Oshchadbank will lend the OPP UAH 5 bn for gas

State either run smoke. Transparency of the privatization tender in doubt

Photo: PHL

Premier Arseniy Yatsenyuk, as promised, took custody of the Odesa Port Plant (OPP). On December 3, he issued an order (published on December 4) according to which all government agencies have to help the company receive a UAH 5 bn loan from Oschadbank, “which will be used by the company exclusively for its own production needs” and will enable the enterprise to purchase natural gas from Naftogaz “on terms of 100% prepayment”. Perhaps, this is the first time that the OPP is experiencing such attention of the government to its operations over all the years of Ukraine’s independence.

Forced cooperation

This year, the OPP’s shortage of natural gas was indeed a major deterrent to its production activities. Even now, the company is working only half-steam due to the shortage of raw materials. In the second half of 2014, the company's management signed contracts with the German E.On for monthly reverse supplies of 60 mn cubic m of gas from Hungary.

Based on those contracts the company could receive gas from European traders in 2015, which, incidentally, meant that raw materials for the manufacturer were approximately 20% cheaper than gas from Naftogaz.

But on November 7 the Cabinet ordered a number of industrial consumers to enter into contracts for the purchase of fuel from Naftogaz. The OPP was not spared. Representatives of the company sincerely regret such an instruction. “Now, the reverse gas contracts have become a pain in the neck for our company. We do not know what to do with them. It was more profitable for the company to buy gas through this channel. But now nothing can be done. We are a state enterprise and are forced to follow the Cabinet’s orders,” complained a source at the OPP.

Terms of the new contract

The same source at the plant described the preliminary scheme of cooperation with Naftogaz. Oshchadbank will give the OPP a one-year loan of UAH 5 bn exclusively for the execution of the contract with Naftogaz with the possible extension of its validity. The State Property Fund (SPF) was ordered to monitor the use of the resources. Fertilizers produced from the gas will be security for the loan.

The OPP will receive 740 mn cubic m of gas to be pumped into underground storage facilities for the company’s further use. “This amount is sufficient for uninterrupted operation within six months. At the same time, the price of natural gas will be lower than the price set by the National Commission for State Energy and Public Utilities Regulation,” says the source. Some simple calculations show that Naftogaz will sell the raw material to the OPP at UAH 6,757 per 1,000 cubic m. For comparison, the rest of the industrial consumers will have to pay for each thousand cubic meters of the gas at least UAH 7,500. Obviously, the OPP will receive a discount as the largest consumer, which finalized a 100% advance payment for the supplied product.

The scheme developed by the government is simple. Naftogaz gets a reliable major customer that will provide it with cash for payment for supplies of Russian gas. Oschadbank, whose senior management is loyal to Arseniy Yatsenyuk, is entitled to manage the proceeds of the plant.

Bankruptcy in one hand

Representatives of Dmytro Firtash’ gas company RGC Trading believe that the contract with the national joint stock company may bankrupt the plant. As a reminder, RGC Trading is currently in litigation with the OPP for unpaid gas worth UAH 1.3 bn consumed in the first half of 2014. “I believe the decision to give the Odesa Port Plant a UAH 5 bn loan to buy gas is not driven by economic interests. Now, energy carriers are becoming cheaper all over the world and taking out a loan for the purchase of expensive gas is senseless, particularly since the plant will use this money to buy gas for a year in advance (with the current average monthly consumption of 60 mn cubic m). In addition, the financial condition of the OPP is hopelessly bad, even without this loan – it was unable to pay us for previous gas supplies and today has a debt of UAH 1.237 bn that it is currently unable to pay and asking repayment in installments,” said Director of RGC Trading Artem Kompan. He is convinced that the size of the loan, which is comparable to the annual revenue of the enterprise (in January–September 2014 the company’s earnings amounted to UAH 4.179 bn), will lead it to bankruptcy.

Representatives of Firtash’ Group DF have already dubbed such care of the chemical plant the “hidden privatization of the Port Plant”. “Supposing the OPP cannot cope with its loan repayment, and that is a fact, Oschadbank may assign such a debt to some other financial institution, which would receive the right to manage the plant,” suggested a representative of the company. He refused to name the entity, which may become the receiver of the OPP’s debt, and found it difficult to say whether Group DF would take part in the tender for the sale of a 5% share of the stocks of the OPP scheduled for December 24. Until recently, Firtash was considered to be the most probable buyer of the OPP.

Privat’s interest

By the way, a small stake of the OPP will be sold in the domain of businessman Ihor Kolomoiskiy of Dnipropetrovsk on the Perspektyva Stock Exchange, which already suggests that Kolomoiskiy cares about the placement and the procedure of sale of stocks of the country’s most powerful chemical plant. Kolomoiskiy’s closest business ally, who refused to give any official comments, said that the purchase of the OPP amidst war cannot be of interest and the acquisition of 5% of the shares of the plant, all the more. “What interest could there be in such a small stake? I don’t understand the government’s intention in conducting such an experiment,” he said. But it is one thing to buy on a public auction and another to acquire the plant for its debts.

By the way, another coincidence is that Privat’s company Nortima was the one to win the tender for the sale of the OPP on September 29, 2009, arranged by the incumbent Chief of the State Property Fund Dmytro Parfenenko. At the time, the company offered the plant for the same UAH 5 bn, but ex-premier Yulia Tymoshenko canceled the tender, accusing the bidders of collusion. On the day of trading, representative of Nortima amd First Vice Chairman of the Board of PrivatBank Timur Novikov gave a press conference during which he said the competition was fair and the company’s victory in it was honest.