Igor Prokopiv – Ukraine should have partners, which will provide full workload of gas transmission system
An important event for Ukrainian TSO occurred at the end of the last week – a Memorandum was signed with TSO’s of Romania, Greece and Bulgaria about the creation of bidirectional gas transportation corridor. In case of success, Ukraine will gain access in South direction, which will become a certain help in the context of relations with “Gazprom”.
How this influences the operation of Ukrainian TSO knows its head – Igor Prokopiv. In his interview to NW Business he has told about the nuances of gas transportation through the territory of Ukraine to Europe, main results, which were achieved by the implementation of new operational culture, and also about possible perspectives, which may appear in the company after the creation on international consortium for the management on Ukrainian TSO.
– For quite a long time we hear, that Russia will transport more gas through bypass pipelines. Will it influence the operation of UKRTRANSGAZ? What are operational indicators for the recent time, and are there any issues with gas transportation through the territory of Ukraine?
– Reliable Russian gas transit to Europe is one of our most important tasks. Gas transportation at the level of 120 bcm/year was a basic indicator of our operation.
According to the provisions of current transmission contract between Russia and Ukraine, there shoul be a guaranteed annual transmission on 110 bcm of blue fuel by national GTS.
The least annual volume, contradictory to this contract, was reached in 2014 – 64 bcm, in the next year it amounted to 67,5 bcm; and in the following year we expect about 75 bcm under favorable conditions. Currently we work by daily requests, which indicate, how much should we receive and deliver to Western border. Communication with Russians is quiet hard, because we established reverse flow in 2012, now its capacity is 60 mcm/day. Certainly, Russian don’t like it and they started to limit gas supply to Europe, expecting, that there will not be a possibility for reverse flow due to the lack of spare gas. They did not fulfill their contracts with Western partners, suffered losses in fines and reduced reputation among partners. So they are now trying to fulfill those requests (nominations) that are available.
As for gas transportation for Ukrainian consumers, this year we expect reduction to 28 bcm. So our overall work is about 100 bcm, including transit.
What does it mean? This is 2 billion dollars each year to national foreign currency treasury. This is a net income from sales of goods and services by Ukrtransgaz plan for 2016 - 31.0 bln. UAH. Compared to the year 2014 - 14.3 billion - this growth is more than doubled. Today Ukrainian TSO is a major taxpayer in the country. If in 2014 we paid total 1.7 billion, plans for 2016 are 6.5 billion. The increase is more than three times, so we are a budget forming enterprise of Ukraine.
– Was it otherwise earlier?
- Several years in a row Ukrtransgaz had no approved financial plan, because it could not master the necessary investments in gas transportation complex. In the years 2015-2016 finplan was approved for the first time, the company has been able to invest in fixed assets and purchase everything needed to support production processes. For example, in 2015 we for the first time in the last seven years, bought 156 units of new technology. Practically we let in fresh blood in order to increase the efficiency of our production tasks by structural units.
Speaking about the financial state, in 2014 the company was a discrepancy between tariffs for gas transportation. There was a rate - 82 UAH. During the intensive work of the regulator following the relevant planning and economic calculations, we have reached a rate of 296 UAH. Today it dropped to 217 hryvnia. The reason is simple - we could save more gas for our own needs.
One of the company's successes, I believe, is saving of the natural gas for own needs. This is our most costly position. In 2014 NKREKP established a rate of 2.2 billion cubic meters of gas for transit of 64 billion cubic meters. Again, today we expect the transit of 75 billion cubic meters. The tariff rate has a norm of 1.6 billion cubic meters we plan to go with 1.5 billion cubic meters, despite the growth of the planned transport. If you subtract 1.5 from the 2.2, you get 700 million cubic meters of gas savings, multiply it by 7 and get about 5 billion of financial savings for the country, which buys gas in the currency - it is a very revealing work Ukrtransgaz, daily.
– How did you do this?
- We have changed the philosophy. Gas industry mostly always measured gas in cubic meters. And these Items are not attached to reality, to money. We have to repeat a simple phrase thousand times a day: a cube of gas - 7 UAH. When our workers began to multiply 100 thousand cubic meters to 7 hryvnia - it is 700 thousand hryvnia, and then compared it with the costs of the payroll, procurement - philosophy began to change. In addition to philosophy, we have implemented a program of actions on energy saving, replaced 400 boilers of our gas distribution stations. We installed new double boilers that provide minimal consumption, made an inventory of every meter we heat, increased limits discipline. As for gas pumping units, where possible, we switched to electric drives. Significantly, only in 2015, we saved more than 200 million hryvnia on electric drives. That is a total savings, total control over each cube of gas, every kilowatt of electricity.
- What is the impact on your financial performance?
- If we save 700 million cubic meters at the increase of transport – it is a 5 billion savings for the state in the first place. Second - this is our savings on the expenditure side. As a result, the regulator has reduced our tariff for gas transportation, as I said. That results in a winning of the final Ukrainian consumers.
- Why save, if rates are lower? Maybe it makes sense to leave the rates but invest more?
- In my opinion, this situation is balanced, the economy should be stimulating. In other words, the more we will save, the more money we can invest in modernization of production assets. In fact, we shouldn’t complain, because for the third year in a row NKREKP approves for us a program of capital repairs and investment, increasing the funds, which are left for us for overhaul and current expenditures. Therefore, we believe that this is normal. We save – give us more money on production costs. It did not come overnight. This painstaking daily work, these systematic budget meetings, programs for energy saving measures, enhanced limitations discipline, total control, raid teams, reprimands or even dismissals. But there is a result.
- Gazprom has recently made statements that Ukrtransgaz allegedly violates contractual requirements. As I understand, it was more the pressure on the Ukrainian operator?
