UKRAINE’S ENERGY SECTOR

Oil & Natural Gas

NAFTOGAZ UKRAINY – ownership structure graph below

State-owned Naftogaz Ukrainy is the country's leading energy company, whose subsidiaries account for over 97% of Ukraine's oil and gas output. Naftogaz Ukrainiy consists of a number of operating departments with responsibility for exploration and production of natural gas (Ukrgazvydobuvannya), exploration and production of oil (Ukrnafta – which is now partly privatized), offshore oil and gas exploration and production from the Black and Azov Seas (Chornomornaftogaz), gas transportation and distribution (Ukrtransgaz), oil transportation (Ukrtransnafta) and gas marketing and sales (Gaz Ukrainiy).

Although Naftogaz and the oil and gas sector are regulated and supervised by the government and relevant state authorities, in practice the government does not have sufficient control over this sector due to the interests of private groups such as Privat Bank which own large stakes in some of the key subsidiaries of Naftogaz. For instance 40% of Ukrnafta, the main oil producer in Ukraine, is owned by the local oligarch-owned Privat Bank. Despite Naftogaz’ majority ownership (50% plus one share), Ukrnafta is still in practice controlled by Privat Bank due to its significant presence on the board of directors.

Privat Group - The Privat Group, based in the Dnipropetrovsk Oblast, is controlled by the Ukrainian businessmen Henadiy Boholyubov, Oleksiy Martynov, and Ihor Kolomoysky. Privat Group controls steel, oil, chemical, energy and food industry companies in Ukraine, Russia, Romania and the United States. Most businesses of the group (including Privatbank itself) are based in Dnipropetrovsk Oblast. Being a business oligarch entity, Privat Group controls several Ukrainian media, maintains close relations with politicians and sponsors professional sports. Yulia Tymoshenko is seeking to obtain influence over a TV channel through the Dnipropetrovsk-based Privat oligarch group. Tymoshenko denied having special sympathies for Privat, stating in July 2005 that the relationship was purely based on official business.

Ukrnafta – UkrNafta ("Ukraine's Petroleum") is Ukraine's biggest oil extractor, accounting for 75 percent of the nation's extraction of petroleum and gas condensate. The national joint-stock company NaftoGaz Ukrainy ("Ukraine's Petroleum & Gas") owns the 50 percent plus one stock parcel of the UkrNafta's stocks. The group Privat holds 41 percent of the UkrNafta company's stocks.

Ukrtransnafta - Ukrtransnafta, Ukraine's oil transportation monopolist, is owned 100 percent by Naftogaz Ukrainy. The company plans to increase oil transportation in 2007 from 2006 by 19% year-on-year, to 53.4 million tons.

Gaz Ukrainy & Ukrgazmerezhi - Gaz Ukrainy is about to transfer a number of gas distribution networks, which are currently managed by regional gas supplying companies, to its subsidiary Ukrgazmerezhi. Majority of the gas distribution networks in Ukraine are in state ownership and not subject to privatization. The State Property Fund transferred the state gas distribution networks to National JSC Naftogaz Ukrainy, which in turn delegated the management to its subsidiary Gaz Ukrainy. Gaz Ukrainy in February 2007 founded a 100% subsidiary, Ukrgazmerezhi, to service state gas distribution networks and improve their technical and financial performance.

The networks are in the Autonomous Republic of Crimea and 14 Ukrainian regions - Vinnytsia region, Volyn region, Zakarpattia region, Ivano-Frankivsk region, Kyiv region, Luhansk region, Lviv region, Odesa region, Poltava region, Sumy region, Ternopil region, Kharkiv region, Kherson region and Chernihiv region.

Ukrtatnafta - Ukrtatnafta accounts for around 35 percent of Ukraine’s petroleum product market. Ukraine’s government has, until recently, owned 43 percent of Ukrtatnafta, its share managed by Naftogaz Ukrainy. The Russian firm Tatneft owns 8.6 percent; the government of Tatarstan owns 28.8 percent, while AmRuz and Sea Group -- which are affiliated with Tatneft -- own 18.3 percent. The registrar of the company, Ukrneftegaz, recently transferred 18.3 percent of the company’s stock from the Tatar shareholder’s nominal holder, AB ING Bank of Ukraine, to Naftogaz – bringing its shares in the company to 61.3 percent. Tatneft is currently disputing the action in the Poltava Regional economic court.

