Point of view

More gas importers in Ukraine despite delayed tariff changes

13 May 2016 
10:04 Source:ICIS

The number of independent gas importers in Ukraine has increased over the past two months, despite the failure to introduce anticipated changes to transport tariffs designed to make it easier for cash-strapped firms to import gas from Europe.

According to network operator Ukrtransgaz, 12 independent companies imported gas from Europe in March and April, increasing from just six in January and February.

President of the Association of Gas Traders of Ukraine Andrei Mizovets said the rise was due to a drop in gas prices on the European hubs, with the price for imported gas being close to that from Ukrainian domestic producers.

Entry and exit tariffs

Regulations introduced on 1 January have forced gas importers to pay an entry charge of $12.47/thousand cubic meters (kcm), which a lot of companies said had put them in a disadvantaged position. The tariff was introduced after Ukraine adopted new gas transport and transit rules in line with standard EU regulations.

Energy regulator NERC had planned that from 1 April the same entry charges would be implemented for domestic producers connecting to the pipeline system, making the situation easier for independent importers.

But in late April the Ukrainian government introduced a single price for residential consumers. Transport tariffs, as well as cross-border entry tariffs, have been included in the price formula, while regulation that would set up an exit point has not been adopted.

“They introduced the entry for cross-border flows, but did not set up the exit,” a NERC representative said, adding that without relevant legislation it was impossible for the regulator to introduce a tariff for entry and exit points from the pipeline system located on the territory of Ukraine.

When the introduction of a single price for residential consumers was discussed, the regulator proposed that its formula only include the price of gas as a physical product, with entry-exit tariffs set up separately.

The NERC representative said that the agency was going to call on the Ukrainian government, as well as the International Monetary Fund – one of the Ukraine’s creditors while the country goes through an energy market reform – to implement the plan proposed by the regulator.

“The gas market reform cannot be completed without introducing an exit tariff,” the representative said.

The cross-border entry tariff introduced in January put pressure on independent importers, with some of those previously importing gas from abroad saying earlier this year that buying gas from domestic producers had become more profitable than flowing gas from Europe.

On Thursday, one trader active in the Ukrainian market, who preferred to be unidentified, said that the entry tariff was discriminatory as it inflated the import price.

Andrei Mizovets said that the current entry tariff should be more flexible to changes in gas demand, which would make imports from Europe affordable to more Ukrainian firms.

“There is a single [entry] tariff in Ukraine regardless of the time when entry capacity is booked,” said Mizovets. “Ukraine is yet to come to the system of tariffs that would go up or down depending on gas demand,” he said, adding that relevant changes should be introduced as soon as possible within the energy market reform.