- Such statements - quite manipulative actions of Gazprom. It is not difficult to guess - that Russia wants to discredit the Ukrainian GTS. For them it is a painful question. They are well aware that the state earns $2 billion, that Ukraine is one of the best gas transmission networks in the world. Gas transportation complex, which has Europe's largest network of underground gas storage facilities with a total capacity of 31 billion cubic meters, which may at any time be withdrawn, to supply gas at the western border and fulfill the nomination in any environment. In addition, the Ukrainian gas transportation system - a billion cubic meters of gas linepack. It is also a consumer market of about 30 billion cubic meters. For Russians, it is very awkward situation if they do not have control over this system, which is why they always try to have something to blackmail and blame us.
At the end of each month, balancing between the two systems resembles a kind of a duel. We have to fulfill nomination as close to zero imbalance as possible, so that they could not blame us either a plus or a minus. Speaking of the August, first of all, these fluctuations were caused by the fact that in the summer, during the repairs Nordstream was stopped, and European nomination should be fulfilled. The Russians in this case increase the volume of transit nominations - plus 30-40 million per day through Ukraine. To supply instantly increased volume on the western border, you need to receive to an appropriate volume from the east. The Russians do not do this. They submit nomination and fail to deliver gas on the eastern border in time, but expect immediate supply to the western border. We have to balance with our own own resources.
In general, we have two options: either we do not fulfill the nomination for the western border, and they manipulate our image, or we do. Then the Russians understand that the situation be provoked in another way, they fail to fulfill contractual pressure. In this case, we start Romny station and draw gas from Russia. And we fulfill all of our nominations.
In sum, Ukraine will have a transport corridor, Ukrtransgaz will make money, the state will receive the currency in a single case - if consumers in Europe will understand that we are a reliable transportation system. Therefore, we as a partner should be transparent, clear, accessible and predictable.
- Now Russia is trying again to revive Turkish Stream and South Stream, is trying to revive relations with Bulgaria. Are they necessary? Is there any economic sense?
- The Nordstream is a challenge number one. The privatization of the Belarusian gas transportation system and Gazprom and the increase of its capacity by a third is a challenge number two. The Nordstream took more than 40 billion cubic meters of gas. Belarusian gas transportation system by increasing by 30% also took 5.6 billion cubic meters of gas. Together, we have more than 110 billion cubic meters of transportation work decreased to 72-75 billion cubic meters. We already bear these losses. The Russians would like to completely discredit Ukraine. They wanted to throw another line - the Nordstream-2 and to bypass south direction by building a so-called South Stream. This is a great political struggle. This is a threat to Ukraine.
Of course, we calculate the prospects of our development, considering a number of options that may occur in 2019. This preservation of existing transit, decrease to 30 billion cubic meters in case of the second Nordstream line and complete absence of transit through Ukraine. We must be ready psychologically and economically for this. We have to understand the losses for the state, and for Ukrtransgaz, and how to continue our effective operation. So anyway, we will provide transportation of natural gas for Ukrainian customers.
Setting of imports from Europe showed that Ukraine can pump gas from east to west and from west to east. We currently have rather interesting proposals from neighboring countries TSO’s for the development and construction of new transit routes through Ukraine. Therefore, I believe that the state should study and should fight for such areas as fought in its time for the reverse.
You must also remember that over ten years the Russians block Ukraine's relations with the countries of the Central Asian region in terms of natural gas transit through our GTS for consumers in Europe, and imports of natural gas from these countries for domestic needs.
- If we talk about the scenario, when everything stays the same, does the system require global modernization and reconstruction?
- Most of our pipes are operated for 50 years. To understand how long they can be used, we have to continuously conduct diagnosis of their technical condition. For this, we have branch subdivision “Techdiagaz”. In addition, we conduct procurement through public tenders, of services for the diagnosis, that allows to make an accurate assessment of the state of the pipe. Second - pipe insulation protects and gives it a very long lifetime period. Through diagnosis, we must identify potentially dangerous sites. As of today, we believe the pipe is operational and has several decades of solid reserve operation. Over the next two years, we must replace seven dangerous areas at the expense of the EBRD and EIB.
As for our gas pumping units, it is planned to conduct their modernization over the next 3-4 years. By implementing this program, we expect to solve all issues.
Given the considerable surplus capacity of the gas transportation system of Ukraine, 30% gas compressor station are idle, it is clear that unused industrial assets have to be decommissioned.
We have come to in order to adopt measures at Cabinet of Ministers level, and say to the world that the capacity of 275 billion cubic meters of the entrance to Ukraine is not needed. Because those are unneeded costs of staff, compressor stations, units and all the rest. In next 10 years we can withdraw from the operation approximately 400 km of gas pipelines.
Today we have a clear strategy for the next 10 years, according to which we will soon begin to optimize the GTS to make it ready for the challenges, which we have said zero option, 30 and 70 billion cubic meters per year of transit through the territory of Ukraine.
- How can you assess the speculations about the state of Ukrainian gas transportation system? They say that it is worn, old, rusty, but you said that it could stay in operation for a long time.
- In essence, the Russian and Ukrainian pipe - is a united transportation system because it was built in Soviet times to perform one task - export natural gas to European consumers. But our climate is much better than in Russia. Moreover, we do our best to maintain our GTS in good condition, so I think that Ukrainian pipe is in the best condition. There is a clear statistics of accidents and damage to pipelines in Russian Federation and Ukraine – believe me in Ukraine they are order of magnitude lesser. Therefore the defamation from the Russians is just ridiculous. I do not see any threat to the existence of Ukrainian GTS with the exception of challenges that have occurred over the last 2.5 years. They are not calculated in any textbooks, institutions and projects.
I mean a war in the east.