On the first day of May, the reform of the gas sector in Ukraine was expected to reach a qualitatively new level. State Company Ukrtransgaz was going to switch to daily balancing in the test mode. At least it seemed a half a year ago.
With this idea, the Heads of Naftogaz, which includes UTG, for a year and a half, spoke in various events, praising the reform. The introduction of daily balancing is also part of the commitments that Ukraine has assumed before the European Energy Community.
If on the way to the implementation of the main point - unbundling of Naftogaz of Ukraine - there were obstacles on the part of Russian Gazprom, in this case it is only necessary to launch a special electronic platform for the Gas Transmission System Operator - the UTG branch.
The Hungarian vendor IP Systems won the tender for the development of such a platform. The budget of the project amounted to 98 million UAH. In December last year UTG introduced a platform for industrial exploitation. At the same time, NKREKP determined the timing for starting daily balancing: from May 1, 2018, in the test mode, from August 1 - a full transition to a new model of the market.
However, over the course of 5 months the situation has been replayed cardinally. The state-owned company unofficially stated that the system did not work properly, it was confirmed by Ernst & Young audit. A special working group on this issue will meet this week, but at the moment it can be stated that the reform did not begin on May 1.
Market participants suspect that in this way the management of the holding is trying not to lose its influence. Under the existing conditions, it remains possible to allow traders to pipe manually and earn on closing "unbalances".
Earn on paper
Today in Ukraine there is a single Gas Transmission System Operator - the branch of Uktransgaz, which is also called "GTS Operator". Each supplier must arrange with the pipe operator, when, where and how much gas one wants to transport, and pay for the pumped volume.
For this, the customer of the transportation services submits relevant application - a nomination to the UTG. Now such a process takes place manually, the originals of the relevant documents and the reporting must be submitted in paper form. The nomination is given once a month.
It has financial risks for traders, first of all those who work with imported gas, and such a majority. Fluctuations in foreign markets are difficult to predict, therefore, in the event of a sharp change in prices, a supplier is losing out, as the volumes for transportation are also being prepared for the month ahead.
Another problem is the so-called "imbalances", that is, the situation in which the actual volumes of gas consumed differ from those indicated in the nomination. In the case of a positive imbalance, the GTS Operator pays the supplier for unused gas remaining in the system.
However, the situation of a negative imbalance is more often encountered, when Ukrtransgaz covers the shortage, but then issues an invoice to the customer: as a rule, the price for this gas is much higher than the market. However, there is another option - to agree.
One of the market participants explains that the unbalances are aligned after the end of the gas month. That is, in the current situation, one can arrive at the end of the month and ask to adjust the volumes backdated.
"In this system, now it is very convenient to work for regional gas dividers (Oblgaz), and there is little control for NAK . If everything goes in paper form for a month, then everywhere you can get into the system and make changes at any time ", - convinced the interlocutor.
Secretary of the Parliamentary Committee on Fuel and Energy complex Viktoria Voitsytska also believes that the current state of affairs is quite satisfactory both Naftogaz and UTG controlled by it.
"Today, like many years before, it is easy to fish in troubled waters for UTG management with "paper" nominations. Another reason for the lack of interest of the current Naftogaz and Transgaz team in the introduction of civilized rules of the game in the gas market is the possibility of washing working capital of UTG in favor of NAK", - said the People's Deputy.
She explains that the gas for balancing the UTG System today contracts with Naftogaz, including lots of several hundred million cubic meters at prices higher than exchanges. That is, in manual mode, the GTS Operator can "put" at NAK additional hundreds of millions of Hryvnias a month. Other market participants pay for this.
Imperfection of the current system at the end of last year was confirmed by the Chief Commercial Director of Naftogaz of Ukraine Iurii Vitrenko. According to him, the imbalances are now closed in physical form.
"Everyone then comes and says: here I bought this gas and I give it, although his client could buy this gas not yesterday but last month. All this is wrong and often works in a distorted form. The new mechanism will give each market participant an incentive to balance itself by buying or selling appropriate volumes of gas on the market," he added.
Work in a new way
On December 27, 2017, the NKREKP adopted a resolution "On Approval of Changes to Certain Decisions of the NKREKP Regarding the Introduction of Daily Balancing in the Natural Gas Market". In fact, it is also prescribed a new mechanism, which Vitrenko said about.
Under the new rules that come into force on August 1, 2018 (testing had to be started on May 1) the market is moving into a daily model, as has long been happening in European countries. This means the daily nomination, the allocation, and the closure of imbalances.
It is clear that UTG can not physically process this data amount in manual mode, as it is today. This requires a special electronic platform to which transportation service customers have access.
A year ago, the Head of the of Commercial Dispatching Department of Ukrtransgaz Oleksandr Stremoukh spoke about it:
"First of all it is necessary for the Gas Transmission System Operator to introduce an IT product for the daily balancing that will give an opportunity to depart from paper workflow, order services on a daily basis, inform customers of transportation services about the forecast imbalance and to calculate a daily balance," he explained.
