Ukrgazvydobuvannia asks NCER to increase tariffs on its gas by 2.1 times

The largest gas extracting company in Ukraine – public joint-stock company Ukrgazvydobuvannia has asked the National Commission for Energy Regulation (NCER) to increase the tariff on sale of its gas from UAH 419 per 1,000 cubic meters to UAH 880-890 per 1,000 cubic meters (value added tax included).

"The price of gas should be increased to at least its production cost [UAH 880-890 per 1,000 cubic meters according to the company's calculations]. If the tariff is not revised, such company as Ukrgazvydobuvannia will be simply closed," Board Chairman Serhiy Kostiuk said at a press conference at Interfax-Ukraine on Wednesday, April 2.

In turn, Deputy Board Chairman Vadym Shlenchak added that the company's tariff does not foresee funds for capital investment, while only to retain gas extraction at the current level around UAH 3.5 billion should be invested every year.

Shlenchak said that the large problem is the non-payments by national joint-stock company Naftogaz Ukrainy: the state holding increased its debt to Ukrgazvydobuvannia by 6.4 times or UAH 2.314 billion in 2013, to UAH 2.742 billion.

"Naftogaz Ukrainy has paid nothing for eight months," Shlenchak said.

Ukrgazvydobuvannia increased its credit portfolio by 2.9 times or UAH 1.996 billion in 2013, to UAH 3.055 billion. Court claims of banks against the company total UAH 670 million, and the debt on taxes amounts to UAH 450 million and the wage arrear stands at UAH 240 million.

The net profit of Ukrgazvydobuvannia in 2013 plunged to UAH 9 million from UAH 1.342 billion in 2012.

"Russian banks are main creditors of Ukrgazvydobuvannia – they are VEB, its Prominvestbank, Sberbank of Russia and Alfa-Bank. They have around 80% of the credit portfolio. We have 40% of our credit portfolio that is to be repaid in April… Now we're negotiating the debts and discussing their refinancing, including the involvement of state banks," Shlenchak said.

According to the assessments of new managers of Ukrgazvydobuvannia, in 2011-2013, the company did not receive UAH 13.5 billion in profit: UAH 2 billion due to the non-transparent procedure for selling liquefied gas, UAH 11 billion due to the tariffs for natural gas that are set too low and UAH 500 million due to groundless expenses on licensing. In addition, the company was deprived of licenses on fields with the annual extraction worth UAH 1 billion.

Ukrgazvydobuvannia's top managers plan to achieve the increase in the tariff on natural gas from the NCER, start holding transparent commercial auctions to sell liquefied gas and diesel fuel, reduce permanent expenses by 30% and administrative expenses by 20%. In May, the company plans to resume sales of own petrol on the Ukrainian domestic market.

"In plans for 2014 is to stabilize the situation in the company and achieve transparency. In 2015, we plan to increase efficiency of Ukrgazvydobuvannia and to conduct an IPO in 2016," Kostiuk said.

As reported, Ukrgazvydobuvannia, 100% owned by Naftogaz Ukrainy, is the largest gas producing company in the country, providing about 75% of the total gas production in the country.

The company also operates Shebelynka gas refinery.