Briskly integrates oil

The Ministry of Fuel and Energy of Ukraine again intends to push aside the Privat group

The Ministry of Fuel and Energy of Ukraine intends to create a vertically integrated company in the oil and gas industry. “We are considering directions for reforming the industry and creating a vertically integrated company that will combine assets in production, processing, and sales,” said the head of the department, Yuriy Boyko, yesterday during the conference “Energy problems of Europe and issues of Russian-Ukrainian cooperation.” The minister emphasized that the state is not satisfied with the current situation in the country's oil and gas sector, in particular the production indicators of Ukrnafta. “Therefore, we are resuming negotiations with private shareholders, and I am confident that we will develop a strategy that will increase production indicators and, if necessary, make personnel changes,” Mr. Boyko noted. Igor Kolomoisky’s Privat group, which actually controls Ukrnafta and has built a vertically integrated holding in the oil industry, apparently needs to prepare for another attempt by the state to return the asset.

The state concern Naftogaz of Ukraine owns 50% plus one share of Ukrnafta. But since 2003, the management of the oil company has been acting in the interests of the Privat group, which has consolidated about 42% of the shares of Ukrnafta (in order to hold a meeting of shareholders and take control into its own hands, Naftogaz, according to the law on joint stock companies, needs 60%) . By disrupting dangerous shareholder meetings, Ukrnafta minority shareholders managed to keep the company under control and even successfully resist the monopoly. Thus, in 2010, one of the key points of disagreement between Ukrnafta and the state was the company’s refusal to sell the extracted natural gas to Naftogaz, which is required by the law on the state budget. Ukrnafta considered the price offered by the state company to be too low and refused to sign the contract. As a result, using court decisions, Ukrnafta sold gas at a higher price to industrial enterprises.

The basis for a new attack from the state was a sharp drop in Ukrnafta’s production over the nine months of 2010. Thus, oil and gas condensate production amounted to 1.89 million tons, which is 12.9% less than in the same period last year, natural gas production fell to 1.87 billion cubic meters (17.6% less).

Privat also controls the Kremenchug (Ukrtatnafta), Drohobych and Nadvirnyansky oil refineries, about 1.5 thousand gas stations, oil depots and oil transshipment in the Odessa port, as well as the state monopolist for oil transportation - Ukrtransnafta. These assets, primarily the Kremenchug plant, may become targets for the campaign that Mr. Boyko has promised to launch. The state owns 43% of the shares of Ukrtatnafta. The precarious balance reached between representatives of the Privat group and the state at the meeting of the company’s shareholders on July 14, 2010 may be torpedoed by plans to create a vertically integrated oil company. At the same time, Russian shareholders of Ukrtatnafta (Tatneft), who demand the return of property rights to the enterprise lost during Yulia Tymoshenko's premiership, could become potential allies of Yuriy Boyko.

A fairly simple and effective tool for fighting Privat for oil assets is already clear - amending the legislation. A bill to reduce the required quorum for a shareholders meeting from 60 to 50% of votes was submitted by the government to the Verkhovna Rada back in June. And if it is accepted, then returning control over Ukrnafta will be a matter of time and technology.

Meanwhile, Naftogaz has already begun the construction of an oil holding company “on the other hand”, having applied to the Antimonopoly Committee with a request for permission to purchase 100 gas stations in Ukraine. But without control over the financial and production flows of Ukrnafta, this is a meaningless event.

Privat does not comment on the situation. Moreover, Mr. Kolomoisky’s group does not officially confirm that it controls the state’s oil assets.

Dmitry MARUNICH, Kyiv