Over the past year, the state's control has significantly expanded to the entire industry: Ukrnafta, Ukrtatnafta, Prykarpatzakhidtrans, several oblenergos were nationalized, even before transferring to Naftogaz the largest CHPs in the country.The expansion of state control occurs through the mechanisms of nationalization, confiscation, and seizure of shares.
In May last year, shares of 26 gas distribution companies were arrested as part of the State Bureau of Investigation(SBI) investigation. Among them were all the distribution system operators of the RGC brand. Since the beginning of 2023, Naftogaz has changed shareholders' representatives and the board's composition in four gas distribution companies in a legally uncertain way.
We discussed how energy assets are "annexed", which model is the basis of today's market, and the prospects for integration into the EU with RGC CEO Oleksiy Tiutiunnyk.
During the open phase of the conflict with Naftogaz, you were appointed CEO of the Regional Gas Company. What tasks were assigned to you?
For 2023, we have identified three strategic directions for the company's development. The first is to unite with the Ukrainian people to defeat the racists. For us, this is support for the security of gas distribution for 8 million consumers, support for Ukraine, and support for the Armed Forces of Ukraine. Last year, companies operating under the RGC brand paid almost UAH 5 billion in taxes. In support of the Armed Forces of Ukraine, we sent about 200 million hryvnias – special equipment, transport, drones, and equipment.
The second is settling the conflict with Naftogaz by legal and political-diplomatic means. The court cases launched today will be brought to a logical conclusion, and all business claims will be removed within the framework of court decisions.
We call on the authorities to engage in dialogue to weed out speculation and transparentize the situation. I talk a lot with people who understand the state of affairs in the country. And I ask everyone to help RGC and Naftogaz to sit down at the negotiating table and start an open dialogue regarding those claims that we hear exclusively from intermediaries or in the press.
The third is the European integration of our company. We have something to offer in the markets of Eastern European countries. We are ready to export gas equipment for our production and implement engineering projects abroad. We are discussing the development of technological exports, equipment, and projects that load our plants and developers.
Political and diplomatic way of settlement – does this mean that you will be looking for dialogue?
It seems that the higher echelon of power does not receive objective information about the work of gas distribution enterprises. It appears that they are provided with subjective data that distort the idea of the work of the industry as a whole and the Regional Gas Company in particular.
Can you tell us about the latest searches from March 17 to 20? The security forces have repeatedly blocked the work of the RGC and gas distribution companies conducting investigations. Perhaps they were looking for objective information? What did you find?
Of course, nothing. How events developed: in May last year, as part of the case investigation, the SBI arrested shares of gas distribution companies. There was no tragedy in that.
Firstly, the requirement that the distribution system operators should pay for the operation of that part of the networks in state ownership has long been recognized as economically and legally absurd. Several decisions of the Supreme Court clearly define: gas distribution companies do not have sources to pay for these costs, so consumers must compensate them.
So we continued to work. I said absolutely calmly: "Guys, there is a war in the country; we need to restore what has been destroyed." We could not imagine that the problems in the framework of this case would affect operational activities – that is, directly on the ability to distribute gas to consumers and carry out repairs and restoration in the places of destruction.
Secondly, it is necessary to separate the seizure of corporate rights and the illegitimate change of supervisory boards – this is the shareholders' relationship with the state. But the appointment of boards is an operational activity.
I never thought that the seizure of corporate rights in May 2022 would end with interference in the operational activities of critical infrastructure enterprises in early 2023.
Let's take, for example, "Kharkivmiskgaz". In February 2022, the chairman and board of the company remained in the city and, together with locksmiths in body armor and helmets, patched crushed 500-mm and 700-mm gas pipes under rocket fire by the racists to prevent Kharkiv from turning into a huge Alchevsk. In February this year, the head of the Kharkiv regional administration, Oleg Synegubov, honored two company employees with honorary awards from the President of Ukraine. And on March 17, these people are put on the street and say: "Goodbye." These are the specific consequences of illegal interference in the operational activities of the enterprise.
While you are trying to reach someone, companies are taking away from you. By the end of the year, they say they plan to take all the companies. How do you see this year?
My task as a leader is to do everything possible to start a constructive dialogue and cooperation with all market participants. Naftogaz and gas distribution companies are market participants. I see no reason for a conflict between us.
Someone may have a personal desire to build a new model of the market for themselves. But I know this model is wrong. And I want to convey to the state's leadership that the distortion of the market model will not benefit the development of the industry, gas consumers, and the country.
What is embedded in this model? How do they see this process?
There are two models.
The first is the European one, which is being built considering the requirements of the Third Energy Package of the EU. It has been implemented in Ukraine since 2015. And at the beginning of 2022, the foundation was created for the integration of the gas industry of Ukraine into the European space.
In this model, each market participant is an independent player, and they all develop promising and innovative projects. For example, a biomethane project or LNG terminal is an independent, innovative chain in the natural gas market in Europe. Within the European model, no single vertical exists, and all players work in market conditions.
The second option is non-market.
Is that what they're trying to promote now?
Yes. Its essence lies in the fact that there is an absolute vertical of power in the industry. And everyone on the team follows instructions from one person or group. This option is now being implemented in Ukraine. It's corrupt and dead-end.
There were statements that they wanted to make an IPO in the future and thus sell part of the gas distribution networks.
I don't know about that. But I know a completely Soviet, vertically integrated, non-market model is being built. According to my data, the previous head of Naftogaz handed it to the Office of the President.
