The government of Ukraine threw out a $2.4 billion lifeline to the state-owned oil and gas monopoly last week
owned oil and gas monopoly, last week. Market analysts said that Naftogaz is currently in technical default on its Eurobonds, worth some $500 million.
Last week Prime Minister Yulia Tymoshenko announced that the company was facing bankruptcy after years of poor management. Concerns over the financial health of Naftogaz have repeatedly surfaced since the Swiss-based RosUkrEnergo company was introduced as an intermediary in delivering Central Asian and Russian gas to Ukraine in 2004. The state of Naftogaz’s coffers have also been a cause for concern after Russia’s Gazprom began raising prices it charges Ukraine for the blue-burning fuel.
Last month Tymoshenko and elected legislators from her eponymous bloc, namely Viktor Pynzenyk, Yuriy Prodan and Hryhoriy Nemyria met in Kyiv with four of the largest foreign creditors of Naftogaz Ukraine. (Pynzenyk, Prodan and Nemyria currently hold key ministerial posts in Tymoshenko’s cabinet.) The bondholders expressed concern over the future of Naftogaz’s scheduled payments and requested to meet with Tymoshenko to discuss the company’s poor financial situation. Neil Pattie, communications advisor to the Yulia Tymoshenko Bloc said, “I consider it was a very smart move by Tymoshenko to begin to address this issue before she came into office. It sent the right message to the investment community.” Parliament approved Tymoshenko for the premier post on Dec. 18.
The foreign creditors reportedly expressed doubts that the state oil and gas monopoly will be able to meet its financial obligations on Eurobonds, which will mature in 2009. Last week, the Ukrainian parliament’s newspaper Holos Ukrainy wrote that “in 2008 a state guarantee [for the company] will be offered by the government.”
One foreign investor familiar with the situation told the Post that, “Naftogaz Ukrainy is a company of strategic importance for Ukraine and in the past… fine creditors have extended loans to the company on the assumption that the Ukrainian government would ultimately act to resolve the problems of the company without getting into financial difficulty. The basic problem for the company is that the prices at which it buys gas are determined in effect by intergovernmental agreements. And the prices at which it sells gas are also determined by the government.” The source added that “the government really has the responsibility to work with the company to resolve its problems and also work with its creditors.”
The situation surrounding Naftogaz can adversely affect Ukraine’s image on the international investor market. The source added that if Tymoshenko’s government follows through with its promise to extend the sovereign guarantee to Naftogaz, then it will improve foreign creditors’ perception of the company’s solvency. “If the government goes back on its promises, then foreign creditors will be very reluctant to deal with both the company and the government in the future,” the source added.
According to market analysts, the solution to resolving the problems surrounding Naftogaz revolves around pricing issues related to the purchase of gas.
