Naftogaz fully shares the position of the Energy Community Secretariat (ECS) and the World Bank (WB) that the Regulation “On Public Service Obligations” approved with the Cabinet of Ministers’ Resolution #187 of 22 March 2017 does not comply with market rules and EU Directives.
Naftogaz repeatedly highlighted the inadequacy of the current PSO mechanism, which obliges the company to sell gas at reduced prices to intermediaries (“gazzbuts”) most of which are controlled by Group DF of Dmytro Firtash. These intermediaries then supply the gas to households and bear no risks related to fluctuations in demand or market prices. Furthermore, gas distribution system operators (DSOs or “oblgazes”), which own those intermediaries, are blocking oversight over the use of gas received by their subsidiaries.
“Gas supply to households is a very opaque process. The DSOs do not disclose accurate information on how much gas was used by individual consumers. We have no idea whether subsidy recipients use all gas the state is invoiced for by DSO subsidiaries. We do not know who exactly receives our gas at the reduced price and how much of it is actually consumed by households. This is unacceptable. The sector should become transparent and open for competition. We support therefore amendments suggested by the Secretariat and the World Bank,” Naftogaz Group Chief Commercial Officer Yuriy Vitrenko says.
The company supports the idea of the ECS to amend the PSO mechanism enabling Naftogaz group upstream companies to sell their gas to all suppliers in the wholesale market, including the DSO subsidiaries, on equal terms. A wholesale price formula suggested by the ECS and the WB may be applied to these transactions. The price will be calculated at the time of transaction considering the period of gas delivery to the buyer. In addition, standard market mechanisms ensuring gas payments, including prepayment, should be introduced.
This mechanism will eliminate the current monopoly in gas supply for the households and create necessary conditions for competition in this market, which will ultimately benefit the consumers. Should the DSO subsidiaries fail on their special obligations to supply gas to households, Naftogaz is able to ensure secure supply without unnecessary intermediaries. This means that DSO supply subsidiaries will have to compete, at least with Naftogaz.
The company also shares concerns of the ECS and the WB over current barriers to switching suppliers created by the DSO subsidiaries to protect themselves against competition. For instance, there are reports that reconciliation statements were sometimes improperly issued to consumers, which made it impossible to switch to a new supplier. It was also reported that service centers refused to accept applications for ceasing gas supply services delivered by current retailers or rejected applications for a gas distribution agreement with a DSO without signing an agreement with for gas supply with the subsidiary of that particular DSO. Considering the cited cases, Naftogaz supports the position of the ECS that the NEURC and the Antimonopoly Committee of Ukraine should identify and apply effective mechanisms to prevent manipulations on the market. The company also suggests simplifying the supplier change procedure to encourage new suppliers to enter the market.
Background information:
On 22 August, the Secretariat sent the Cabinet of Ministers of Ukraine a letter concerning the case ECS-2/17 initiated due to incompliance of the Regulation “On Public Service Obligations” with requirements of the Energy Community and Ukraine’s international commitments. The Secretariat’s preliminary conclusion on draft Regulation #187 had been presented to the Cabinet of Ministers of Ukraine prior to its approval in March 2017.
Corporate Communications Department
NJSC Naftogaz of Ukraine
