Naftogaz Group has published its annual report 2019 prepared according to GRI standards. The full version of the report is available on Naftogaz's website in both Ukrainian and English. The integrated annual report contains details on the group’s market and regulatory environment in 2019, strategies and performance of key business units, corporate governance report, information about HR management, HSE, CSR, and overview of the group’s financial results.
“Ukraine is a resilient country, not unfamiliar with suffering in majorways. Naftogaz has inherited this resilience in its blood, and it will serve the group well in the months and years to come, and Naftogaz will come out of the current global crisis stronger. This we all are committed to in Naftogaz Group, and we will spare no efforts to navigate 2020 in the best way possible notwithstanding a very adverse environment,” chair of Naftogaz supervisory board Clare Spottiswoode commented in her introduction to the new annual report of the group.
“2019 saw an effective reset in relations between Ukraine’s biggest company and the country’s authorities. For perhaps the first time, we saw clear synergy in the teamwork of the government, parliament and Naftogaz. This synergy resulted in the flawless unbundling of the gas transmission system operator (GTS) and successful negotiations with Russia on continued gas transit through Ukraine. We would like to thank the president, the governmental team, and members of parliament for their commitment to coordinated and fruitful cooperation with Naftogaz to the benefit of the Ukrainian people. We are also grateful to our country’s international partners for their strong commitment to helping Ukraine be a success story. I hope this effective cooperation will continue in 2020,”Naftogaz CEO Andriy Kobolyev said in his address to the readers.
Key results: contribution to the state budget and energy security
In 2019, Naftogaz Group again was the biggest source of revenue to the state budget. The group paid UAH 121.4 billion of taxes and dividends to the state and local budgets, which equaled about 16% of revenues.
In the previous year, Naftogaz generated the biggest profit – UAH 50.6 billion –among Ukrainian SOEs. The group paid 95% of this amount to the state budget in the form of dividends.
Naftogaz also was effective in protecting Ukraine’s energy security. Despite difficult negotiations with Gazprom, TSO unbundling and possible interruption of transit from 1 January 2020, the group prepared the gas transmission system for the winter and the potential crisis. In 2019, the company raised nearly USD 1.5 billion through Eurobonds, which helped accumulate sufficient gas volumes for sustainable gas and heat supply to Ukrainian customers even if the transit were halted. Furthermore, the wholesale gas price for the needs of Ukrainian households decreased by 25% in 2019 thanks to the successful integration of the Ukrainian and EU gas markets.
Completing major projects: unbundling, arbitration proceedings against Gazprom and new transit deal
Naftogaz’s remarkable achievements 2019 include proper and prompt TSO unbundling as well as successful negotiations with Russia and Gazprom, which resulted in a new transit contract. Ukraine is entitled to USD 7.2 billion of guaranteed revenue under this contract within the next five years. Naftogaz also received more than USD 2.9 billion of compensation from Gazprom under the Stockholm arbitration award.
Entering new markets
In 2019, Naftogaz increased its operations in adjacent industries. The group took over management of Novoyavorivska and Novorozdilska heat producing plants in Lviv region, preventing a disaster and supplying heat and hot water to 60 thousand citizens in these towns. Further developing new businesses, the group plans to start active operations in gas supply to households after PSO expiry this year. These activities will focus on creating new value for consumers and developing competition in the gas market.
Transformation and future objectives
In the reporting period, Naftogaz continued its organizational transformation to increase operating efficiency, resilience to external challenges and ability to generate profit. The company renewed its executive board and directorate, engaging new employees with experience of change management in major companies.
In 2020, the government set the following priorities for Naftogaz: securing stable revenues to the state budget, decreasing Ukraine’s dependence on gas imports, increasing 2P oil and gas reserves, and preparing the group for partial IPO in several years. The transformation processes at Naftogaz Group are designed to achieve those goals and are part of the general IPO preparation strategy of the group.
2020 is a crisis year for the oil and gas industry. The significant fall in global hydrocarbon prices was exacerbated by the COVID-19 pandemic. Based on the changing conditions, Naftogaz Group reviews its operating costs and investment programs on a regular basis, adjusting to lower revenues and rigorously assessing expected ROIC. Nevertheless, Naftogaz continues to keep a strong focus on environmental protection, developing local communities, enhancing competence of both workers and managers. Naftogaz intends to allocate sufficient funding for these activities, boosting these investments compared to the previous year.
NJSC Naftogaz of Ukraine