Ukrainian Gas Market Needs Reform: Naftogaz

Ukrainian monopoly Naftogaz has accused individuals of profiting from the government's gas market law, by exploiting a loophole to sell to industry small volumes of cheaply acquired gas intended for households. 

In its statement issued January 23, it also asked the government for hryvnia 110bn ($3.8bn) to cover the costs it has incurred, associated with buying gas and being obliged to sell it cheap to middlemen. This is part of Naftogaz's long-running campaign to make the government aware of the losses that its legislation was causing the economy.

"Last week, law enforcement agencies in Lvov uncovered a hryvnia 1.4bn scam when enterprises close to highly-placed individuals converted discounted gas into electricity and sold it at market rates," Naftogaz said January 23. In another case, new management at Kirovogradgaz found gas had been sold to non-existent customers.

Overall, the state has lost hryvnia 12.4bn in gas revenues owing to such schemes, said Naftogaz CEO Andriy Kobolev, calling on the government to scrap the current system and to introduce instead one that is transparent and market-based. Otherwise government plans to increase domestic gas output, to lower prices for some consumers, and to introduce major energy efficiency schemes will never get off the ground, he said. 

Overseas lenders such as the International Monetary Fund as well as Naftogaz have long been demanding gas market reform, in particular the removal of middlemen profiting from gas sales at the expense of the budget, but the links between government and the gas market are strong.