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Posted On

05
May
2022

Suppliers to not be able to comply with new PSO in gas market – profile association

KYIV. May 5 (Interfax-Ukraine) – The Regulation on Public Service Obligation (PSO) in the natural gas market, which came into force on May 1, 2022, poses significant threats to the market and consumers, since most suppliers will not be able to renegotiate contracts with NJSC Naftogaz Ukrainy in accordance with its terms, the Energy Suppliers Association believes.

"The PSO Regulation establishes rules that are unprecedented in their negative impact – unenforceable for suppliers, in particular in the context of Russia’s armed aggression against Ukraine, as well as openly directed in favor of one beneficiary – Naftogaz Group," the Association’s letter to the President’s Office, the Cabinet of Ministers, the Ministry of Energy and NJSC Naftogaz Ukrainy, to which it refers in a message on the website on Wednesday, says.

According to members of the Association, suppliers will not be able to fulfill, in particular, the requirement to provide a bank guarantee to conclude an agreement with Naftogaz.

They explain this by the lack of free working capital due to the low margin stipulated by the current contracts with Naftogaz Trading LLC, as well as by the drop in the level of payment of the population for the consumed gas during the war to 55%.

"In order to provide a bank guarantee, suppliers need to attract loans, which are currently impossible to obtain from banks," the Association notes.

In addition, again due to the fall in settlements, suppliers will not be able to comply with the requirement of the provision to limit the amount of supplier arrears for used gas, which should not exceed 10% of the cost of gas supplied in March.

In addition, the Association is convinced that the completion of the new PSO on September 30, that is, before the start of the heating period, creates risks for its stable passage.

"There is an objective threat that after the PSO completion, the price of gas will rise and suppliers will not be able to supply consumers with gas at the price included in the base annual tariff," the Association says.

Its participants called the approach to the development of a new PSO unbalanced, since, in their opinion, gas suppliers in the problem of non-payments bear all the economic and legal risks of the new mechanism, while other market participants will be completely "insured" against such debts.