Top managers of Naftogaz Group discussed the challenges facing gas market participants as well as the Group’s strategy and plans during the recent “Naftogaz. What Next?” online discussion.
Naftogaz CEO Andriy Kobolyev highlighted the opportunities that will be available for natural gas users when the market becomes open on 1 July.
“Being prepared for a crisis is part of our job. Moreover, we can use the current crisis as an opportunity. I believe that this period of low consumption and low prices is ideal for opening the market. We suggest that this illusion of control as well as intermediaries should be fully removed from the gas market. The gas price for households is regulated by the formula rather than PSO. The formula depends neither on governmental decisions nor on Naftogaz, being based exclusively on pricing in the European gas market,” Kobolyev commented.
On top of that, the current mechanism for gas supply to households costs Naftogaz and the state billions of hryvnia due to delayed payments by private intermediaries.
“When the market is open, we are ready to sell our resources to any supplier under standard conditions, which means timely payment for gas,” the Naftogaz CEO said.
Kobolyev hopes that the last resort supplier, which is an important element of the gas market, will be selected through a transparent competition with relevant criteria, i.e. competitive pricing.
“Available gas volumes should be a qualification requirement for the contest, while price should be a criterion for the winner. Whoever offers the lowest markup wins,” Kobolyev suggested.
Speaking on transformation, Naftogaz COO Otto Waterlander confirmed that the Integrated Gas Business Division had been split into two separate divisions – production and commerce. The focus is now on improving cooperation among production, oil, and technical divisions, as well as cutting operating costs. Waterlander also noted that health and safety remained an important priority for the Group. “We are going to invest extra UAH 100 million to train employees that are responsible for occupational safety. HSE targets will be reflected in the KPIs of relevant managers,” the Naftogaz COO said. According to him, a matrix model where divisions and functions cooperate with each other was chosen for the Group’s transformation. The divisions will play a leading role in identifying growth opportunities for business. Subsidiaries – legal entities – will remain an important element, having responsibility for execution while remaining subordinate to divisions and functions.
Speaking on gas production plans, Waterlander explained that Naftogaz’s strategy in this area was achieving a balance between maintaining the development of existing fields and exploring new fields. “It is critical for increased production to engage international partners and investors who would invest with us. We don’t have enough capital to do it ourselves, the Naftogaz COO emphasized.
He also noted that international companies had concerns based on their previous experience in Ukraine. “But people see change and progress. We hope that despite the current situation in the country, we will be able to attract investors for new contracts and new licenses,” Waterlander summed up.
Olena Zerkal, the Advisor to the Naftogaz CEO, commented on the current and potential arbitration proceedings of the Group and outlined plans regarding the European market.
“We want to enter the European market as an equal partner: Ukraine can integrate markets and ensure faster achievement of the goals of the European Energy Union. To do that, we are working with our partners on business cases, reviewing our contractual terms with Gazprom to cancel the principle of setting the final delivery point in contracts. We want to give European companies the opportunity to move access points to our eastern border and enable us to receive gas from other suppliers too,” Zerkal said.
Naftogaz Group CFO Peter van Driel explained about existing multiple challenges, including adverse market conditions, low gas prices, and low demand.
"Naftogaz has a robust balance: low leverage, sufficient cash to pay dividends, and the ability to enter Ukrainian or international debt markets. We are cutting our costs, negotiating with our suppliers, and we hope they will share the pain with us. We also need to thoroughly review our investments. We need to be very efficient in our operations. The crisis may become a catalyst for us to accelerate change in the company,” van Driel said.
He noted that prior to an IPO, Naftogaz should make all its processes and units as efficient as possible. The initiated transformation and optimization procedures are focused on achieving this goal.
Please follow the link to watch the video: https://youtu.be/M3--gJRv6KI
*The event was organized with the support of the Ukrainian Federation of Employers of the Oil and Gas Industry
NJSC Naftogaz of Ukraine