William Powell