Ukraine reduces the price of natural gas for producers of goods of significant social importance

On 13 January 2022, the Resolution of the Government of Ukraine No.19 dated 12 January 2022, regulating tenders on sale of natural gas for companies producing certain goods of significant social importance (the "Resolution") came into force.

The Resolution allows the producers of goods of significant social importance ("Producers of goods") to buy natural gas at more favourable prices for the production of such goods, as the current high gas prices can dramatically affect the cost of such goods. The Resolution disadvantages the sellers of natural gas of their own production ("Sellers of natural gas"), who are forced to sell natural gas at below-market prices, and this does not contribute to the normal functioning of the natural gas market in Ukraine. This Resolution has been criticized by the Energy Community as influencing the market principles of the natural gas market.

The Resolution is limited to the quarantine period, but not longer than 1 May 2022. The Resolution will undergo further improvements if there will be inconsistencies with its implementation.

Producers of goods

The beneficiaries of this Resolution are Producers of goods, namely producers of:

  • wheat flour (Classifiсation of Types of Economic Activity - 10.61),
  • pasteurized milk (Classifiсation of Types of Economic Activity - 10.51),
  • rye-wheat bread (Classifiсation of Types of Economic Activity - 10.71),
  • chicken eggs (Classifiсation of Types of Economic Activity - 01.47),
  • poultry (chicken carcass) (Classifiсation of Types of Economic Activity - 10.12), and
  • sunflower oil (Classifiсation of Types of Economic Activity - 10.41).

Sellers of natural gas

All sellers of natural gas of their own production, except National Joint Stock Company "Naftogaz of Ukraine" or companies in some way related to it and  operators of the gas transmission system for production and technological needs of gas distribution network operators, are obliged to sell on the exchange, namely the Ukrainian Energy Exchange, 20% of their net own production for the needs of the Producers of goods.

Cost of natural gas

Until 30 April 2022, the Cabinet of Ministers limited the cost of purchasing natural gas for the Producers of goods, setting the maximum level of supply and marketing surcharge to the price of natural gas of own production (excluding rent payments) at no more than 24%.

Procedure for the Producers of goods

To buy gas at the reduced prices for the next month the Producers of goods shall apply to the Committee for Supervision of Exchange Auctions for Sale of Natural Gas ("Committee") at the following email address: Gas.auction@mev.gov.ua, adding a copy of the natural gas supply contract concluded between the natural gas supplier and the Producers of goods. The gas suppliers who are included in the list, formed by the Committee and licensed to carry out the supply of natural gas and concluded supply agreements with the Producers of goods participate in auctions. The list of the gas suppliers admitted for purchase of natural gas by the Committee is posted on the website of the Ukrainian Energy Exchange. 

Procedure for the Sellers of natural gas

After receiving applications from the Producers of goods by the 10th day of each month, the Committee informs the commodity exchange and sends an information notice to the Sellers of natural gas. The Seller of natural gas is obliged to notify the exchange of the maximum gas price on each individual sale request, above which an exchange agreement cannot be concluded. In case of non-compliance with this requirement, the starting price of the Seller of natural gas is determined as the limit. Based on the marginal price, the exchange sets price limits above which an exchange transaction cannot be concluded, in particular the maximum level of surcharge is 24%.

The natural gas auctions are held monthly from the 10th to the 20th day of the current month. The Committee will check whether the natural gas purchased on the exchange is used for the production of goods of significant social importance.

For more information, please contact Asters' Partner Yaroslav Petrov, Counsel Marta Halabala or Associate Olena Sichkovska-Chornobyl.

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