Yuri Yurievich?
Yes. He brought the Soviet model, making it impossible to develop our country's European natural gas market. Now the country's leadership is again slipping into a dead-end model of the gas market.
How can this affect our integration into the European Union?
It just makes integration impossible. This model does not comply with European directives and laws but is very similar to the one in Russia. Simply saying, there is no gas market in Russia, but there is one in Europe. The Soviet monopoly cannot be integrated into the European space.
Let's return to UA H 17 billiYAHf debts of gas distribution companies to GTSOU, which sounds everywhere. Can you explain how these debts came about? Sergei Makogon believes that these debts will not be repaid. Can they get them back?
Look at the debts. Since 2014 and today, tariffs for natural gas distribution have been unprofitable. And the state recognizes this fact – a law was adopted stating that gas distribution enterprises were damaged.
Within the framework of this law, gas distribution enterprises are included in the register of companies that must receive compensation from the state for damage caused. That is, the state admitted that it caused damage to gas distribution enterprises during this period.
The law also stipulates that the state must compensate for everything that will be verified. Debt obligations not passing the verification process must be restructured and recovered from the enterprise — a clear and understandable model.
Secondly, the emergence of debts on the market is a consequence of the unprofitability of the distribution tariff. There is a reason – there is an effect.
What is the share of debt on your operators of these 17 billion?
If under the RGC brand, the distribution of 70% of gas volumes is carried out, then approximately the same. All gas distribution companies have debt obligations, including Kirovogradgaz, which has been managed by Naftogaz management for five years.
There is no miracle in the market. If there are unprofitable tariffs, then there will be debts.
By the way, about this law, about solving the debt problem in the gas market – why is it still not implemented?
As far as I understand, the law only waits for the funding source. Now the critical task of the state's leadership is to finance the country's protection from armed aggression. What kind of compensation can be now...
Now the Ministry of Energy calls the amount of damage from Russian attacks outlined by tens of billions of dollars. But this primarily concerns the electric power infrastructure. What about the gas infrastructure? How much was it damaged?
We estimate the damage to gas networks caused by Russian aggression approaching UAH 8 billion. But the final figure will be detailed after the de-occupation. There are consumers in the still-occupied territories or where military operations are being conducted – the Zaporizhzhia region, part of Kharkiv.
It is estimated that up to 10% of critical infrastructure was damaged during the war. What have we done to rectify the situation? Thanks to the introduction of unified European technologies and our production of gas-regulating equipment, since the beginning of the full-scale war, we have resumed gas distribution for about 600 thousand families.
Are you planning to file a lawsuit against Russia?
First of all, the state will make claims to the aggressor. We are in dialogue with her and work within the framework of state initiatives. Our specialists are involved in preparing the necessary documents in working groups.
Let's return to the technologies, equipment, and engineering solutions that RGC is ready to export. Are these solutions being implemented in Ukraine? For example, the direction is developing in Europe when biomethane plants are connected to gas distribution networks.
Ukraine is our priority. The first biomethane plant in April was connected to gas distribution networks. This is an enterprise in the Chernihiv region. In this project, RMC acted as an investor: we advised, developed design and technical documentation for connection and technical specifications, and performed work on connecting to the network.
Do you have many contracts to connect such plants?
This is a new story in the Ukrainian market. It required a lot of work – no one in Ukraine knew how to connect a biomethane plant. We met with Europeans, gained experience, took equipment, and developed projects. Now we can clearly say: we know how to do this "from a to z" – from design to connection, reduction, etc.
Many investors are ready to invest in such plants in Ukraine. But they do not know what the market principles and critical issues are in implementing this biomethane as a type of natural gas. The first plant can be shown to everyone as a working model.
Regarding the introduction of gas regulating equipment produced by RGC into international markets...
We are ready for this. There is interest from international partners. Our RGC Production equipment has received ISO certificates. Now we are completing the certification of these products for the markets of several European countries.
How do you assess the prospects?
Positively. The quality of our products is at the level of European, and we are competitive in price.
During the war, you opened a second metrology center. How does this help our energy field in war times?
The problem is that if the calibration of meters is done on obsolete Soviet equipment, then half of the meters returned to consumers do not meet the standards – they count gas with an error. Therefore, we have created an enterprise with the most advanced German, Finnish and American equipment so that the meters that consumers receive work clearly for all eight years.
Due to the war and migration of the population, gas consumption increased in the west of Ukraine. Therefore, opening a metrological center in Ivano-Frankivsk is a logical step for the effective operation of gas distribution enterprises.
According to our pre-war plans, there should be five such metrological centers. During the fighting, we saved part of the metrological center and moved it from Kharkiv to Khmelnytskyi, so we have almost 2.5 of them. But one for today is annexed with "Kharkivgaz" and doesn't work.
As part of this concentration, as Naftogaz calls the story with regional gas, they also took over a network of gas stations and plan to take away other assets. This giant, which is being built in Naftogaz, how dangerous is it for Ukraine, for the market, and our accession to the EU?
I am not an expert in the motor fuel market. Regarding the gas industry: I believe that the total monopoly that is being built cannot be integrated into the European space because it does not correspond to the Third Energy Package of the EU, especially when such a monster is created by raider seizures of independent companies with subsequent misguided interference in their operational activities.
RGC is ready for dialogue; to explain how the gas distribution industry works, its problems, and how to make it more efficient. This requires constructive work.
