October 31, 2019 / 5:56 PM / 17 days ago

Ukraine's parliament backs break-up of state gas behemoth in nod to EU

KIEV (Reuters) - Ukraine’s parliament on Thursday passed a law to establish an independent gas transit operator, a move aimed at creating a competitive domestic gas market and helping the country’s position in trilateral gas transit talks with the EU and Russia.

FILE PHOTO: A woman walks past the headquarters of the Ukrainian state energy company Naftogaz in central Kiev, Ukraine September 13, 2019. REUTERS/Valentyn Ogirenko

To comply with European energy rules, Ukraine has committed to split its state-owned Naftogaz energy firm into production and transportation companies. The government’s plan for the so-called “unbundling” of Naftogaz needed parliament’s approval.

Ukraine has prioritised its energy security following a collapse in relations with traditional supplier Russia after Moscow’s annexation of Crimea in 2014 and support for rebels in the eastern Donbass region.

Ukraine was dealt a blow this week when Denmark approved the Nord Stream 2 pipeline, designed by Moscow to bypass Ukraine. The United States and European countries worry the pipeline will increase Europe’s reliance on Russian gas.

The Kiev authorities have not bought gas directly from Russia since 2015 but Ukraine is in talks with Moscow and Brussels on a new deal for gas transiting through Ukraine to replace an agreement that expires on Dec. 31.

The EU had insisted Ukraine create an independent gas transit operator to conclude the new agreement.

“This is a historic moment in terms of protecting Ukrainian interests,” Energy Minister Oleksiy Orzhel told lawmakers ahead of the vote.

“I ask you to support this bill, it is extremely important in the framework of our negotiations with the Russian Federation,” he added.

Ukraine is one of the main routes by which Russian gas travels to Europe. Moscow’s construction of new pipelines such as Nord Stream 2 and TurkStream will shrink Russian gas transit through Ukraine to a trickle.

Last year, Kremlin-controlled gas giant Gazprom (GAZP.MM) supplied Europe with more than 200 billion cubic metres (bcm) of gas, of which 87 bcm went through Ukraine, providing Kiev with valuable transit income of around $3 billion.

Ukraine is concerned about a possible fall in Russian gas transit volumes this winter and Ukrainian gas transport company Ukrtransgaz has already upgraded several gas pumping stations so it can provide gas to eastern and southern regions of the country if there is a disruption in supply from Russia.

Ukraine has also built up a 10-year high volume of gas in its underground storage.

Kiev and Moscow have already held several rounds of negotiations. Russia wants to strike a short-term deal while Ukraine is seeking a long-term agreement to guarantee supply to its own consumers.

Writing by Matthias Williams; editing by David Evans

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