Why did Chernyshev’s Naftogaz go up?

According to the results of the first half of 2023, Naftogaz received a net profit of 6.6 billion hryvnia, despite the fact that last year the company had a colossal loss of almost 40 billion hryvnia. The editorial journalists looked into where the gas monopolist got such high incomes, whether the published figures can be trusted, and why they appeared right now.

The Naftogaz Group received a profit of UAH 6.6 billion in the first half of 2023.

“The financial statements of the Naftogaz Group for the six months of 2023 were confirmed by an independent international audit company. The group managed to significantly improve its consolidated net profit for the first half of 2023, which amounted to UAH 6.6 billion,” says a statement on the Naftogaz website.

The company recalled that for the same period in 2022 there was a loss of 57.2 billion hryvnia.

The report also notes that a significant improvement in financial results this year was achieved thanks to effective work with accounts receivable and the settlement of the issue of unauthorized gas withdrawal.

At the same time, the most unprofitable direction for Naftogaz during the reporting period was the sale of gas: “The negative result is a consequence of the supply of natural gas to consumers as part of the fulfillment of special obligations (PSO) at prices set by the state.”

However, according to the published financial statements of Naftogaz for the first six months of 2023, the company still sold part of the gas at a profit.

We are talking about the so-called “buffer” gas, which, unlike commercial gas, must always be in underground storage facilities, since it is this gas that ensures their normal operation, first of all, the pressure necessary to lift the fuel to the surface. In relation to Ukrainian underground gas storage facilities, they should contain 4.5-4.7 billion cubic meters of “buffer” gas.

However, Naftogaz decided to sell part of this gas.

“The sale of part of the active gas, which acts as a “buffer”, occurred as a result of the fact that during 2023 the company revised the assessment of the minimum required volumes of such gas, as well as the strategy for the use of natural gas in general,” the company’s financial statements say.

The sale of this gas provided income in the amount of 11.45 billion hryvnia.

In addition, since Naftogaz intends to continue selling “buffer” gas, the company’s management decided to reassess the cost of such gas upward.

“As a result, the additional valuation of gas in the amount of 10,703 million (10.7 billion - “Apostrophe”) hryvnia was reflected in other comprehensive income,” the financial statements say.

It is clarified that this gas was valued at market value, based on the price on the Ukrainian Energy Exchange as of the reporting date, which was UAH 10,786 per thousand cubic meters.

"Buffer" zone

Naftogaz does not report how much “buffer” gas was sold. In the expert community, the volumes of fuel sold are estimated differently - from 0.5 billion cubic meters to 2 billion cubic meters.

In any case, reducing the amount of untouchable gas can be quite dangerous.

“The norm was 4.5 billion cubic meters, and now it may even be more, because the less gas there is in the storage facilities, the more pressure needs to be created in them. Otherwise, storage facilities may lose their technological integrity. This game is very dangerous,” Vladimir Omelchenko, director of energy programs at the Razumkov Center, said in a commentary to Apostrophe.

However, it is quite possible that the sold “buffer” gas, at least, has not yet left the storage facilities.

“It is possible that some gas in the storage facilities simply changed its owner,” Gennady Ryabtsev, head of special projects at the Psyche scientific and technical center, suggested in a conversation with the publication.

In other words, this gas could actually be sold, but the buyer will “come in” for it later - with the onset of cold weather.

But in this case, Naftogaz will have to pump an equivalent volume into storage facilities in order to avoid the technological problems described above.

However, this will be quite difficult to do, given that during frosts gas will be intensively lifted from storage to meet the needs of the population and business.

By the way, during the same period, most likely, non-residents who are now storing it in our underground storage facilities will “come” for their gas - as of the end of October, we were talking about approximately 2.5 billion of such gas. Therefore, it will also have to be subtracted from the total volume that is pumped into storage facilities (by the beginning of the heating season, according to the head of NJSC Naftogaz of Ukraine Alexey Chernyshov, about 16 billion cubic meters have been accumulated in storage facilities).

The question of whether the country will then have enough resources to get through the autumn-winter period, or whether Naftogaz will have to buy the missing volumes on the European spot market - of course, at significantly higher prices than today - remains open.

"Black box

But let’s return to the financial statements of Naftogaz and its victorious reports about receiving, albeit very modest, but still profits (recall that in the first half of 2022 the company received a loss of 57.2 billion hryvnia, which is almost nine times more than this year’s profit in in the amount of 6.6 billion hryvnia).

In fact, experts have great doubts about Naftogaz’s assertion that gas sales are an unprofitable segment of the company’s activities.

“Naftogaz”, in fact, does not produce gas itself, but resells it, and from “Ukrgazvydobuvannya” ((a “subsidiary” company of NAC, which is part of the Naftogaz Group - “Apostrophe”) buys it clearly cheaper than it resells,” - explains Vladimir Omelchenko.

Moreover, after the Russian invasion, Naftogaz actually became a monopoly supplier of gas to end consumers, including the population.

“Even the price of 7.96 hryvnia (per 1 cubic meter), which is set for the population, still allows you to make a profit,” says Gennady Ryabtsev. “At the same time, expenses for everything else were reduced to a minimum.”

In this regard, there is no confidence in the transparency of Naftogaz’s activities.

Naftogaz has always been a “black box”, and now even more so. Even under Vitrenko (Yuri Vitrenko headed NAC from April 29, 2021 to November 1, 2022 - “Apostrophe”), although the information was monopolized by him, the openness of the company was quite high,” says Gennady Ryabtsev. “Now it is not at all possible to find out anything from the Naftogaz Group, and the media activity of both the Group and Chernyshov is close to zero.”

"Drawn" profit

Thus, we do not know whether Naftogaz actually has a profit, or whether it is, as experts say, “false.”

By the way, there are questions not only about the company’s profit data, but also about its losses. If we analyze the financial indicators of NJSC for different periods, what is striking is that losses are regularly replaced by profits and vice versa. At the same time, for some reason, profits appear with the arrival of a new manager at Naftogaz.

Let us recall that the current head of the company, Alexey Chernyshov, took office in November last year, and therefore he could not be held responsible for a loss of 40 billion hryvnia in 2022.

But this year there was a profit.

“Where did the profit come from? - They drew it. Why did you draw it? “To demonstrate the successes of the new management,” says Gennady Ryabtsev.

“They urgently needed to show profit,” agrees Vladimir Omelchenko. - As I understand it, Alexey Chernyshov sees himself in politics - as a prime minister or someone else, and therefore he needs to show positivity. This is all, of course, not bad, but to some extent artificial.”

Therefore, it is unlikely that anyone will be very surprised if, for example, next year, and perhaps even earlier, Naftogaz suddenly discovers large losses. But, as Scarlett O'Hara, the heroine of the novel Gone with the Wind, said, “I won’t think about it now, I’ll think about it tomorrow.”