EU insists on ‘unbundling’ Ukraine’s Naftogaz

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The European Commission said on Friday (24 September) it expected Ukraine's state energy company Naftogaz to separate its gas transit pipelines from other businesses.

The statement was made as Ukraine signed its accession to the Energy Community, which extends the EU's internal energy market to South-Eastern Europe.

Ukraine's accession protocol to the Energy Community was signed by Yuriy Boyko, Ukraine's minister of fuel and energy, and Fatmir Besimi, minister of economy of the Former Yugoslav Republic of Macedonia, acting for the presidency of the Energy Community.

The EU was represented by Fabrizio Barbaso, deputy director-general at the European Commission's energy department.

A Commission spokesman said at a regular press briefing on Friday (24 September) that the 27-member bloc expected Kyiv to "unbundle" Naftogaz under the deal.

About 100 billion cubic metres (bcm) of natural gas a year transits from Russia to Europe via Naftogaz pipelines. At the same time, Naftogaz buys 30-40 bcm a year from Russia to supply local consumers at a heavily subsidised price.

As a result, to the dismay of international lenders and potential investors, the company has routinely reported losses for the past years that were covered by capital injections from the government – estimated at almost $1 billion this year alone.

In July, Ukraine adopted a law requiring legal separation of gas shipping, distribution and sales businesses from 2012. It has also started raising domestic gas prices to gradually eliminate subsidies.

Some analysts, however, have expressed doubts regarding the new law's actual impact, pointing out that Naftogaz already runs different businesses through subsidiaries which are separate legal entities.

"It is too early to say whether this law will be implemented," said Denis Sakva, an analyst at Ukrainian brokerage Dragon Capital. "We will find that out in early 2012."

Volodymyr Omelchenko, an analyst at the Razumkov Centre for Economic and Political research, said he shared those concerns.

"I don't know whether this [Naftogaz unbundling] will be implemented or whether those are just empty promises because there are financial, industrial and political groups in Ukraine who oppose this reform," he said.

"I see no steps to implement the already adopted gas market law."

The "unbundling" requirement also raises doubts about the prospects of a joint venture between Naftogaz and Russia's Gazprom  which is being discussed by Moscow and Kiev.

(EURACTIV with Reuters)

The Energy Community Treaty entered into force on 1 July 2006. The parties have committed themselves to liberalise their energy markets and implement key EU legal acts in the area of electricity, gas, environment and renewable energy.

The Energy Community secretariat in Vienna monitors and assists in the implementation process. Its full members are: the European Union, Albania, Bosnia and Herzegovina, Croatia, the Former Yugoslav Republic of Macedonia, Montenegro, Serbia and the United Nations Interim Administration Mission in Kosovo and Modova. Georgia, Norway and Turkey have observer status.

In March 2009, Russian Prime Minister Vladimir Putin threatened to review his country's ties with the EU after a European Commission plan to modernise Ukraine's gas pipeline system failed to include Moscow (EURACTIV 24/03/09).

But one year later the EU came up with a "three-sided" plan to modernise Ukraine's gas pipeline network, with Moscow's involvement (EURACTIV 07/04/10).

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