companies and markets

Third-degree job interview

25.07.2014 | By Andriy Starostin

In the beginning of July the parliamentary majority succeeded in passing in the first reading two laws, though from the second attempt, which will be determining the next steps of the government in the gas sphere: the Law On Special Period in Fuel and Energy Sector and the Law On Introduction of Amendments to the Legislation With the Objective of Reforming the Management System of Gas Transport System of Ukraine

The first document will help the government to effectively react to external blockades and irritants in the sphere of oil and gas import. The second allows for creating of two companiesoperators for the management of gas pipelines and underground gas storage facilities while preserving the governments controlling share package in both.

Formation of the operators will allow Arseniy Yatsenyuks government to make the first step towards fundamental reform of gas transit and international trade. This reform in the end will allow companiesconsumers from EU to purchase gas not on the western borders of Ukraine as it happens not, but on the eastern and southern border entry points to the Ukrainian GTS. Entry points and gas measuring stations are located in Sumy, Kharkiv, Luhansk and Odesa oblasts.


It is fully possible that the Ukrainian government will soon start reforming the energy sector, but judging from the current gas reform, the changes in the area of energy resource transportation are becoming the first steps. In this sector, over the past decade Ukraine managed to come closer to the partner states in the EU association. However, there are only two achievements in this area, but for the moment they have no effect.

The first asset is OdesaBrody pipeline, which due to the continuous mistakes in the management of the sector has been connecting two outdated oil refineries in Western Ukraine with sea ports only theoretically.

The second one is TAI pipeline (TalneAnanyevIzmail), which was build with participation of Naftogaz of Ukraine and also Turkish and Russian shareholders within the framework of a JV GasTransit. Theoretically, this is a comparatively new, first nongovernment main pipeline in Ukraine, which could serve as a basis for development of promising import of natural gas to Ukraine from Turkey and Middle East countries. In practice, however, just like OdesaBrody, it remains idle. Instead of very promising conditions during the third gas blockade of Ukraine, this pipeline operates for gas delivery by northsouth scheme, while there is no talk about its operation in the reverse direction southnorth or reverse flow supplies. This is largely because the majority of shares in GasTransit are controlled not by UkrTransGas, but by Gazprom and Turkish companies that largely depend on the Russian monopoly.


During the current parliamentary hearings it, the attention of the lawmakers did not reach such details as the fate of TAI pipeline or the countrys lagging behind in the sphere of construction or repair of pipelines. Nonetheless when approving the emergency and pipeline laws, which were submitted by the government for the vote in a single package, the MPs of the ruling coalition demanded from the Cabinet to toughen criteria of selection of the candidates for the lease of the GTS.

Svoboda leader Oleh Tyahnybok demonstrated the parliaments caution in this area more vividly than others. He demanded that the final draft law on reforming management of the GTS must envisage approval of the composition of the shareholders of the companyoperator by the parliament: To avoid a situation, when we sign an agreement and then it turns out that Gazprom is a shareholder of a European companyoperator, particularly since it has shares in the capital of 144 European companies, said one of the leaders of the ruling parliamentary coalition.

Overall, such remarks to the law are so far the only reason for concern of the lawmakers. Already at the second reading during the next session of the parliament, under condition that it is not dissolved and early elections are not announced, the MPs will be actively discussing new paths of development of gas transport sector and companiescandidates for the lease of the GTS. The parliament, however, did make it clear its position as to the main criterion to the companiescandidates. It a priori reduced their number by ruling out those, who may have close ties with the Russian monopoly.


This criterion will extremely complicate participation in the capital of the companyoperator of those European investors that are most closely integrated with the Russian gas monopoly: these are primarily are transport subdivisions of German BASF Wintershall and also Belgian Fluxis and Dutch GasUnie, which actively work with Gazprom. The key paradox of tough selection criteria is that the vast majority of European companiesoperators, except for those from Norway, Spain, Sweden and Denmark, have ties with Gazprom one way or the other.

It is fully possible that under conditions of gas transport reforms review by the parliament the companies from those countries will become the favorites in the preparations of the process of lease of the Ukrainian GTS.

It will be more difficult for the other candidates. For instance, Allianze Borealis consortium, which in March acquired companyoperator of Czech GTS Net4Gas from German RWE, does not have a joint history with Gazprom, but only at first sight. Allianze is the lead investor of BASF Wintershall, while Borealis is a daughter company of Austrian OMV, which does have close ties to Gazprom. This means that practically any candidate for participation in the capital of the future Ukrainian companyoperator may fall under suspicion of the watchful parliamentarians.

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