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Bonds News

Ukraine leader in new appeal on Naftogaz finances

KIEV, June 11 (Reuters) - President Viktor Yushchenko issued a new appeal to the government on Thursday to take urgent steps to ensure the financial stability of the national energy company or risk losing control of Ukraine’s gas transport system.

Yushchenko was addressing a meeting at Naftogaz company headquarters also attended by senior government and central bank officials and public prosecutors. He denounced the use of credits to pay for monthly shipments of Russian gas and described the state of the state company as “critical”.

Since Ukraine clinched a New Year deal on imports from Russian giant Gazprom GAZP.MM, the president has regularly accused Prime Minister Yulia Tymoshenko, his former ally turned arch political rival, of jeopardising the company's future.

“The company’s ability to pay is based on the issuing of new credits,” he told the meeting. “The latest payments to Gazprom are being conducted in a manner that cannot go on for long and will give rise to a pyramid of payment failures affecting not only Naftogaz, but also the banks behind these operations.”

Unless the terms of the January agrement were reviewed, he said, “it will lead to Ukraine’s economic dependency.

“This can produce only one finale - the loss of Ukraine’s gas transport system. The situation around Naftogaz threatens our national energy security and could become a big irritant to the stability of the overall banking system.”

Yushchenko said company credits to be repaid totalled 74 billion hryvnias ($9.7 billion) compared to 56 billion at the start of the year.

Under the January deal with Gazprom, ending a three-week supply cutoff to European customers, Ukraine is to pay for each month’s deliveries by the 7th day of the following month.

Russia has said any failure to pay would mean Ukraine would have to make payment in advance. Gazprom has also complained that Ukraine is not importing the amounts set down in the contract.

RUSSIAN SUGGESTIONS OF INSOLVENCY

Naftogaz has made all payments in full and on time since January, but Russian officials have repeatedly suggested the company is all but insolvent.

Yushchenko this week said the latest payment for May supplies was completed by means of a credit emission from the central bank to a number of Ukrainian banks. Naftogaz has since last year raised credits from state banks to ensure payment.

“Control over the companies expenses is being lost,” Yushchenko said.

Central bank chief Volodymyr Stelmakh said four banks had extended Naftogaz a 25 billion hryvnias ($3.3 billion) credit.

He said two main state banks, Oshchadbank and Ukreximbank were “capitalised in a serious manner and restructuring the debt can be discussed. There is, however, a risk. These banks have all but exhausted their options in terms of a single borrower.”

Yushchenko said Naftogaz could face penalties from Gazprom for failing to import agreed volumes. Ukraine imported 2.5 billion cubic metres in the first quarter against a contracted volume of 5 billion, owing to declining industrial production.

Ukraine is to import 40 billion cubic metres, but authorities say they want to reduce that figure to 33 billion.

Central bank chief Stelmakh proposed a solution to that issue by agreeing voluntarily to pre-payment of shipments.

“Russia is threatening to introduce advance payment in the event of a failure to pay,” he said.

“This would be a way out for us. If we need 500 million cubic metres we pay for what we receive and nothing more.”

Yushchenko also said Ukraine had to raise low prices applied to domestic consumers and ensure users paid their bills.

Igor Dudenko, the company’s first deputy chairman, asked parliament and the government to raise tariffs for consumers and allow companies to restructure payment of their arrears. (Writing by Ron Popeski)

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