Ukraine TSO calls for immediate clampdown on record unauthorised gas offtakes

LONDON (ICIS)–The Ukrainian gas transmission system operator GTSO has called on the government to adopt urgent and transparent measures to clamp down on unauthorised gas offtakes after record volumes were withdrawn in the first three months of the year.

GTSO said 1.1 billion cubic metres (bcm) of gas were extracted without authorisation from the transmission system for production and technological needs by distribution companies and municipalities. This represented a threefold year-on-year increase.

GTSO also said the government’s failure to curb the practices could threaten the financial stability of the transmission system operator and lead to severe market imbalances.

According to GTSO, withdrawals without authorisation had risen incrementally from 38 million cubic metres in January to 380mcm in February and peaked at 675mcm in March, noting there was no “single logical explanation for the 20-fold increase in the last months of the heating season.”

Just last month, the losses incurred by GTSO in unauthorised off-takes were higher than the gas consumption by households, the grid operator said.

“At the moment, the accrued amount due and the debts for the gas withdrawn by regional gas companies reach more than Ukraine hryvnia (UAH) 10 billion (€300m) ,” Sergiy Makogon, CEO of GTSO said.

“For comparison, the net profit of GTSO in 2020 was UAH 20.4 billion. That is to say, half of the profit earned by GTSOU from international operations and transit, is now being ‘washed away’ in the form of unauthorised off-takes of natural gas by regional gas companies, which negatively affects the company’s liquidity,” he said.

Under existing arrangements, regional distribution companies are expected to clear any imbalances created by purchasing gas for production and technological needs.

GTSO argues this may not be the case in practice and has called on the government to adopt strict enforcement mechanisms.

The TSO said that under a government decree adopted by the regulator NERC, the period for payment deferral by market participants for February and March 2021 has been increased from 20 to 90 days.

“The situation with the off-takes this heating season has demonstrated three obvious things. Firstly, nowadays there is no effective mechanism at the state level that would oblige regional gas distribution companies to pay for balancing services in a timely manner and stop the practice of offtakes of state-owned natural gas from the transmission system,” Makogon said.

“Secondly, the absence of transparent control mechanisms leads to billions in debts to GTSOU, as well as to situations when the losses of natural gas in the regional gas networks are higher than gas consumption by the population, as it happened last month [March]” Makogon said.

He said a law regulating distribution companies would need to be adopted urgently to ensure distribution companies are incentivised to settle negative imbalances.

ICIS contacted the government, NERC and distribution companies but did not receive any comments by publication time.