Naftogaz of Ukraine NJSC has published the Group’s annual report 2020 prepared according to international GRI standards. The full version of the annual report is available on Naftogaz website in both Ukrainian and English.
The integrated report contains extensive data on the market and regulatory environment in which Naftogaz Group operated in 2020, strategy and performance of key business units, the corporate governance report, information on HR management, HSE, CSR, and the Group’s financial overview.
“We have been waiting for a long time for the opportunity to go to new greenfield sites. We now have new licenses, which enables us to focus on the new opportunities, in particular – the offshore. Now, , thanks to the fruitful cooperation of the Government and Naftogaz teams, the company received new promising licenses for Yuzivska area and the Black Sea offshore. This year, we are starting the development of the new areas. Our ultimate goal remains the same. We strive to produce more gas to ensure Ukraine’s energy independence. But we will only develop gas which gives us and the country a good return on our investment,” Naftogaz supervisory board chair Clare Spottiswoode.
“In 2020, we moved closer to fulfilling our strategic corporate goal. We strive to become a partner of the Ukrainian government in achieving national energy independence through the development of our national resource base, optimization of consumption, and development of energy markets. We hope that further cooperation with the government and the regulator will be just as constructive as in 2020, for the comfort of Ukrainians,” Naftogaz CEO Andriy Kobolyev said in his address to annual report readers.
Key results: solving historical problems and fresh start
In 2020, Naftogaz Group retained its role of the biggest source of the state budget revenue partly owing to the settlement of historical debt issues between the government, Naftogaz and Ukrnafta.
The Cabinet of Ministers regulated the public service obligations (PSO) mechanism in the natural gas market, enabling to compensate Naftogaz for PSO related losses in 2015-2019. The received funds were used to settle Naftogaz’s gas debt to Ukrnafta and helped Ukrnafta repay its tax debt to the state.
As a result, in 2020, Ukrnafta topped the list of Ukraine’s biggest taxpayers while Naftogaz Group paid a record high UAH 141 billion to the state and local budgets (more than 13% of total budget revenue), including UAH 39.6 billion of dividends for 2019.
In August 2020, the retail gas market for households was launched, enabling Ukrainians to change their gas supplier. The launch and development of the retail market is one of the Group’s priorities. Naftogaz therefor actively creates and offers new gas products to increase its market share. After nine months of the free market, the Group’s gas supply company provides its services to more than 900 thousand customers.
Naftogaz delivers on its obligations of the gas transit organizer
Starting from 1 January 2020, the TSO was unbundled from Naftogaz and a new company – GTS Opperator of Ukraine LLC (GTSOU) – started its operation. Now, Naftogaz is responsible for organizing gas transit for Gazprom and books capacity for the transmission of Russian gas to Europe on general terms.
Besides booking the contracted capacity in 2020 worth USD 2.11 billion, Naftogaz also booked additional capacity worth USD 30 million upon Gazprom’s order.
Ensuring Ukraine’s energy security
Naftogaz welcomes extended sanctions against Nord Stream 2 and companies involved in its construction. In order to prevent the completion of Nord Stream 2, the company closely cooperates with its partners in Washington, Berlin and other regions.
In 2020, besides companies and individuals directly involved in construction, U.S. sanctions were extended to providers of insurance, testing, and certification services. As a result, a number of international companies and organizations abandoned the project or restricted their members from participating in it.
Naftogaz continues to fight for its Crimean assets.
New fields and licenses
Gas production remains Naftogaz’s priority. Thanks to the active partnership with the government in 2020, the Group got access to new promising areas – Yuzivska, Balakliiska, Ivanivska, Berestianska, Buzivska, and the Black Sea shelf.
We expect that the development of new sites will quintuple the Group’s resource potential up to 600 bcm. To unleash this potential, we need USD 20-25 billion of investments, with nearly USD 7 billion during the first five years (by 2025).
Naftogaz: a partner of choice
In 2020, Naftogaz and Ukraine as well as the rest of the world faced an unexpected challenge – the COVID-19 pandemic. Naftogaz was one of the first in Ukraine to introduce pandemic relief protocols in the companies of the Group, which helped minimize cases among employees.
In May-June 2020, Naftogaz Group ordered the delivery of 200 tons of protective gear and medical equipment from China to Ukraine. Since the start of the pandemic, the companies of the Group provided assistance worth UAH 700 million to hospitals and local communities.
New strategy of the Group
In 2020, the government amended the Naftogaz charter, which enabled approving the Naftogaz strategy for the first time in many years.
The new strategy is based on three business platforms – gas business, B2C and low-carbon businesses – and contains a detailed plan for developing the Group’s assets until 2025.
The COVID-19 pandemic affected both indicators and tactical moves in 2020: lower gas demand caused decrease in prices, which was followed by a reduction in revenues and investments in gas production.
Nevertheless, the gas business and the related B2C platform remain the Group’s priority. That is why Naftogaz plans to invest and engage international partners to increase gas production in Ukraine.
Developing the retail gas market, creating new products, and increasing the market share are a crucial long-term objective. Naftogaz’s ambition in this segment is to become a partner of choice for 3-4 million households in Ukraine.