Die Welt: Naftogaz CEO interviewed by German broadsheet

Kobolyev: "Ukraine could be independent of Russian gas imports within two years"

Die Welt, February 7, 2015

Andriy Kobolev is the manager of Naftogaz – possibly the most important corporation in Ukraine. The state owned gas giant is the biggest opponent of the Russian giant Gazprom.

By Julia Smirnova

Andriy Kobolev makes an energetic impression. He is 36 and has been head of the state owned gas corporation Naftogaz for almost a year.

Kobolev is one of the young reformers of the country. He joined the company after the Maidan revolution when it was marked by corruption – like the majority of the Ukrainian economy. Additionally, he was confronted with difficult negotiations with Gazprom. The Russians traditionally utilize gas prices as political leverage. Kobolev might have to negotiate with Gazprom again, soon.

Die Welt (DW): Mr. Kobolev, last week, Gazprom announced that as of April 1st, there will no longer be a 100-dollar discount for the Ukraine. Did you expect this?

Andrej Kobolev (AK): Gazprom’s demeanour surprises us. They are losing the Ukrainian market. But if they do not want to sell gas to us, we cannot force them to. For us, this matter is free of emotions and politics. It is only about business logic. Gazprom has to be prepared to be able to negotiate new prices.

DW: Until now, Gazprom refuses to negotiate the price. What are you going to do?

AK: We are going to buy gas in Europe, like we are doing now. If our Russian partners don’t change their opinion, the Ukraine won’t have any other option.

DW: How much gas are you currently buying in Russia? And how much in Europe?

AK: In September, we started buying gas in Slovakia. In December 2013, the Ukraine bought 95% of their gas in Russia and only 5% in Europe. A year later, 67% of the gas was bought in Europe and only 33% in Russia. In January, we increased our capacities for purchase in Slovakia by one third. At the moment, we are receiving more than 60 million cubic meters of gas from Slovakia, Hungary and Poland. This covers most of our need.

DW: At what price are you buying gas from the EU?

AK: The price is more attractive than Gazprom, despite their discount.

DW: Can you talk about specific figures?

AK: As they are a business secret, I can’t. But the difference is significant.

DW: Gazprom is planning on claiming debts from the Ukraine in the amount of 2.4 billion dollars.

AK: We are of the opinion that Gazprom owes us 6.2 billion dollars. The international labour court in Stockholm will have to decide who owes money to whom. It is only a matter of time.

DW: What if Gazprom stops their supply completely?

AK: It is the Ukrainian’s president Poroshenko’s goal to make the Ukraine completely independent from gas imports.

DW: How is that supposed to work?

AK: We want to save. The Ukraine uses three times more gas per household than European average. Every year, we supply households with about 21 billion cubic meters of gas. If we cut this consumption in half, we can save 10 billion cubic meters per year. There is a huge potential. If we combine this with an increase in production, the Ukraine could be independent of Russian gas imports within two years and completely independent within three to five years.

DW: How do you want to achieve this?

AK: As with many reforms, the first step will be very unpopular. When the price rises, people will behave differently. They will try to use gas more efficiently and economically. We also want to swap old radiators for newer and more efficient ones.

DW: How much will this cost?

AK: There are different calculations. We believe that the government should grant the citizens cheap loans so they can buy the new radiators themselves.

DW: These plans will probably not cause enthusiasm.

AK: The reaction will be negative, of course. Nobody likes rising prices. But for many years, gas prices in the Ukraine were much too low – lower even than in Russia and far below market level. It is unavoidable to raise the price.
DW: How do you want to explain this to the people?

AK: The Ukraine is like a person who has a toothache, but is too afraid to go to the doctor. When the pain gets worse and the dental nerve has to be removed he still does not see a doctor, because he is too afraid. Now he has an ulcer. He is standing in front of the mirror and asks himself: Do I want to see a doctor? The honest answer is: No. But what can help is anaesthesia. These are means for those who really need them. But after this surgery, the country will be richer and the economy healthier. I hope that we can explain it to the people and that they will support us.

DW: Is your decision supported by Prime Minister Arseniy Yatsenyuk and President Petro Poroshenko?

AK: We are currently in the middle of negotiations. Everyone understands that raising the prices is necessary and that that’s what we will be doing. The exact plan is being discussed together with the International Monetary Fund and Ukraine’s political leaders.

DW: How do you want to reform Naftogaz?

AK: The first step is introducing prices at market level. This way we can reduce the deficit and avoid corruption. After that, we want to privatize the extraction business so that it becomes more profitable. The transport business will be turned into a new company. This is the Third Energy Package. Naftogaz will become a holding company and remains gas retailer.
DW: After the annexation of the Crimea, you lost the most valuable part of the company: Tschernomorneftegas. Will you be suing Russia?

AK: Tschernomorneftegaz is located in the occupied territory, but we want to fight for it. We were disseized of two billion cubic meters of gas in a repository as well as a gas field where about 2 billion cubic meters of gas are being produced per year. We have a plan about how to proceed, but I cannot reveal any details.

DW: Are you going to continue supplying the occupied territories in Eastern Ukraine with gas?

AK: We will continue the supply. There may be terrorists and Russians in these areas, but also normal people who need gas for their houses. We can’t leave them without heating in the winter.

DW: You have been head of Naftogaz since March 2014. What condition was the company in when you took over?

AK: Naftogaz was financially crippled. There was so much corruption. We were able to remove this from the management level. We don’t have mediators anymore and instead work directly with the big companies in the EU, Russia and with end-consumers. There are no more absurd requests for proposals involving large amounts of money. My precursors for example spent 600 million dollars for geological research that did not lead to anything. There won’t be any more of these things. We are trying to make the company profitable.

DW: In March, your precursor Yevgeny Bakulin was arrested for suspected corruption. Now he is part of the parliament. Will the investigations continue?

AK: As far as I know, yes.

DW: How much of the management level did you have to replace?
AK: All of the board members and almost half of top management have been replaced. Half of them with people who have never worked in the Ukrainian oil or gas business before.

DW: In the past you have worked for Naftogaz for several years. Did you know about the corruption during that time?

AK: I had worked at the auditor PWC before I joined Naftogaz in order to introduce Western standards. When I left Naftogaz in 2010, I had no doubts that management and the government were leading the companies in a different direction.

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