Heading for liberalization
Will Ukraine be able to provide equal access to its gas pipelines?
The National Commission for Electric Energy Regulation (NKRE) recently announced that Ukraine’s gas transportation system (GTS) facilities could become accessible to all market players. Later last week, the commission made public a draft report, Procedure of Access to Gas Transportation System, which suggests that all market entities have equal access to the gas transportation and underground storage system.
If the document is adopted, the operator of the Ukrtransgaz system (subsidiary of the joint-stock company Naftogaz Ukrainy) will be unable to deny a contract to a company that has confirmed its ownership of gas supplies. Still, Ukrtransgaz retains the function of system management by way of balancing the amount of pumping-in, storage, extraction, and transit of gas. The companies interested in gaining access to the GTS will be put on a register also drawn up by Ukrtransgaz.
The document, which the Ministry of Fuel and Energy believes is a step towards liberalizing the gas market, is supposed to be approved in compliance with the Law “On the Functioning of the Natural Gas Market” because adopting this law is one of Ukraine’s commitments to the EU regarding the modernization of its GTS. It will be recalled that the law provides, among other things, for dividing Naftogaz into extracting, transporting, and trading sections. Experts believe that the document’s main purpose is to deprive the Russian Gazprom of its monopoly on transporting gas across the territory of Ukraine. The alternative operators may be E.ON Ruhrgas, Wintershell, and ChevronTexaco, which extracts gas in Russia, Kazakhstan, and Azerbaijan.
But this diversification of players on the gas transport market is not the only positive result that Ukraine can get from the abovementioned initiative. East European Gas Analysis head Mikhail Korchemkin thinks that, after gaining free access to the GTS, Naftogaz will have an opportunity to cash in on selling gas storage services. “Ukraine is going to have in the nearest future such alternative sources of natural gas as shale gas, coalmine methane, and imported liquefied natural gas (LNG). Liberalizing access to the system will allow Naftogaz to reap benefits from transporting these fuels,” the expert says.
Meanwhile, some experts believe that the adoption of this document will be of no benefit to Naftogaz. “Should the decision be approved, Ukrtransgaz will have to supply private companies’ gas, thus triggering competition on the market of its main component, Naftogaz,” Serhii Pashynsky, member of the Verkhovna Rada’s Fuel and Energy Committee, told journalists. He is also calling into question the possibility of “liberalizing” the national pipeline, for Ukrtransgaz still retains the power to restrict access to the system by not putting companies on the register. The Fuel and Energy Ministry rejects such a possibility, as any attempt of this kind could be easily settled in court. A private company may take legal action and prove that Ukrtransgaz’s refusal is unmotivated, the ministry clams. And the procedure approved by the commission will provide the legal basis for doing so.
Although experts and the Fuel and Energy Ministry have already assessed the NKRE initiative from both sides, naming the risks and the likely positive results from ensuring an equal access to Ukrainian pipelines, the Naftogaz Ukrainy chief advisor Ivan Diyak noted in a commentary to The Day that Ukraine may in fact declare free access to its pipeline, but it will be impossible to put this into practice because of opposition from Russia. “All the Ukrainian-Russian agreements in force stipulate that we can do what we please in our country, but we are forbidden from transporting gas further abroad. And Russia keeps this under control. It has its representatives in all the gas transportation corridors. And no one is authorized, without Russia’s permission, to pump even one cubic meter of gas,” the expert explains. “We have signed the Energy Charter Treaty which says that we can and should ensure equal and competitive access to our pipeline for all the companies that can confirm possession of gas. The Russian Federation has also affixed its signature. But we have ratified the agreement, while Russia has not and will never do so, for this would mean the loss of its monopoly.”
Still, Ukraine seems to be trying to upstage the monopolistic Gazprom. Two weeks ago, Ukraine’s Energy and Coal Industry Minister Yurii Boiko and Paolo Scaromi, chief executive officer of the Italian company ENI, discussed the modernization of the Ukrainian gas transportation system, the extraction of hydrocarbons from traditional and non-traditional sources, and the rehabilitation of existing gas wells, the ministry’s press service reports. They formed a joint task force to study the possibility of cooperation in developing traditional and non-traditional gas deposits in Ukraine, reads the company’s website. The report adds that on March 25 the two sides signed a memorandum of understanding that lays the groundwork for cooperation and exchange of information, experience and technologies. It will be recalled that experts previously expressed full support for a scenario whereby Gazprom should modernize the Ukrainian pipeline because it supposedly has enough money and evinces profound interest in this. But the opponents warned that a conflict of interests could play a very nasty trick on Ukraine, which will leave the latter with a brand new pipeline and… a hole in the state budget. Being interested in minimizing the price for transit and having secured an impact on this process by way of investing in the Ukrainian pipeline, the Russian gas monopolist will be doing its best to keep this going.
Meanwhile, natural gas pipeline transportation rates for Ukrainian consumers are growing. The NKRE has already raised them for regional gas-supplying companies (oblgaz) as of April 1, 2011. For example, the weigh-average rate of transporting gas through distribution pipelines is going to increase by 18.06 percent to 168 hryvnias per thousand cubic meters, and by 17.43 percent to 48.5 hryvnias per thousand cubic meters if gas is delivered at an adjustable rate. The National Commission decided to revise the rates after analyzing the performance of regional companies in 2010 and January-February 2011. The Fuel and Energy Ministry estimates that most of the oblgazes will now be able to work at a cost-efficiency level of eight percent.
