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March 2016
www.naftogaz-europe.com
www.naftogaz.com
@NaftogazUkraine
Ukraine’s gas market: opening for investments
by gas consumption (~34 bcm)
by gas production (~20 bcm)
by proven conventional gas reserves (640 bcm)
by underground storage capacity (31 bcm)
by gas volumes stored (17 bcm)
by gas volumes transmitted (100+ bcm)
by reserves-to-production ratio (30+)
by Russian gas volumes transmitted to EU (67 bcm)
Notable position in each segment of gas business
Ukraine: one of Europe’s top gas markets
2
#1
Top 3
Top 5
Key achievements in 2015
Diversification and
security of supply
• 2.4 times
reduction of
gas imports
from Russia
• Stable gas
supplies for
Ukraine and
the EU
Gas market
reform
Operating
efficiency
Transparency and
accountability
• 3EP-compliant
gas market law
• Deregulation of
commercial
market
• 7.5 times
growth in
private imports
• Operating
profitability –
first in 6 years
• Improved debt
collection and
revenues
• Largest taxpayer
• Corporate
governance
reform launched
• First detailed
annual report
• Procurement
system reform
3
2013 2014 2015
Europe
Ukraine has effectively diversified its gas imports
Russia
92% 74% 37%
Cooperation with EU for security of supply
7.5 times more gas
imported by private
companies in 2015
(1.1 bcm)
10+ private importers and
direct buyers, incl.
ENGIE (GDF)/ERU,
ArcelorMittal
4
Gas market reform
Implementing newest EU legislation in Ukraine
The significance of this law is hardly
explainable at this moment. Gas issues
are at the centre of the Ukrainian society
and politics. This law will substantially
change both in a positive way Janez Kopač
Energy Community Secretariat
April 2015 • Adoption of 3EP-compliant gas market law
• First standard European interconnection agreement
signed by Ukrtransgaz with Hungary
• Adoption of 3EP-compliant secondary legislation:
network codes, rules of supply, tariffs, SoS rules, etc.
• Market opening and adoption of public service
obligations protecting vulnerable customers
• Adoption of RAB-based entry/exit tariffs
4Q 2015
4Q 2015
June 2015
December 2015
Operating efficiency
• Radical move to market
prices for households (on
average 4x increase) and
direct subsidies
• Transparent tendering and
procurement procedures to
eliminate corruption
• Improved payment
collection and debt
recovery from major financial
groups
• Improved operating and
legal framework
New managerial approach and improving regulatory environment
Operating profit/loss, UAHbn
Net loss, UAHbn
Operating profit* for the
first time in 6 years
4,5
-63,5
-7,3
-25,1
-90
-18,8
-100
-80
-60
-40
-20
0
20
2015 2014 2013
*non-consolidated 6
Corporate governance reform: OECD standards
Government,
ministries
Old structure Approved structure
Naftogaz
executive board
Cabinet of
Ministers (tbc)
Naftogaz
executive board
Independent
supervisory board
• Political agenda vs. economic
rationale
• Vague segregation of authority
• Nomination and remuneration issues
• Business-focused strategy in the
interests of ultimate shareholders
• Clear responsibility, improved control
• Merit-based HR policy and market
level remuneration
Transparency and accountability
First annual report explaining strategy, market conditions and results
Transparency and accountability
Improving efficiency and building trust through transparency
By providing this loan to
Naftogaz, we are not
only helping to
strengthen energy
security in Ukraine but
we also foster the
reform agenda in the
energy sector making it
more open, transparent
and efficient
Philip Bennett
EBRD
• Successful cooperation with
EBRD, EIB, IFC; constant
monitoring by IMF
• Eliminating opportunities for
corruption in procurement by
Prozorro and new tendering
rules
• Boosting transparency of
operations and information
quality (audits, revaluations,
regular reporting)
Investment opportunities in Ukraine’s gas industry
Transmission
Co-manage Europe’s largest GTS
Upstream
Develop Europe’s top 3 gas reserves
Trading and supply
Sell directly in Europe’s top 5 market Storage
Benefit from Europe’s largest UGS
10
Watch https://www.youtube.com/watch?v=DF6Sr2KTVuA
UGV intends to produce 20 bcm/y by 2020
2016 2020 2019 2018 2017
21
18
14.8 14.5 15
12
0
20.0
18.4
16.5
Base Exploration on existing fields
Exploration on new fields
Tight gas
Intensification Other
Estimated US$3bn investment program till 2020
11
Planned gas production levels, bcm/y
Potential partners: up to 49% share in new companies
Ukraine
Cabinet of Ministers
through Naftogaz
State Property
Fund
Transmission SO
Partner
Storage SO
or
EU/US
Partner
Minority
interest
Minority
interest
Majority
interest
Majority
interest
TSO ownership unbundling
in compliance with 3rd EP
EU and US companies invited
as partners in transmission
and storage business
State retains asset ownership
Prior condition: corporate
governance reform based on
OECD standards
Independent and fully
empowered boards for the
unbundled operators
Ownership Governance
12
Wrap-up
Security of supply
and gas market
reform
Operating
efficiency
Transparency and
accountability
13
Gas upstream
(privatization)
Gas transmission
(TSO unbundling
and partial
privatization)
Gas storage
(partial/full privatization,
individual strategy per asset)
Ukraine progresses in reforming its gas market and Naftogaz:
Reform opens unseen investment opportunities in:
naftogaz.com | naftogaz-europe.com | @NaftogazUkraine