НАК „НАФТОГАЗ УКРАЇНИ“. Річний звіт англійською (2017 рік) - 1

NAFTOGAZ FINANCIAL RESULTS 2017

UAH bn

net cash flows from 
operating activities (ОСF)

adjusted operating result net 
of income taxes (NOPLAT)

Oil domestic transmission              

Gas domestic transmission

Gas imports and supply to other customers 
outside PSO

Gas production, imports 
and supply to other customers under PSO

Oil transit

Petroleum products sales

Oil and gas condensate sales

 

Gas transit

Gas production, import and sales to RSC's for 
resale to households

Other

Gas storage

Gas production, imports and supply to MHE's for
the needs of households

DYNAMICS AND STRUCTURE OF THE GROUP'S REVENUE, 
BY BUSINESSES

UAH bn

227.5

2017

192.8

2016

Gas transit

73.9

60.0

 Gas business

1

2

3

3

4

89.0

85.3

1. Gas production, import and sales to RSC's for resale to households – 

54.3/48.9

2. Gas production, imports and supply to MHE's for the needs of households – 

22.8/18.9

3. Gas production, imports and supply to other customers under PSO –

 

7.8/4.6

4. Gas imports and supply to other customers outside PSO  – 

4.1/12.9

Gas domestic 

transmission 

 and storage

25.0

14.8

1.

 Gas domestic transmission

 

–

 

24.8/14.7

2.

 Gas storage – 0.2/0.1

1

2

Oil and petroleum 

products transmission 

and sales

1

2

3

4

1. Petroleum products sales –

 

18.1/13.5

2. Oil and gas condensate –

 

12.9/11.1

3.

 Oil transit – 

3.6/3.3

4.

 Oil domestic transmission– 

0.2/0.1

34.8

28.0

Other 

4.9

4.7

GROUP’S NET PROFIT RECONCILIATION FOR 2017

*Net profit of UAH 39.4 bn adjusted for income recognised per results of Gas Transit Arbitration of UAH 57.1 bn and related income tax 
expense of UAH 10.3 bn.
**Current income tax expenses consist of taxable income less allowed deductible expense both from operating and non-operating 
activities taxed at 18%.  

Without positive effect of Gas Transit 
Arbitration, the group would incur net loss
 of UAH 7.4 bn* for 2017

NOPLAT 

Net result 

of Gas Sales and 

Gas Transit 

Arbitrations

Finance 

income/ 

(expense)

Impairment of 

property, plant and 

equipment

Deferred 

income 

tax benefit

Current 

income tax 

expense**

Other

Net 

profit

41.5

-6.7

-3.4

9.1

-13.1

-0.6

39.4

UAH bn

12.6

-0.6

-0.2

0.003

-4.9

0.4

2.8

1.3

2.3

1.6

1.4

2.8

1.6

4.6

5.9

11.9

38.3

16.7

11.2

-0.1

0.9

-0.3

0.4

3.2

1.2

6

OUR MISSION IS TO BECOME 
THE DRIVING FORCE FOR 
MODERNIZATION AND 
PROFESSIONALISM IN THE 
UKRAINIAN ENERGY SECTOR 
INTEGRATED WITH THE EUROPEAN 
MARKET, ENSURING SECURITY OF 
ENERGY SUPPLIES AT COMPETITIVE 
PRICES WHILE MAXIMIZING THE 
VALUE OF NATIONAL RESOURCES

MISS

ION

AND V

AL

UES

7

Courage: 

We believe that determination is better than resigna­

tion. Naftogaz can stand its ground even when faced by far larger 
opponents. We do not quietly accept injustices and prefer to call 
things by their proper names. Naftogaz is not afraid of change and 
seeks to serve as a model for both the public and private sectors

Openness:

 We work honestly and openly. We believe that this 

approach prevents corruption and encourages effective co­
operation in the market as well as within the company itself. 
Transparency is key to earning the trust of Ukrainians for 
whom we generate profit

Conscientiousness:

 We believe that each team member should 

have their share of responsibility for the result. Naftogaz  
appreciates good work, a willingness to act, initiative and honesty

Fairness: 

Naftogaz is a national company and important con­

tributor to the common good. We stand for equal opportunities, 
targeted support for those who need it most, and for adequate 
remuneration for those who take on responsibility and deliver 
outstanding results. We believe this is reasonable and fair

9

STATEMENT OF THE CHAIRPERSON 

OF THE SUPERVISORY BOARD

The new supervisory board was 

elected in December 2017, at the 

very end of this reporting year.

