Ukraine's Naftogaz said it would pay for last month's Russian gas supplies on time but Fitch signalled it might cut the energy company's rating due to doubts over future payment and Kiev's willingness to cover its debts. The Naftogaz statement on Tuesday sought to ease concerns there could be another gas row with Russia, a month after a three-week stand-off that led to supply cuts to millions of people in Europe in the depths of winter.
Ukrainian officials say the state energy firm must pay $400 million for February supplies. "The necessary amount has been put together. Now we are buying foreign currency. We will be paying on time," Naftogaz spokesman Valentyn Zemlyansky said by telephone. Naftogaz's finances have long been battered by steep annual increases in the prices it pays for Russian gas. It has had to sell gas domestically at more or less unchanged prices until late last year, when the authorities raised them.
This year's price rise for gas sold by Russian gas export monopoly Gazprom has been dramatic - Naftogaz is paying $360 per 1,000 cubic metres in the first quarter from $179.50 last year, although Ukrainian officials have said they expect the figure to come down steeply. Naftogaz says its ability to pay for Russian gas is complicated by huge debts owed to it by local utilities.
Ratings agency Fitch said it was putting the B- rating of Naftogaz, which has a $500 million Eurobond maturing in September, on RatingWatch Negative due to factors such as an inadequate level of state subsidies, local debts, falling industrial consumption and a weak currency exchange rate. A ratings cut makes it more expensive for companies to borrow on capital markets.
Gazprom spokesman Sergei Kupriyanov had said his company, which supplies a fifth of Europe's gas needs via Ukraine, has received assurances from Naftogaz that payment would be on time. But should Ukraine settle the bill late, future shipments of gas would be only made against advance payment, Russian President Dmitry Medvedev said this week.
THE WILL TO PAY? Political turmoil, a stalled $16.4 billion International Monetary Fund (IMF) loan programme and a fast sinking economy have prompted a raft of downgrades or suggestions Ukraine's ratings might be cut. Many analysts have said Ukraine's sovereign and quasi-sovereign debt repayments this year are relatively low, but Fitch on Tuesday questioned the government's willingness to cover the debts of Naftogaz as well as its own.
"Fitch is currently reviewing the strength of the government guarantees to Naftogaz, on both the government's capacity and willingness to honour it, if needed," sovereign analystAndrew Colquhoun told Reuters. "(This) is consistent with our growing doubts over sovereign willingness to service its own debt in very difficult circumstances, reflected in our recent downgrade of the sovereign."
Ukraine's Prime Minister Yulia Tymoshenko, who helped push through the gas supply deal with Gazprom in January, said domestic debts owed to Naftogaz had doubled since the start of the year. "The indebtedness of all consumers on the market is 10.7 billion hryvnias ($1.4 billion), growing 5 billion hryvnias since the start of the year," she told local utilities. She said industry was especially poor at paying debts.
Industries pay much higher prices for gas - making it profitable to sell to them, rather than households paying prices lower than those paid by Naftogaz to Gazprom. Naftogaz expects help from the government to cover losses of 9.5 billion hryvnias ($1.2 billion) this year thanks to government compensation for the difference in the wholesale and retail prices, the weekly newspaper Zerkalo Nedeli reported.
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