Publication: Monitor Volume: 6 Issue: 134

According to recent reports, the state-owned company Naftogaz Ukrainy and the Russian Itera-Holding were close to reaching an agreement on the establishment of a joint-venture which would take over supplying natural gas directly to customers, bypassing the existing gas market intermediaries (Bloomberg, Russian agencies, July 1-10). The joint venture would be in a position to deliver close to 34 billion cubic meters of gas to Ukraine in the second half of this year alone. Itera will be in charge of supplying customers in heavy industry and the power sector, while a joint venture named Optovy Gazovy Rynok will supply households, public sector organizations and local utilities. While the price for delivered gas ranges between US$50 and US$60 per thousand cubic meters (tcm), the new company will have the option to lower the price to as low as US$45 per tcm for reliable customers. The new joint venture will also be responsible for collecting revenues from all sales, hopefully contributing to a solution to the major problem with gas trading in Ukraine, nonpayment by final consumers. The existing intermediaries will have the opportunity to sign contracts with the new joint venture, but will be obliged to pay for the supplied gas in full and in cash.

Changes in the gas distribution sector are part of a major shake-up of the energy sector in Ukraine, undertaken with pressure from international financial institutions. The IMF, for example, listed the reorganization of the energy sector as one of the key conditions for resumption of financing under a US$2.6 billion extended fund facility. On July 3, 2000, President Kuchma signed into law changes to the energy sector law adopted by the Verkhovna Rada (parliament) in June. The law is aimed at boosting cash collections for energy supplies. Also last month, the parliament overwhelmingly backed a government proposal to introduce special accounts whereby all payments for electricity would be received and transferred directly to producers and distributing companies. Currently customers pay distributors, but generators receive only a fraction of the amounts due them for electricity deliveries. Debts to generators have exceeded US$1 billion so far this year.