Ukrtransgaz declares a state of emergency

June, 14, 2019 – Kyiv – Due to the fund shortage, Ukrtransgaz is unable to pay on time on contracts for gas procurement for its production and technological needs. The Company has accumulated UAH 4.1 bln debt to suppliers for the fuel gas purchase during the March-April. As a result, some suppliers refuse to continue to deliver the gas volumes determined by the current contracts. The residual fuel gas volume that was purchased under the previous agreements is sufficient to ensure the gas transmission system operation only until June 24.

Ukrtransgaz has sent the letter about the preconditions for the emergency to the State Emergency Service of Ukraine. The Company is also in negotiations with the NERC (Regulator) about the immediate correction of the situation. Besides, Ukrtransgaz has initiated negotiations with creditors, including Naftogaz of Ukraine, on debt restructuring. The National Security and Defense Council of Ukraine was as well informed about the situation.

The critical financial state of the GTS Operator was provoked due to several factors that were constantly reported by the Ukrtransgaz to the Regulator. 

First of all, the Operator’s financial situation with each passing month is aggravated by the economically unreasonable temporary tariffs that were approved by the NERC at the end of 2018. The tariffs, in particular, allow buying fuel gas only in the amount that does not exceed 60% of the required annual level. 

Secondly, the problem of unauthorized gas off-take from the gas transmission system has not yet been resolved, allowing market participants, starting from 2016 to February 2019, to accumulate more than UAH 35 bln debt to Ukrtransgaz for balancing services, of which 91% is the debts of the gas distribution companies. After the transition of the Ukrainian gas market to daily balancing from March 1, 2019, the situation did not change significantly: the gas distribution operators joined under the RGC brand are continuing to illegally off-take gas from the system, including for their production and process needs and never pay for the gas taken. From March to April 2019, RGK gas distribution companies added UAH 2.5 bln to the company total unpaid debt.