Ukraine Cabinet may help Naftogaz repay debt to Gazprom

Макроэкономика 07.11.2013 Ukraine’s Cabinet of Ministers may get involved in helping Naftogaz settle its payables to Gazprom for the August supply of natural gas, the Kommersant-Ukraina newspaper reported on November 7, citing anonymous sources. The two options that are being considered are pumping money into Naftogaz via an increase of its charter fund, and arranging a new agreement with Gazprom to postpone payments for a longer term. Recall, Gazprom is demanding a quick repayment of August gas arrears that amounted to USD 882 mln as of late October. Otherwise, it can use its right to demand prepayment for all future gas supplies to Ukraine. As of the beginning of November 6, the debt amounted to USD 792 mln, according to Naftogaz Deputy CEO Vadym Chuprun. In its press release on November 5, Naftogaz listed other options that can help it settle its debt, including requiring the Finance Ministry to fulfill a Cabinet resolution to prepare amendments to the state budget that will allow Naftopgaz to receive UAH 10.7 bln in compensation for the tariff differences. Another option is making heat producers (who owe UAH 15.9 bln to Naftogaz) and power producers (who owe UAH 1.1 bln) repay their debt to Naftogaz. Alexander Paraschiy: There are indeed many opportunities for the government to help Naftogaz settle its debt issue. The two possible reasons for Cabinet not being actively involved in the process that we see are: (1) it doesn’t view seriously the risk that Gazprom will start demanding prepayment for its gas (and it might be right – Naftogaz just will not be able to prepay); (2) repayment will require purchasing an enormous amount of dollars on the ForEx market (about 4% of NBU foreign currency reserves), which will worsen NBU reserves by the end of November (recall, Ukraine is also repaying USD 0.9 bln to the IMF this month). It looks obvious that in the event that the government will not help, Naftogaz will be able to repay for the August gas only by the end of the year. But at the same time, Naftogaz will also have to pay for gas it bought in October and that it will buy in November. In summary, it’s obvious that Naftogaz will not be able to solve its problem by itself and we believe the solution demands the involvement of all the state organs, including parliament, the Cabinet of Ministers, separate ministries, and even the National Bank of Ukraine.