The Hungarian company IP Systems won the tender for the development of such software. The contract on 98 million UAH was signed in January 2017. Already in December last year, Ukrtransgaz received a ready platform, there were no complaints about it, in this regard, any relationship between the vendor and UTG was officially concluded.
Two weeks before planned start of daily balancing testing acting President of Uktransgaz Myroslav Khymka dismissed and transferred to the post of Adviser to the Head of UTG branch "GTS Operator of Ukraine".
According to the source of the Economichna Pravda on the market, the cause of dismissal were the results of the Ernst & Young audit of April 13 of the IP-TSO platform developed by the Hungarian vendor. The contract was signed by Khymka. "The results of the audit of the act of acceptance of performed work were extremely negative," - said the interlocutor.
At INSIDER disposal was the conclusion of the E & Y audit. It clearly states that the audit was conducted on the basis of documents provided by the UTG regarding this project, as well as auditors interviews with the heads and employees of the state-owned company and representatives of IP Systems. That is, E & Y did not test the system for the purpose of troubleshooting detection.
Also interesting is the clause, according to which the auditor doesn’t carry responsibility for the authenticity of the data received from both parties. They say that an independent check of their accuracy or completeness was not carried out.
Actually, the auditor really recommended at this stage not to enter the system into operation. But not because it does not work, but because there were too many mistakes made by the project management in terms of setting the task, controlling the work execution and accepting the final version of the platform on the balance sheet.
And here is an interesting point: Ukrtransgaz did not officially report about problems with IP-TSO. Everything that is known at the moment about the impossibility of introducing a software complex into work, market participants retell each other.
Hungarians claim that their product is successfully operating in a number of European countries and Ukraine has not become an exception. In support of this, last week the vendor additionally held testing for all those who wanted. UTG is still silent and even more: according to the publication, the state-owned company ignores attempts by IP Systems to contact and solve problems, if they really exist.
In the INSIDER comments, the Press Secretary of Ukrtransgaz Igor Kravchyshyn stated that market participants already have access to the platform and even "can carry out some actions within the system", but it will be further improved.
"Inside we have different visions of how it should further develop. There will be a working group meeting this week and a decision will be taken there of how we move, whether we finalize it or how. It is launched in the test now - it's a fact ", - added the UTG representative.
Also, according to him, the dismissal of Myroslav Khymka and the findings of the E & Y audit are not interrelated. Like, the contract of acting president of Ukrtransgaz has expired and after the end of the heating season, he moved to another position.
What do we lose
On April 26, the European Business Association addressed a letter to the Prime Minister Volodymyr Groisman asking him to influence the situation with the implementation of daily balancing and prevent a breakthrough in the reform of the natural gas market.
Association experts believe that the current situation will lead to a delay in the reform for 2-3 years, which will make impossible for Ukraine the fulfillment of its obligations and questions the further cooperation with international partners.
The EBA also reminded that Ukraine promised to liberalize the gas market, in particular to hold unbundling and switch to daily balancing, in accordance with the Association Agreement with the European Union. And free pricing in this market is already a requirement of the International Monetary Fund.
"Daily balancing will enable the full-fledged market of short-term products (day ahead, intraday) and, as a consequence of the formation of the indicative price, provide an opportunity for exchange trading, provide traders with the opportunity to trade in gas volumes (ie without physical transportation)," - said in the above interview UTG manager Oleksandr Stremoukh.
People’s Deputy Viktoriia Voitsytska adds that the market infrastructure is ready for the introduction of daily balancing. Like, traders, operators of the Gas-distributing mechanism, trading platform - all declare their readiness to play according to European rules.
"As far as I know, the UTG system can be easily integrated with the systems of several Ukrainian exchanges. As we understand, exchange gas trading is a guarantee of openness and competitiveness, in particular, due to proposals for reducing gas prices," she explained.
In developed markets, the system operator purchases gas for balancing needs on exchange trading, which excludes a conflict of interest. UTG purchases almost all gas from Naftogaz through ProZorro. The lots are so large that other traders can hardly apply on these trades.
"Then the gas purchased by UTG (subsidiary company) at NAK (parent company) will close imbalances of other traders, at the price that will be determined by the UTG, and not by the market. An example of the past two months shows the closure of imbalances at high prices," said the source on the market.
Advantages of the new market model concern not only suppliers and their counterparts, but also domestic consumers. Thus, there are prerequisites for the destruction of the gas monopoly, about 80% of which are now controlled by the oligarch Dmitry Firtash, and subsequently lower prices.
"When we can switch to daily balancing, the financial burden of suppliers will automatically decrease, which will affect price of gas. A full-fledged market of bilateral agreements and exchange trading will be launched, where both import resources and domestic producers can be traded. This will stimulate entry into the Ukrainian market of large European companies that will come here with cheap resources and create competition ", - summarizes Stremoukh.
The "non-opening" of the market globally will lead to the loss of other European importers. The contract with Russian Gazprom for transit will end in 2019. If by this time the market is still mothballed, there will not be a gas hub also "dreamed" by the leadership of NAK. That's when the real problems will start.