Ukraine is attempting to consolidate its control over the company, or at least keep it out of Russian hands. Now that Naftogaz Ukrainy has gained a majority share in the company, it plans to vote out chairman Sergey Glushko -- who is loyal to Tatneft -- during a June 30 shareholders meeting. Additionally, Ukraine’s Prime Minister Viktor Yanukovich said at the beginning of June that Ukraine plans to regain control of Ukrtatnafta.

Yanukovich - Ukraine’s Prime Minister Viktor Yanukovich is a protégé of retiring President Leonid Kuchma. The figurehead of Donetsk’s political and business groups, he is regarded as a virtual family retainer of the Kuchma clan. He is a close associate of Kuchma’s son-in-law, Viktor Pinchuk, and his business partner, Rinat Akhmetov. Pinchuk is one of the major political-industrial figures coming from the Dnipropetrovsk Oblast, where Privat is also based. Pinchuk is in a permanent business conflict with the Privat Group.

Nadra Ukrainy – State-owned Nadra Ukrainiy is a daughter company of Naftogaz Ukrainy; its main tasks include exploration for new resources of oil and gas in Ukraine. Subsidiary companies of Nadra Ukrainiy include organisations such as Poltavanaftogazgeologia, Chernigivnaftogazgeologia and Zahidukrgeologia (West Ukraine Geology)

Outside of Naftogaz Ukrainy?

RosUkrEnergo - Ukrainian-Russian natural gas company RosUkrEnergo is Ukraine’s only natural gas importer. Swiss-registered RosUkrEnergo emerged as the only supplier of gas to Ukraine after OAO Gazprom, Russia's state-controlled gas exporter, cut off shipments to the country for four days in January 2006, when Ukraine rejected Gazprom's move to quadruple its prices. The dispute was resolved after Ukraine agreed to pay twice what it had been paying. RosUkrEnergo, 50 percent owned by Gazprom, became the sole supplier through 2011. Ukrainian natural gas tycoon Dmitry Firtash owns 45 percent of RosUkrEnergo via his ownership of Austrian Centrogas.

Europe gets about a quarter of its gas from Russia. About four-fifths of that flows through pipelines across Ukraine. However, most of the gas it ships to Ukraine comes from Turkmenistan, a former Soviet republic in central Asia, which sells its fuel for less than Russia.

Firtash - Firtash owns the Hungarian gas trader Emfesz Kft and 45 percent of Ukraine's only natural-gas supplier, RosUkrEnergo AG, and plans to roll them into his new company, Group Dmitry Firtash, or GDF. His energy, chemical, and pipeline construction businesses have all been consolidated into GDF. Energy makes up as much as 85 percent of the new company's business. Firtash has his eyes on purchasing Hungary's Főgáz, in which Gazprom is also interested.

INNER STRUGGLE? (from Kiev Weekly,

Despite a more or less concerted position in the public sphere (i.e. a balanced policy with the achievement of maximum economic benefit for Ukraine) members of the energy bloc are in fact waging a harsh war for influence on the energy sector management on the one hand and for a lead role in dialogue with the Russian side on the other hand.

The members of the first group of such politicians are referred to as “economists” represented in Russia by Vice Premier Dmitriy Medvedev and in Ukraine by Fuel and Energy Minister Yuriy Boiko and the former first aide to President Leonid Kuchma and the current head of the premier’s staff Serhiy Lyovochkyn. Today their activity is to a great degree focused on replacing the owners of gas distribution networks. Meanwhile, the Russian side is expected to preserve the current system of gas supplies via RosUkrEnergo as an intermediary or replacing it with by UkrGazEnergo, which is jointly owned by RosUkrEnergo and Naftogaz Ukrainy.
The milieu of government functionaries within the inner circles of vice premiers Andriy Klyuyev and Mykola Azarov are being called rivals of the Boiko–Lyovochkin group. The main ideologists of direct gas supplies without any intermediaries are united in the Klyuyev–Azarov group.

A more dangerous situation could become more real in which the rivals may simply divide the national gas market handing over the gas transport systems inside Ukraine to Boiko (via control over gas distribution networks) and giving gas supplies systems from abroad to Klyuyev and Azarov (via control over the main gas pipe lines). Then, taking into account the geopolitical preferences of both of the influential groups, Ukraine may find itself one step away from losing its last trump card in the big energy game on the continent and the chance to independently form its own energy, economic and state policy.

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