Andriy Kobolev, the new head of national oil and gas monopoly Naftogaz, will have to tackle the Ukrainian company’s soaring debt and difficult negotiations with Russia’s Gazprom. Ukraine’s Cabinet of Ministers appointed Kobolev to the post during an overnight 25 March meeting.
“As far Gazprom goes, he [Kobolev] needs to make sure that at least some of the debt is paid as soon as possible and then there are these negotiations with Gazprom on the price of gas from 1 April,” Alexei Kokin, a senior oil and gas analyst at UralSib Financial Corp, told New Europe on 27 March. “I don’t think there is certainty about how much Naftogaz will be charged. It’s more than Naftogaz alone - that’s very much a Moscow against Kiev question,” he added.
In December 2013, Gazprom said it would reduce the gas price for Naftogaz by 33% to $268.5 per 1,000 cubic metres of gas. The then gas price was $400 per 1,000 cubic metres. The undiscounted price for Russian gas in the first quarter of 2014 would be $378 per 1,000 cubic metres.
But Gazprom CEO Alexei Miller has said that Gazprom had taken a decision to cancel gas discounts for Ukraine from April 2014.
On 26 March, Kobolev told a press conference in Kiev that he is planning to visit Moscow soon to hold talks with Gazprom. “I must hear the position of the Russian side,” he said.
Kobolev did not say what the price of gas would be for the Ukrainian state holding in the second quarter or how much Russian gas was planned for import in 2014.
Asked how much leeway Ukraine has to achieve a better price in its negotiations with Gazprom, Kokin reminded that Ukraine physically still controls the gas pipelines going through the country. He told New Europe that he doesn’t believe that Ukraine will stop the transit but at least it can increase the transit fee if Gazprom hikes the price it charges Ukraine for the gas it consumes. “I think that’s pretty much the only card that Ukraine can play against Gazprom,” Kokin said.
He also doubted that Gazprom is interested in buying any of the transportation assets in Ukraine. Kokin argued that control is different from ownership “when you are in a country like Ukraine”. “In other words in countries which don’t have a very predictable legal system there your title to some strategically-important asset may become meaningless anytime,” he said. “There is not much point in paying to own a system that Ukraine still can only use to pump Gazprom’s gas.”
Meanwhile, Shane DeBeer, an expert on Russian law at Dechert LLP, told New Europe, that Naftogaz and Gazprom may become involved in litigation because some of the assets in Crimea. But he predicted that a possible dispute between the Ukrainian and Russian gas monopolies over assets or gas prices would not affect European consumers because there is some additional pipeline capacity. “There is a lot more alternative supply. I don’t think that’s going to lead to major disruptions in European supplies other than Ukraine,” DeBeer said.
Meanwhile, Kobolev said the first day of his appointment as head of Naftogaz that the price of gas in Ukraine for households will grow by 50%. Energy prices for households have until now been 86% subsidised.
Judy Dempsey, nonresident Senior Associate at Carnegie Europe, wrote in an analysis on 24 March that the subsidies put an enormous strain on the national budget. At the same time, oligarchs bought gas at household prices but then resold it to industry at a profit, creating further losses for the state. The International Monetary Fund (IMF) reported last December that energy subsidies had reached about 7.5% of GDP during 2012.
Dempsey pointed out that Ukraine’s energy sector has been controlled and manipulated by oligarchs and by presidents and prime ministers.
“In addition, there was no transparency over how Naftogaz imported its gas from Russia. As a result, Naftogaz became a cash cow for Ukraine’s oligarchs and an opponent to reforms. The EU and the IMF, in one of their first steps, should impose an independent board on Naftogaz,” Dempsey wrote.
Kobolev replaces Evgen Bakulin who was arrested on 21 March on suspicion of embezzling at least $4 billion during the rule of ousted president Viktor Yanukoych. Bakulin run the company since March 2010 soon after Yanukovych became Ukraine’s president.
However, Kobolev is reportedly close to Yulia Tymoshenko’s Batkivshchyna political party and, according to local press reports, he is not seen as an independent figure that will make his own decisions.