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Ukraine mulls partial TSO sale to keep Russian natural gas in transit

29 Apr 2013 17:26:36 | esgm

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The Ukrainian government has called on its parliament to lift a ban on the privatisation of natural gas incumbent Naftogaz, and its subsidiaries, so that it can partially spin-off the network operator.

On Monday, Ukrainian energy minister Yuriy Boyko, who is also the deputy prime minister, said that via the proposed privatisation, a 50/50 joint-venture could be established to operate the Ukrainian gas network that is currently managed by Naftogaz subsidiary Ukrtransgaz.

But the partial sale of the transmission system operator (TSO) would only go ahead if Ukraine were able to retain some control of the company, and if the government received a guarantee that the country's network would be used to transit gas, Boyko said.

In essence, the minister's comments are a call to Russia's Gazprom to snap up the buy of half of Ukrtransgaz - assuming parliament allows it to be sold - in return for continuing to utilise the Ukrainian network for delivering gas to the EU.

Gazprom has made numerous signals in recent weeks of its desire to build yet more transit pipes to Europe, all of which would lessen the importance of Ukraine as a transit state and reduce the transit revenues made by the TSO (see ESGM 4 April 2013).

Whether Gazprom would be interested in owning only half of Ukrtransgaz is unclear.

The Russian company has previously said that it would reduce its supply price if it owned the entire Ukrainian network (see ESGM 24 August 2011).

Also on Monday, Boyko acknowledged that without greater revenue from gas transit, Naftogaz would not be able to continue to subsidise the domestic sale of gas. Whereas the Russian long-term contract is priced at around $400 (€307)/thousand cubic metres (kcm), it is sold to municipal power plants at around $150/kcm, the minister said.

In a remark apparently aimed at the EU, Boyko said that any sale of Naftogaz or its subsidiaries would boost the company's transparency.

However, he remarked that despite structural changes to Naftogaz - both in the past and planned - Ukraine had not received "adequate support" from the European Energy Community, the association of non-EU states signed up to energy laws established by Brussels. Tom Marzec-Manser

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