Ukraine Asks Lawmakers to Allow Naftogaz Sale, Pipeline Lease

Ukraine’s government submitted a bill to permit the sale of state-owned NAK Naftogaz Ukrainy and lease its natural gas pipelines and storage facilities as part of an overhaul of the loss-making energy company.

The draft law, which would annul a ban on selling Naftogaz and leasing its infrastructure, was submitted to parliament in the capital, Kiev, yesterday and released today on the legislature’s website.

Opposition politicians instigated the ban on the company’s sale in 2007 after Russian President Vladimir Putin said the Ukrainian government had made “some offers to Russia on the issue,” an assertion that was denied by then-Prime Minister Viktor Yanukovych, who’s now president.

Ukraine is seeking to trim the price it pays Russia for gas imports as it grapples with its second recession in four years. Attempts to secure aid from the International Monetary Fund have failed because of the government’s refusal to raise household fuel costs, a move the Washington-based lender has demanded to narrow the budget deficit.

Yanukovych said Feb. 22 that the country will probably lease its Soviet-era gas pipelines to secure funds for their maintenance. Russia is prepared to finance pipe upgrades and may reduce gas-import prices to its neighbor, he said.

The European Union has also pledged funds to improve pipelines, provided Ukraine splits Naftogaz into separate units for extraction, transportation and fuel deliveries. Ukraine had planned to set up a consortium with the EU and Russia to manage its pipeline network.

Naftogaz posted a net loss of 10.27 billion hryvnia ($1.26 billion) in 2012 as the cost of importing Russian gas exceeded the government-regulated price paid by households by about four times. The company’s losses are financed by the state budget.