KIEV, Jan. 10 – Naftogaz Ukrayiny, the shipper of Russian natural gas to the European Union, warned on Thursday that excessive taxes will probably force the company to reduce investments upgrading its gas pipeline network.
The warning comes as Naftogaz faces mounting financial challenges as its three major lines of gas business, including gas transit, gas extraction and gas distribution, face losses.
In the meantime, Prime Minister Yulia Tymoshenko has been taking steps to improve Naftogaz’s finances by removing UkrGaz-Energo, a dominant gas supplier in Ukraine.
However, Tymoshenko has so far refused to let Naftogaz increase gas prices the company charges households for gas supplies, leaving the prices well below the market level.
Tymoshenko was also steadily seeking to increase tax burden on Naftogaz using the state company’s revenue as a cash cow to cover the government’s growing social expenses.
Naftogaz, Ukraine’s biggest taxpayer, is currently responsible for 12.7% of the government’s overall budget revenue, up from 8% three years ago, suggesting the tax burden has been increasing.
Naftogaz paid 13.3 billion hryvnias in taxes and fees to the government in 2007, but the tax burden was likely to increase this year, according to Yuriy Boyko, a former energy and fuel minister and Tymoshenko’s long time foe.
“There is a further increase in the tax burden on the company in the 2008 budget,” Boyko said in a statement.
Boyko said UkrTransGaz, a Naftogaz subsidiary responsible for European gas transit, will face an increase in taxes by almost 1 billion hryvnias in 2008, offsetting a gain of UAH640 million that the company had expected to get from charging Russia a higher gas transit fee.
“This, coupled with the increase of price of technological gas [used to ensure the transit] will make UkrTransGaz unprofitable for the first time in history,” Boyko said.
Naftogaz moves about 110 billion cubic meters of Russian gas to markets in the European Union, up to 80% of Russia’s overall Europe-bound gas supplies. Russia supplies a quarter of Europe’s gas needs.
Boyko said that Naftogaz’s gas distribution business alone faces UAH5.7 billion in losses in 2008 due to a difference in prices of imported gas and domestic prices.
But the government plans to reimburse Naftogaz only UAH2 billion in this business, while an additional UAH2.34 billion it envisages from privatization revenue that are not guaranteed.
“By its unprofessional actions, the Tymoshenko government has created conditions for Naftogaz default in 2008 and will lead to destruction of Ukraine’s energy complex,” Boyko said. (sb/ez)