State-owned gas giant Naftogaz lost $684 million in 2020, according to a financial report published by the company on April 27.
It’s a massive drop compared to 2019 when the company made $93 million in net profit, and the first time since 2015 that Naftogaz has had negative financial results.
Ukrainian outlet Ekonomichna Pravda had reported on April 9 that Naftogaz lost $1.3 billion (Hr 37 billion) in 2020, but Andriy Kobolyev, the CEO of Naftogaz, said the reported figure was “incorrect” and refused to comment further.
Despite the losses, the company remains Ukraine’s largest taxpayer with $5 billion paid to the state in 2020.
Kobolyev blames the COVID-19 pandemic for the losses. The COVID-19 crisis affected gas consumption and the ability of consumers to pay for it, reducing the demand.
Kobolyev also blames the government policy on gas prices. Ukraine has forced gas sales at $0.25 per kilowatt, about 30% below the market prices.
“Had it not been for… ineffective state regulation of gas prices, the group would have been profitable even in this difficult year,” Kobolyev wrote on Facebook on April 27.
The government justified the regulation by saying that Ukraine doesn’t have a competitive retail market for natural gas, dominated by regional suppliers, including those owned by oligarchs like exiled Dmytro Firtash.
Naftogaz also faced a public service obligation reform in 2020, which added to the firm’s negative financial result.
In August 2020, the government abandoned public service obligations (PSOs) that forced Naftogaz to sell gas via intermediaries at below-market prices to financially needy customers. With the change, Naftogaz now can sell gas directly to end-users. Its retail share is 9% at the moment.
The problem though is that the regional gas supply companies who had been receiving gas from Naftogaz before the reform in August didn’t pay their debts to the company in full. As a result, they owe $1.5 billion to Naftogaz.
