By Oleksandr SHPAK, People's Deputy of Ukraine
Before the reforms started, the system of petrochemical supply in Ukraine
consisted of 25 regional industrial commercial firms and departments. Subordinated
to them were 315 oil depots and 2460 filling stations. Almost the whole
country was covered by a network of oil product main and branch pipelines
with a total length of over 3000 kilometers. The industry had its own information-and-computing
center, a design institute, and construction facilities.
This complex, run by the Ukrainian Oil and Oil Product Association (Ukrnaftoprodukt),
met the needs of the Ukrainian national economy. But transition to the
market put the question of reforms on the agenda. Regional industrial and
commercial firms and departments were leased out and then privatized, with
due account of antimonopoly legislation. This resulted in about 90 facilities
of different forms of ownership, such as public limited companies, collective,
and leased enterprises, and state-run enterprises were banned from privatization.
However, decentralization also weakened, to a large extent, the influence
of the state on the energy resources market. The overwhelming proportion
of oil products on the Ukrainian market come from Russia, which enhanced
energy-related dependence and jeopardized the economic independence of
our state, for we have lost a competitive national company, which Ukrnaftoprodukt
once was, while small companies were unable to counter the onslaught and
lost their markets and consequently jobs. It was necessary to adapt the
oil product supply complex to market conditions because the state of other
national economic sectors, first of all the oil refining industry, depended
on this.
This resulted in the reorganization of Ukrnaftoprodukt into a new market-economy
entity. By merging the property complex, the controlling shares of oil
product supplying enterprises, and state-run public limited companies,
a Ukrnaftoprodukt Joint-Stock Holding Company was set up. This allowed
some import problems to be solved.
First, by means of having the controlling share (50% + 1 share of the
assigned capital), the company strengthens state influence, pursues a state-sponsored
policy of oil product delivery, and uninterruptedly supplies oil products
to critically important electric plants, public utilities, communal facilities,
and other public-sector organizations. Secondly, by concentrating its financial
resources, the company buys crude oil on the domestic and foreign markets
and participates in delivering raw materials to Ukraine's oil refineries.
Thirdly, by establishing ties and conducting a policy of the wholesale
purchase of oil products on favorable terms, it is able to radically reduce
total expenses and prices for oil products. Simultaneously, at the expense
of considerable financial assets, the company can greatly stabilize the
production and exercise control over budget revenues. Also important is
the company's ability to ensure, with its assets, Ukrainian representation
in international consortia, especially when it comes to building major
oil transit facilities on Ukrainian territory. And, having enough resources
and a system of oil product storage, it can also influence the seasonal
variability of prices for some oil products and ensure their storage pending
peak periods.
Of great importance is also the fact that the company effects a legal
and standard-setting regulation of in-service safety precautions and supervises
the acceptance, storage and utilization of oil products. 49% of Ukrnaftoprodukt
assigned capital equity is subject to free sale, and the funds raised by
privatization will go to the budget. Also essential is the fact that this
reorganization has provided the country with a commercially viable company
on the oil product market.
EDITOR'S NOTE
Unfortunately, the revitalized system of oil product supply does not
safeguard against either leapfrogging price hikes for oil products, which
we saw last week, or their critical shortage in agricultural production
to which the government alternately gives and denies gasoline and diesel
fuel, perhaps guided more by political than economic considerations. Yet,
the system in question is too valuable to squander. Moreover, it should
be preserved for generations to come, for pipelines have proven to be the
cheapest transport. And these pipes, running all over this country, will
not always be blown through by winds.







