The decision of the Ministry of Economy and Trade to take over Ukrtransgaz contradicts the Third Energy Package and the Unbundling Plan

16.09.2016, 23:03:00

A sudden shift in control over Uktransgaz form Naftogaz to the Ministry of Economic Development and Trade of Ukraine is not brining Ukraine closer to fulfilling its obligations under the Third Energy Package.

The decision does not comply with requirements of both the Third Energy Package and the Law of Ukraine “On the natural gas market”. It also poses a threat to the implementation of the Naftogaz Corporate Governance Action Plan, which was a prerequisite for a USD 300 million loan provided by the EBRD for gas procurement. As a result of the unlawful actions of the ministry’s high officials, Naftogaz may not be able to receive a USD 500 million loan from the World Bank, which is crucial for ensuring secure gas supplies during the winter of 2016-2017 in Ukraine. With this decision, the ministry has breached Ukraine’s commitments to its Western partners and international financial institutions.

Both Naftogaz and the EBRD, one of the Company’s key lenders, have become aware of the ministerial decision from the media reports.

According to the Third Energy Package requirements currently transposed into Ukraine’s national law, the same body may not simultaneously control both the gas transmission function and the gas supply/production function (article 23(3) of the Law “On the natural gas market” in line with article 9 of Directive 2009/73/EC).

The Naftogaz Restructuring Plan was approved by the Cabinet of Ministers of Ukraine in July 2016 in coordination with the Secretariat of the Energy Community, the EBRD and other Western stakeholders (official text of the Plan:

To fulfil the requirements of the Third Energy Package, the Plan stipulates establishment of a new operator with an independent supervisory board. The handover of Ukrtransgaz to the Ministry of Economic Development and Trade was not envisaged by the Plan.

The Plan does not imply any change in control over Ukrtransgaz. In respect of Ukrtransgaz, it only commissions the Ministry of Economic Development and Trade “to recommend that Naftogaz should create a supervisory board at Ukrtransgaz consisting of five members and fitting a number of requirements”.

None of the provisions of the Naftogaz Restructuring Plan has been fulfilled so far. The Energy Community Secretariat recently cited its concern and made critical remarks about the lack of progress.

“According to the Naftogaz Corporate Governance Action Plan, the Ministry of Economy should have developed and published its ownership policy a while ago. This policy would serve as guidelines for the supervisory board of the state-owned Naftogaz. Instead, the ministry takes measures that eventually lead to manual control over state-run enterprises. The decision of the Ministry may also significantly complicate further negotiations of Naftogaz with its Western partners who do not see the logic behind this step,” commented Yuriy Vitrenko, Group Chief Commercial Officer of Naftogaz.

Public Relations Department