Why is TSU draging their feet? Ukraine needs gas! They should be drilling or exploring for new gas or are they all washed up in Ukraine? and thats why there is no sign of them in Ukraine. BIG players are in small players (TSU) is out.

 

Ukrainian billionaire Dmytro Firtash is back on the Ukrainian natural gas market. At the end of 2012 he established a new company that will import gas from Russia and other countries to supply Ukrainian industry and consolidating stakes in the country’s regional gas distribution network.  

Firtash’s return as a major player on the nation’s energy market years after another gas intermediate, RosUkrEnergo, co-owned by the businessman with Russia’s Gazprom, was eliminated from gas import schemes and Firtash’s regional gas delivery companies known as oblgases lost their control over regional gas pipelines.

Firtash’s Group DF did not respond to Kyiv Post requests to comment for this article. 

On Oct. 3, the Cabinet of Ministers cancelled the monopoly right of state-owned oil and gas giant Naftogaz to sell imported gas in the country. This exclusive right, with some later exceptions for chemical plants, was given to the state-owned company by ex-Premier Minister Yulia Tymoshenko in 2008 to cut out RosUkrEnergo and its subsidiary UkrGaz-Energo. She argued at the time that private companies, particularly intermediaries with little economic justification, should not be afforded preferential terms at the expense of a public entity.

Soon after this barrier was removed under the presidency of the imprisoned Tymoshenko’s rival, Viktor Yanukovych, Firtash registered the new gas trading company.

According to business daily Kommersant Ukraine, Firtash’s Ostchem Gas Trading was registered in Switzerland on Dec. 10 last year. Its main purpose will be to import gas from Turkmenistan, Kazakhstan and Russia and deliver it to Ukrainian enterprises, including his numerous energy intensive chemical plants. 

Having inked lucrative deals with gas suppliers, Ostchem Gas Trading plans to import over 8 billion cubic meters of gas in 2013, around a quarter of the country’s total imports.

“I supply gas at a lower price than the price set by the (Russia-Ukraine) gas contract,” UNIAN news agency quoted Firtash as saying.

Ukrainian billionaire Dmytro Firtash

Since 2011 Firtash has also imported gas through Ostchem Holding Limited, a holding company for the billionaire’s chemical businesses, including four plants that produce nitrogen mineral fertilizers: Cherkasy Azot, Horlivka Concern Stirol, Severodonetsk Azot and Rivne Azot. 

Ostchem Holding Limited imported nearly 8 billion cubic meters of natural gas in 2012, according to Energo Biznes magazine. 

This year, the four chemical plants are expected to account for 6 of the 8 billion cubic meters to be imported by Ostchem Gas Trading, according to analysts at Kyiv-based investment bank Dragon Capital.

“In chemicals the basis is gas, 67 percent of its cost is gas,” said Firtash in an interview to state Horlivka Radio. “It means, however much you are trying to save, whatever you are trying to do, (gas) is a problem.” 

In Africa gas costs $24 per thousand cubic meter, in the U.S. it is $70 and in Russia $100, Firtash said, which means Ukraine is paying way too much. Naftogaz spent $430 per thousand cubic meter of Russian gas in the fourth quarter of 2012. 

The remaining two billion cubic meters are expected to be sold to industry, largely via Firtash-controlled gas distribution networks. The billionaire has consolidated his grip over local gas distribution in the past year, increasing his stake in numerous regional oblgazes and municipal gas distributors. 

This has been particularly visible during a round of privatizations in August through September of 2012, when 14 out of 17 tenders were won by business structures linked to Firtash, according to leading Warsaw-based think tank Center for Eastern Studies.

The biggest part, 13 out of the 14 purchases, was bought by Gastek, an offshore company linked to Firtash according to news portal Ukrainska Pravda, for Hr 326 million ($41 million). The 14th was acquired by Finlex-Invest, also reportedly tied to Firtash.

“Taking control of virtually all the privatized natural gas distribution companies has given Dmytro Firtash an effective monopoly of the Ukrainian gas distribution market,” analyst Arkadiusz Sarna wrote.

Oleksandr Hudyma, energy expert and former parliamentary deputy from oppositional Batkivshchyna faction, said it is impossible to tell exactly how many oblgases out of nation’s 25 Firtash does control as most of them were acquired through offshore companies. But according to public information and his estimates, the businessman owns stakes of 80-85 percent of all oblgases.

These entities are strategic assets as they have an exclusive right to use regional gas pipes for free and supply gas to households, utilities and small enterprises.

The liberalization of the gas import market has led to some questioning Ostchem’s growing prominence and its impact on Naftogaz’s revenues.

“On the one hand, another gas trader entering the market will negatively influence Naftogaz without any doubt,” said Bohdan Sokolovsky, former adviser to ex-President Viktor Yushchenko on energy issues. “But on the other hand it will increase competition, and competition is always a positive thing for both the final consumer and the state.” 

While Sokolovsky expects tough competition between Naftogaz and Ostchem Gas Trading, others worry that Firtash’s company will simply substitute for the state-owned monopoly.

Presently regional gas distribution in Ukraine is considered a low profit business due to the state setting extremely low gas prices for the population. But this could quickly change if prices rise – a key condition for renewed cooperation with the International Monetary Fund, widely expected for the first half of the year.