guarantee
GTSOU: New requirements for bank guarantees are not a systematic settlement of the risk of debt growth in the gas market

November 17, 2020, Kiev – Gas TSO of Ukraine believes that the resolution of NEURC No. 2086 dated November 13, 2020 does not solve the problem of guaranteeing the proper fulfillment by customers of obligations to GTSOU for balancing services. This resolution removed from the current version of the GTS Code, approved by the resolution of NEURC dated September 30, 2015 No. 2493, the provision that “The GTS operator does not accept financial security in the form of a bank guarantee issued by the bank, that is not included in the list of systemically important banks by the National Bank of Ukraine”, and instead, it was established that the GTS Operator shall accept guarantees from all banks and “publish on its website a list of banks that has refused to fulfill the requirements for the issued bank guarantee, as well as bank guarantees of which would not be further accepted as financial security for the fulfillment of the obligations of the Network User under the natural gas transportation agreement”.

The Company cannot support this decision of the Regulator, because the adopted changes do not improve legal regulation in the gas market and do not solve the problem of proper fulfillment of the monetary obligation by Network Users to GTSOU. Such decision is not systemic and does not eliminate the risks of debt formation to the Company, which, in fact, will be impossible to recover in case of financial problems of the bank that provided such a guarantee.

In fact, the GTS Operator is deprived of any financial risk management mechanisms, which can lead to multimillion losses of the state-owned Company. Now the Operator has been provided with bank guarantees in the amount of about UAH 3 billion. All over the world, transparent and sufficient requirements for the credit ratings of companies and banks is a standard mechanism for minimizing the credit risks of GTS operators.

We express our concern about bona fide participants in the natural gas market, who in the future may feel the negative consequences of such decision of the Regulator after the implementation of the neutrality balancing mechanism in 2021. If the bank guarantee is not fulfilled and, as a result, leads to the accumulation of debt, it will be transferred to other market participants.

GTSOU continues to adhere to the position that until the Regulator or GTSOU has the right to establish non-discriminatory sufficient requirements for a bank guarantee instrument in view of the interests of the stability of the entire market, the problem of market participants’ debt will not be resolved. It should be noted that the relevant norm is provided for in the bill No. 3800, which was submitted by a group of People’s Deputies for consideration by the Verkhovna Rada.

“Normal operation of the entire Ukrainian gas market depends on the stability of the GTS operator. The Company shall be properly protected by law against credit risks posed by gas market participants. In fact, they receive gas from the GTS operator on credit and shall pay for it through the balancing mechanism. Therefore, the credit risks of the state-owned Company OGTSU are very significant. Currently the regulators, both NEURC and AMCU, do not provide a systemic solution and recommend litigation with those who violate regulatory norms. However, this is not a systemic decision and can lead to very significant losses of the Company. Why transparent and fair rules are not legislatively introduced so as so as not to create grounds for litigation? We hope that parliamentarians will adopt Bill 3800 as soon as possible, which will introduce effective settlement mechanisms to the OGTSU for the created imbalances and expand the powers of NEURC in terms of establishing criteria for banks-guarantors of financial security”,  commented Sergiy Makogon, CEO of Gas TSO of Ukraine.