The state “got confused” in the gas distribution networks?

The real achievement of the updated natural gas market became diversification of the blue fuel supplies to Ukraine. Perhaps the most dramatic in the list of expected changes was the decision of the Cabinet of Ministers on the transfer of management functions on the gas distribution networks to the NJSC “Naftogaz of Ukraine”. What do we have now? The answer to this question we will look together with experts of the gas market.

The Law of Ukraine “On the natural gas market” and the Resolution of the Cabinet of Ministers on the transfer of gas distribution networks to “Naftogaz” exposed the complex of problems that accumulated over the years due to the unqualified management of the state property.

It seems that legally was identified a clear time frame: from October 1, 2015, private gas supply and gasification companies (regional gas companies) legally lose the right to own property of the state gas distribution systems for free. However, the situation still has not changed, as gas distribution networks continue to be state-owned, but in free of charge use of “obligates”.


Still, there is no answer to the simple question: how regional gas companies must perform the CMU Resolution to transfer gas distribution networks to “Naftogaz,” if ownership of these systems is not arranged, a detailed inventory is absent, and there is no allocation of plots for pipeline transport facilities?

Statements that nothing is being done to overcome this notorious gratuitousness are an obvious exaggeration. Work is conducted on different levels of government and institutions. For example, two draft laws that are designed to regulate these issues registered in the Parliament legally. And the Ministry of Energy and Coal Industry established the State Enterprise “Ukrainian gas distribution networks”, which probably will keep the balance of public gas distribution systems.

NJSC “Naftogaz of Ukraine” has also prepared its vision on this issue and submitted it for approval to the Ministry of Economic Development and Trade. And the meeting that was held on August 2 this year in the MEDT gave hope that participants of this process come to the finish line. Thus, the Ministry referred by a letter to the CMU wherein offered to transfer the powers to the “Ukrainian gas distribution networks”, i.e. to the Ministry of Energy and Coal Industry.

However, the Minister of Energy and Coal Industry Igor Nasalyk not quite imagine how this mechanism will work, as he sincerely admitted during the meeting of the Parliament Committee on Fuel and Energy Complex, which took place on September 21, 2016. It is unfortunate that many mechanisms for implementation of the Law are still lack. For example, “A typical lease contract of gas distribution systems”, owned by the state, develop and approve the central executive body that ensures the formation and implementation of the state policy in the oil and gas sector. And to have such a contract, you need to take the relevant law.

An inventory of networks was not held, which also aims to identify not only the parameters of the gas distribution system but the share of the state ownership.

It is known that today Ukraine does not have a register of gas distribution networks owned by the state. There is such a “gas pipe list” in the State Property Fund – this is lists that made up over the different years on the basis of data from the gas supply and gasification enterprises.

The only complete source is an accounting of regional gas companies which at 75% are owned by Dmytro Firtash.

Still there are no regulations that would determine who, when and how will conduct an inventory of gas distribution networks, will make a distinction of networks by the type of ownership, and after installing equipment for natural gas accounting, will fix this division in documents, and later – will receive from an independent international company a facility passport.

In general, Ukraine has about 400 thousand kilometres of gas distribution networks of medium and low pressure, 40% of which is a controversial property. It means that it is necessary to measure these networks physically, to verify with documents, and establish the ownership of the disputed property. This process can take from 2 to 3 years and cost a lot of money.

Such an inventory tried to conduct a few times. For the first time – after the creation of “Naftogaz” in 1998, but the case was not completed. The second time, it was a try, when a subsidiary company of the NJSC – the “Naftogazmerezhi” – started to work on the inventory and certification. Subsequently, with the government deliberate decision it was eliminated, never implemented the planned...

And now, let’s talk regarding the installation of meters of natural gas at the points of distinction. The cost of work for installation of a metering device is 50 thousand UAH; also you must consider 20-30% for mechanical maintenance of these devices. Overall costs could be about $ 260 million.

Next – the documentation on technical parameters, the legal consolidation of rights of a holder for a certain object. Having such a passport, an object can be transferred to concession or lease, for example, to the same “obligates” or potential investors.

If all of these procedures will be rejected for objective or subjective reasons, no matter what will happen in the future with gas distribution networks – rent, concession or privatisation – it will be traditionally done when property valuation carried out by eye.

The “new” script of transmission of individual sections of networks from the state for the benefit of specific individuals known for their schemes in this area also is very possibly that will be used. “Inventory is not done? But you have an investment interest? No passport? Well, take this as it is...”

It would seem, and how to achieve competition in the gas market in such conditions and ensure reliable and trouble-free operation of pipelines?

The Law “On natural gas market” opens the way to reform and streamline of the specific domestic conditions. Based on its norms, it is necessary to develop clear and balanced legal mechanisms for transfer of gas distribution objects that are in state and communal property in paid use. It is also important if several operators start to work on the market, then competition will increase and, consequently, the quality of services too.

The NKREKP Resolution of 30/09/2015 №2494 “On approval of the Code of gas distribution systems” also outlines the situation in the field of distribution networks. It defines the relationship between the operator of gas distribution systems with subjects of the natural gas market, and also legal, technical, organisational and economic principles of operation of gas distribution systems.

It is likely that MPs will have to adopt a separate law that will regulate and will set clear rules for the use of gas distribution networks, and normalise payment and the issue of operation and maintenance of the gas distribution system.

The text published in the core magazine for manufacturers and constructors of plastic pipelines “ІМПМ”, №35, 2016.