Ukraine's Naftogaz Borrows Heavily To Pay For Russian Gas Imports

KIEV, Ukraine -- Ukraine's national oil and gas company Naftogaz Ukrayiny is borrowing heavily in order to pay for imports of Russian natural gas in July, the company reported Thursday.

The borrowing, mostly from state-owned banks, indicates that Naftogaz has been failing to collect enough money from consumers to cover the costs of Russian gas imports.

It illustrates the difficult balancing act the Ukrainian company has to perform as any failure to meet the August 7 deadline for making the payment may trigger retaliation from Gazprom.

The financial plan for Naftogaz, approved by the government, calls for borrowing Hryvnia 3 billion ($375 million) for purchases of natural gas in the summer period, Naftogaz said in the statement.

Naftogaz earlier this month announced plans to borrow Hryvnia 625 million ($77 million) from state-owned Ukreximbank in July towards making the payment to Gazprom.

Thursday's announcement comes just days after Naftogaz borrowed Hryvnia 1.9 billion ($235 million) from another state-owned bank, Oshchadbank, through the issue of corporate bonds.

Naftogaz paid $860 million to Gazprom in early July for imports of 3 billion cubic meters of gas in June, and the company said it plans to import another 3 Bcm of gas in July.

But Russian gas prices are due to rise in July, suggesting that Naftogaz will need more money to pay for the imports of the same amount of gas.


Volodymyr Makukha, a deputy Ukrainian energy and coal industry minister, said Wednesday the gas price is expected to increase to $354/1,000 cubic meters in the third quarter, up 19.2% from $297/1,000 cu m in the second quarter.

This price rise increases the amount that Ukraine must pay Gazprom by August 7 for the imports of 3 Bcm of gas to $1.06 billion, the data suggest.

Naftogaz has difficulties in raising the money from sales to pay for the Russian gas because the government earlier this year postponed indefinitely a steep rise in gas prices for household consumers.

The 50% price hike was due on April 1 and was demanded by the International Monetary Fund, but was postponed by the authorities on fears that it would trigger social unrest in the country.

The IMF has now withdrawn $3 billion in lending to Ukraine because of the governments failure to raise the gas prices, so the government hopes to renegotiate with the IMF a more gradual increase.

"The IMF is strictly demanding to hike the gas prices, and we are working on documents ahead of an IMF team arrival on August 29," Vladyslav Lukyanov, a lawmaker from the ruling Regions Party, said in a statement. "There will be a discussion during the week of the team's work in Ukraine as we will try to agree on the issue."

Source: Platts