10. Financial stability of the independent TSO

For the stable work of the gas transmission system starting from 2020, all legal and organizational issues have to be solved in terms of the unbundling project. As well as that, the creation of the basis for the financial independence of Gas TSO LLC is equally essential. For that, the decision for the two main issues that are preventing the stable work of the current GTS Operator should be figured out. The mentioned issues include setting up the economically justified tariffs and stoppage of the debt accumulation for the gas balancing in the gas transportation system. The central role in this situation belongs to the National Commission for State Regulation of Energy and Public Utilities (the Regulator).


In case of the unsuccessful resolutions of these issues, the new TSO may go bankrupt by the end of the year.


Tariffs on gas transportation

At the end of the last year, the Regulator approved the temporary tariffs on the gas transportation services for the entry/exit points. The established tariffs are twice lower than the justified ones. As a result, Ukrtransgaz' shortfall will reach UAH 20 billion at the end of 2019. The existing income does not cover even the major Company's expenses, including technical gas purchase, wages, repairs, and capital investments.


The Company expects the Regulator will approve economically justified tariffs that will ensure the uninterrupted functioning of the gas transmission system in case of termination of transit of Russian gas. It will guarantee then the viability of the Ukrainian GTS and the security of supply of the natural gas to the Ukrainian customers.


Illegal gas off-take from the gas transportation system causes multibillion-dollar debts to Ukrtransgaz for already some years.


The majority of the regional gas distribution companies violate the law grounding their position on two circumstances. The first factor is the structure of regional gas tariffs, in particular, the costs of production and technological needs (technological gas). Thus, regional gas companies illegally withdraw gas from the gas transmission system for their technical requirements, motivating that by the lack of adequate funds in the natural gas distribution tariff set by the Regulator. At the same time, gas companies forced the Regulator to set economically justified tariffs for natural gas distribution through the courts.


The second issue is the social factor. In this case, the inability of the gas distribution operators to completely switch off the gas for their debtors. In particular, the heat generators producing heat for the population without gas suppliers.


However, fundamental changes are possible only if the relevant amendments to the GTS Code will be approved, and the tariffs of both the GTS Operator and regional gas distribution companies will be changed.


In case of a "freezing" of the problem, the future independent GTS Operator left without the support of the Naftogaz Group, will not sustain the debt load.