On 18 September 2019, the Ukrainian cabinet approved a new plan for restructuring the national joint-stock company Naftogaz and a new model for unbundling of the Ukrainian gas-transmission system (GTS).

Introduced before the third round of trilateral Ukraine-Russia-EU talks on gas transit, this plan is the third unbundling model approved by the Ukrainian government. GTS unbundling is designed to ensure the certification of the natural gas transmission system operator (TSO) by 1 January 2020 and the conclusion of a new gas-transit agreement between Ukraine and Russia. Note that the cabinet resolution On Unbundling of Natural Gas Transmission Activity and Ensuring Operation of Gas Transmission System Operator No. 840 (18 September 2019) changes the unbundling model from Ownership Unbundling (OU) to Independent System Operator (ISO).

The cabinet also decided to give the Ukrainian Ministry of Finance of Ukraine (MinFin) powers to manage the Joint Stock Company Main Gas Pipelines of Ukraine (MGU) through government decree Issues of Management of Joint Stock Company Main Gas Pipelines of Ukraine No. 791-p.

A comparison of the current GTS management structure with the new ISO unbundling target model is illustrated below.

From the above graphic, note that CMU is the Cabinet of Ministers of Ukraine, Ukrtransgaz – Joint Stock Company "Ukrtransgaz" is 100% owned by Naftogaz, and GTSO LLC refers to the Limited Liability Company "Gas Transmission System Operator".

The plan recommends taking the following steps for achieving the target model:

The Government’s and Ministries’ Measures and Actions

Deadline

1.

Submitting a draft law to the cabinet amending certain laws in relation to unbundling of gas transmission activity (Unbundling Law); and ensuring its urgent adoption by the Ukrainian parliament.

10 October 2019

2.

Transferring Ukrtransgaz capital assets, necessary for natural gas transmission, into GTSO LLC share capital.

1 December 2019

3.

Performing an independent share valuation for GTSO LLC share capital before its alienation to the MGU.

1 December 2019

4.

Preparing a draft agreement for sale and purchase of a 100% share in GTSO LLC charter capital, which will be concluded under the following terms:

  • Share purchase price should be calculated according to dynamic pricing method and reflect the results of GTSO LLC operations according to a formula agreed upon by the parties.
  • Share purchase price should be paid in multiple installments over 15 years.
  • The MGU should become the 100% owner of the GTSO LLC on 1 January 2020.

1 November 2019

5.

By 1 January 2020, but not earlier than the date of entry of the Unbundling Law, GTSO LLC should have irrevocably received the state-owned assets necessary for natural gas transmission under the right of commercial management for a period of 15 years. The state-owned assets should be transferred based on the commercial management right contract.

1 January 2020

6.

Submitting a draft act to the cabinet, defining MinFin as the authority empowered to manage state-owned assets necessary for natural gas transmission.

1 November 2019

The unbundling plan does not set any guidance for further operation of underground gas storage assets, which would remain with the Naftogaz group. Historically, gas storage was integrated with the transmission system and both of these systems were operated by the same entity. Separating such assets would generally require establishing clear rules (i.e. a service-level agreement) between the two operators and address a number of important technical aspects (i.e. pressure management) to optimise the operating costs of the interconnected systems.