EY, commissioned by the World Bank, suggests the solution mechanisms to address the problem of unpaid off-takes of natural gas from the GTS

Unpaid off-takes of gas from the GTS pose a threat to the gas market of Ukraine and adversely affect the financial position of Gas TSO of Ukraine. Therefore, the World Bank supported all the stakeholders of the natural gas market as well as state authorities by implementing the project “Advisory services for financial sustainability of Gas TSO”.

The World Bank initiative was implemented by EY (Ernst & Young), one of the world’s leading consulting companies. In order to implement the project, the consultants, involving key stakeholders, comprehensively researched the background and the causes of the problem and developed and worked out the possible solutions of the problem.

Note that since 2020, GTSOU has been struggling with the unpaid natural gas off-takes from the GTS. Such off-takes are systemic and are carried out mainly by Gas DSOs (Oblgazes and Miskgazes – regional and city gas distribution companies) to cover their own production and technological needs (PTN). Gas DSOs are private companies that, inter alia, get paid for the gas distribution services by the consumers. The tariff for this service includes an allowance for the purchase of natural gas for the needs (PTN) of Oblgazes. Instead, due to imperfections in the regulatory environment and systemic problems in the existing model of relations in the gas market, the practice of natural gas off-takes by Gas DSOs from the gas transmission system of Ukraine has become widespread. The off-takes of gas are classified as “daily imbalances”. And such imbalances have a negative impact on the financial position of GTSOU. As of August 2021, Oblgazes and Miskgazes indebted to Gas TSO of Ukraine about UAH 9 billion.

In the final report, EY provided a list of recommendations to address the problem, which are in the process of being implemented: the mechanism of special accounts for distribution, the institution of supplier of last resort.

There is also a number of recommendations that need further support from the government, in particular the introduction of the institution of temporary administration and adjustments to the market model with regard to supple of gas for PTN of Gas DSO and/or compensation for non-payment through the balancing fee for neutrality.

“The situation with the natural gas off-takes in the previous heating season demonstrated three obvious facts: First, the lack of an effective mechanism that would oblige Oblgazes to pay for balancing services in a timely manner and stop the practice of natural gas off-takes from the GTS. Second, the absence of transparent mechanisms to control expenditures of problematic Oblgazes. Third, the lack of incentive for Gas DSOs to settle their negative imbalances. All the above leads to billions in debts to GTSOU. Given the external challenges of gas pipelines bypassing Ukraine’s territory, it is necessary to promptly implement the recommended mechanisms to eliminate internal threats to the stable operation of the GTS,” said Sergiy Makogon, Director General of GTSOU.

See the full version of the report here (UKR), (ENG).