New Ukraine import tariff puts pressure on independent suppliers

11 February 2016 

The number of Ukrainian independents importing gas from Europe has more than halved since the beginning of 2016 due to new import capacity tariffs and the requirement to hold large volumes of gas in reserve.

According the Association of Gas Traders of Ukraine, 12 independent firms had imported gas to Ukraine last December, while in January 2016 only four of them were expected to continue imports.

The country’s energy regulator, NERC, in late December adopted new gas transport and transit rules in line with standard EU regulations. The new system resulted in gas importers facing an entry charge of $12.47/thousand cubic meters (mcm) from 1 January.

“The new tariff rules put importers in a disadvantaged position,” said Oleg Vityk, CEO of Effective Investments Company, whose subsidiary Ukraine Energy Company imports gas for resale in Ukraine. “The tariff and the devaluation of [the national currency] Hryvnya made the prices on the domestic market equal to prices on gas imported from Europe.”

Another Ukrainian trader said that it also prefers to purchase gas from Ukrainian producers rather than importing it from Europe after the new tariff was introduced.

The new transport tariff regulation is part of the Ukrainian law on gas market liberalisation that came into effect last October. The number of independent traders and consumers importing gas from Europe has been increasing since the second half of last year. However, there are concerns that the new tariffs, as well as some other initiatives, put too much pressure on cash-strapped Ukrainian firms, preventing the budding market from developing.

Wholesale prices on the domestic market are mostly influenced by prices incumbent Naftogaz offers to its customers.

Companies import gas to Ukraine via the Budince border point with Slovakia, the Beregdaroc point with Hungary and the Hermanowice point with Poland. The majority of gas is imported via Slovakia, with Budince having 40 million cubic metre (mcm)/day capacity. Around 90% of this capacity is owned by Naftogaz and around 10% is used by western traders who booked it during the Open Season process in 2014 and 2015. Ukrainian independents mostly purchase gas on the Ukrainian border from Western companies who pay the exit tariff in Slovakia.

Oksana Krivenko, head of the tariffs monitoring department at NERC, said the situation may become easier for independent importers from 1 April, as some of the transit charges will be passed on to both residential and industrial consumers.

Another factor stifling market development by imposing unbearable costs on independent suppliers is the requirement to hold large volumes of gas in storage under the security of supply regulation. All gas suppliers must have in reserve 50% of a monthly gas volume they have agreed to supply to consumers.

Before the law came into effect observers argued that only Naftogaz has enough financial resources to implement the requirement. “This is a significant additional cost for us,” Vityk said. “It is not compensated at all.”

Naftogaz on Wednesday issued a statement proposing to the government to alter the requirement so that the rules on reserve stocks vary for different groups of companies (see ESGM 10 February 2016). 

Source: ICIS