Naftogaz group has published its consolidated financial statements for the first nine months of 2018 along with auditor’s conclusions. The document is available via this link.
Naftogaz group generated UAH 16.7 billion in net profit over the first nine months of 2018, which is 5.8% less than over the same period of 2017. The company’s net profit contracted due to the increase in allowance for bad debts, mostly in the gas transmission segment, with Firtash-controlled RGC group the biggest contributor. Another significant factor was UAH 4.8 billion of VAT applied to compensation under the gas transit award. Meanwhile, a decrease in gas imports and interest payments partly offset the decline in net profit.
- gas production, imports and sales under PSO (For the purpose of this analysis, the following reported segments were included into this group: production, imports and sales to regional gas suppliers for the needs of households; production, imports and sales to heat producers for the needs of households; production, imports and sales to other users under PSO)
- natural gas transit;
- gas imports and supply beyond PSO;
- sales of petroleum products;
- oil and gas condensate sales;
- crude oil transit.
- domestic natural gas transmission;
- natural gas storage;
- crude oil transportation;
Accounts receivables (excluding bad debt allowance) generated by PSO users grew by 21% or by UAH 6.3 billion as of 30 September 2018 compared to the same period in 2017. The debt for balancing services over this period almost doubled, increasing by UAH 14 billion or 92%.
This growing debt for gas was primarily due to a UAH 2.6 billion increase in debts generated by heat producers providing their services to households as a result of amendments to the funding procedure for benefits and subsidies, especially regarding the distribution of subventions received from the state budget.
Loans by Naftogaz group shrank by UAH 20.3 billion compared to the first nine months of 2017 due to the repayment of short-term loans.
Gas production, imports and sales to PSO users
Over the first nine months 2018, total gas sales increased by 10%, equaling 12.5 bcm, due to a colder beginning of the year compared with 2017. A small 0.4 bcm decline in sales was observable exclusively in the household segment, while other user categories grew by 1.5 bcm.
Thanks to a 1.8 bcm increase in domestic production, the group managed to decrease gas imports. Sales of imported gas to PSO users contracted by 16% due to bigger reserves of domestically produced gas in UGS facilities at the beginning of 2018 — 1.9 bcm more than at the beginning of 2017.
Gas sales to PSO users improved by UAH 7.5 billion over the first nine months of 2018. A growing share of domestically produced gas was the major contributor with its positive effect of UAH 4.1 billion, while the increase in sales accounted for another UAH 2.7 billion.
Gas imports and sales to users beyond PSO
In March 2018, the group started to sell gas from UGS facilities to industrial users. These transactions improved the segment’s performance by UAH 2.1 billion up to UAH 2.7 billion.
Domestic transmission and transit
Gas transit declined by 7% down to 65.4 bcm over the first nine months of 2018. This was due to an increase in Russian gas transit to Europe via Nord Stream – OPAL. Meanwhile, domestic gas transmission grew by 1% due to higher consumption.
The financial result of the gas transit segment decreased from UAH 11.6 billion to UAH 9.1 billion over the first nine months of 2018 compared to the similar period in 2017 due to smaller transit volumes. Other factors made an insignificant impact on the segment’s performance.
The financial result of the gas transmission segment was impaired by UAH 7.7 billion over the first nine months of 2018. The key negative factor was the allowance for bad debts, which increased because of significant underpayments for balancing services.
Gas withdrawal from UGS facilities increased by 76% or by 3.2 bcm over the first nine months of 2018 compared to the same period in 2017. This was due to intensive withdrawal in February-March 2018 when the weather was particularly cold. The segment improved its financial result by UAH 0.4 billion though remained loss generating.
Sales of petroleum products
Sales of petroleum products grew by 23 % or 70.6 thousand tons over the first nine months of 2018, and those of LPG — by 2% or 3.5 thousand tons. This increase in sales volumes improved the segment’s performance by UAH 2 billion to UAH 3.5 billion in profits.
Oil and gas condensate sales
Sales of crude oil and gas condensate fell by 15% or 150 thousand tons over the first nine months of 2018 compared to the same period in 2017. The segment’s financial result barely changed (UAH 5 billion in 2018 against 5.4 in 2017), as growth in prices (+ UAH 3.4 billion) was offset by smaller sales volumes (- UAH 1.5 billion) and higher royalty (- UAH 1.1 billion).
Domestic transportation of oil and transit
Oil transit fell by 5% or by 498 thousand tons over the first nine months of 2018, as Russia cut its oil transit through Ukraine. The segment’s financial result therefore demonstrated an insignificant UAH 0.2 billion decline over this period.
Meanwhile, domestic transportation to Ukraine’s refineries grew by 4% or 58 thousand tons due to the launch of the Odesa – Kremenchuk Oil Refinery route in March 2017. The segment remains loss generating.
Taxes and payments to the state budget
Over the first nine months of 2018, Naftogaz group paid UAH 95.7 billion in taxes to the state budget, which is 5% or UAH 4.3 billion more compared to the same period in 2017. This growth was due to a UAH 8 billion increase in corporate tax payments arising from higher taxable income of Naftogaz as a stand-alone entity following last year’s recognition of revenue from the Stockholm arbitration award in the transit case. Naftogaz also paid the state budget UAH 13.7 billion in dividends for 2017.