Among Naftogaz Group companies, Gas Supply Company Naftogaz Trading LLC (hereinafter referred to as “Naftogaz Trading”) supplies natural gas to heat generators. This primarily involves cooperation with district heating companies and apartment building co-owner associations (ABCA).

The Resolution of the Cabinet of Ministers of Ukraine No. 812 dated 19 July 2022 (as amended on 22 August 2023 No. 896) extended the Regulation on the imposition of public service obligations (PSO) for natural gas market participants to serve the public interest in the natural gas market with regard to the peculiarities of natural gas supply to heat generators (hereinafter also referred to as the “Regulation”) until April 15, 2024.

On 26 August 2023, Gas Supply Company Naftogaz Trading LLC (hereinafter also referred to as the “Company”) drafted and provided heat generators with draft natural gas supply agreements pursuant to the Regulation with a validity period from September 1, 2023 to August 15, 2024.

PSO Regulation

Pursuant to clause 4 of the Regulation, the Company shall supply natural gas under contracts with heat generators, including:

• apartment building co-owner associations;
• housing and construction (housing, service) cooperatives;
• managers of apartment buildings;
• business entities that use natural gas for hot water supply and heating of apartment buildings.

Main terms of PSO Natural Gas Supply Contract

For heat generators, the Contract provides for the use of Volume I, Volume II and Volume III of natural gas.

Volume I (fixed) of natural gas is used by the Consumer for the needs of heat generation to render heat energy supply services and hot water to households and/or supplying heat energy as a marketable product for these needs.

Within this volume, gas is supplied to heat generators under the Regulation at a price of UAH 7,420 including VAT per 1,000 m3 of gas. The price will also feature the tariff for natural gas transmission services and the rate applied when ordering a Day-Ahead capacity.

Volume III (fixed) of natural gas is used by the Consumer for the production of heat energy for the provision of services of supplying heat energy and hot water to budget-funded institutions/organizations, religious organisations, enterprises, institutions, and organisations managed by the State Affairs Administration, and/or the supply of heat energy as a marketable product for these needs.

Within this volume, gas is supplied to heat producers under the Regulation at a price of UAH 16,390 including VAT per 1,000 m3 of gas. The price will also feature the tariff for natural gas transmission services and the rate applied when ordering a Day-Ahead capacity.

Volume ІІ of natural gas is used by the Consumer for needs other than those covered by volumes I (fixed) and III (fixed).

The price of natural gas for volume II is determined monthly by the 25th day of the month preceding the month of natural gas supply to the heat generator as per the following formula: P = Pueex x k1 x k2.

The symbols in this formula mean:

• Р — the natural gas price for the heat generator;
• Pueex ― the average-weighted price for resources of the month  preceding the month of natural gas supply, which was formed as a result of electronic exchange trading on the Ukrainian Energy Exchange under all contracts, payment terms and bases (in the gas transmission system, gas storage facilities), and for all standardized products within the "Natural Gas" definition, for the period from 1 to 20 days of the month (inclusive) for all trading days of the month including value added tax, in UAH per 1,000 cubic meters of gas;
• k1 — adjustment factor that takes into account the time value of money at the discount rate of the National Bank and the average expectation of late payment by heat generators at a level of 80 calendar days, according to linear calculations, which is 1.055;
• k2 ― adjustment factor, the natural gas supplier's markup of 1,050.

If during the current month of natural gas supply there is no electronic exchange trading on the commodity exchange "Ukrainian Energy Exchange" for all contracts, payment terms and bases (in the gas transmission system, gas storage facilities), the price remains at the level of the previous month, which was calculated according to the above formula.

On a monthly basis, before the beginning of the month of natural gas supply, Naftogaz Trading will post information on changes in the price of gas under Volume II on the Supplier's official website or send information to the Consumer in letter to the email address specified in the Contract.

The gas price for Volume II for 1,000 cubic meters of natural gas as of September 2023 is UAH 16,475.16 excluding VAT.

The gas price has the following markups:

• 20% value-added tax;
• tariff for natural gas transportation services for the internal point of exit from the gas transportation system - UAH 124.16, excluding VAT;
• the factor applied when ordering capacity for the day ahead in the relevant period at a level of 1.10 conventional units in total with the factor - UAH 136,576, in addition to VAT 20% - UAH 27,315, in total with VAT - UAH 163.89 per 1,000 cubic meters.

For Consumers included in the register of enterprises participating in the debt settlement procedure in accordance with the Law of Ukraine "On Measures Aimed at Debt Settlement of Heat Supply and Heat Generating Enterprises of District Heating and Water Supply and Wastewater Disposal" and having debts to Naftogaz Trading, the Supplier shall register the Consumer after submitting the following documents:

• certificates (in any form) on opening a non-budget account in the Treasury;
• original or copy of the Contract/supplemental agreement (additional agreement) on the contractual transfer of funds (hereinafter referred to as the Funds Transfer Agreement) concluded for the period of application of the procedure for distribution and transfer of funds.

At the same time, the Funds Transfer Agreement must contain the Consumer's consent to the bank's transfer from the Consumer's current bank accounts, which receive funds in the form of payment for heat energy, heat energy supply, and hot water supply services, in the amount of receipts to the relevant bank accounts during the transaction day, to a non-budget account in the Treasury.

For all other Consumers, the Supplier shall register the Consumer after signing an agreement on the earliest possible date that the GTS Operator's platform allows.