In brief, the working of the 

supervisory board and its 

committees in 2017 focused 

on the issues which are a 

primary need of any national 

oil and gas company: corporate 

strategy, long-term planning, 

liquidity, increase of domestic 

production and last but not 

least – preparation of Naftogaz 

group for the unbundling of the 

transmission business. We know 

how much progress has been 

made on these and many other 

matters due to joint efforts of the 

supervisory and executive boards 

bringing the company and 

Naftogaz group to where they 

were when we joined.

Unfortunately, having invested 

a lot of time and effort in 

these complex matters, the 

previous supervisory board 

resigned at the end of the 

reporting year due to the lack 

of progress in completion of 

corporate governance reform. 

We, as the new board, took 

our appointments on a clear 

promise and commitment of 

the shareholder that matters 

pertaining to delegation of 

required competencies to 

supervisory boards of Ukrainian 

state-owned enterprises will be 

promptly and properly resolved.

Unfortunately, as of the date of 

this report, things are still where 

they started and as a supervisory 

board we lack efficient tools to 

bring Naftogaz and its group 

companies to where they 

need to be. However, we are 

determined to complete the 

reform and govern the company 

and Naftogaz group to increase 

their value for the benefit of the 

people of Ukraine.

STATEMENT OF CHIEF EXECUTIVE 

OFFICER

Our historical victory over  

Gazprom in the finale of 

the Stockholm arbitration 

proceedings was definitely the 

major event in 2017-2018.  

We have eliminated Gazprom’s 

claim to pay more than 

USD 56 billion for gas that 

we did not actually buy in 

2009-2017 and have been 

awarded nearly USD 4.7 billion 

in compensation. Four years 

of effort removed the risk 

of bankruptcy and debt, 

which would have equaled 

three quarters of Ukraine’s 

annual GDP if the take-or-

pay provision had not been 

canceled.

However, the opportunity 

to appeal successfully to 

international arbitration 

over four years would have 

been impossible without a 

number of steps made by 

Naftogaz and the Ukrainian 

government. I would like to 

emphasize the most important 

actions.

WHAT WAS DONE  

IN 2014-2017:

1.  Zero tolerance towards  

corruption and transparent  

procurement

The fight against corruption 

was our priority when we 

started as a new management 

team in spring 2014. We cut 

off unnecessary intermediaries 

from gas imports and wholesale 

operations and changed 

the procurement system to 

encourage producers rather 

than resellers to participate in 

our tenders. Naftogaz initiated 

litigation to restore its position 

where diverse “partners” of the 

former government have been 

parasitically engaging our assets 

for years. Naftogaz was one  

of the first participants in the 

ProZorro e-procurement system 

and remains one of the system’s 

biggest buyers. We have started  

disclosing an unprecedented 

amount of data regarding our 

operations. 

Our goal is to transform Naftogaz into 
an efficient and profitable European energy 
corporation

Chairperson of the 

supervisory board 

Clare Spottiswoode

11

10

2.  Diversification of gas routes 

and suppliers

Having won the trust of Western 
partners and creditors, we man-
aged to open the Slovak route 
and find alternative suppliers and 
funds for purchasing gas in record 
short time. We would not have 
been able to finalize the arbitra-
tion process without this progress.

3.  Kick-starting European-style 

gas market reform

Wholesale gas import and sales 
are now open for competition in 
Ukraine. The segment has already 
been integrated into EU markets. 
Dozens of new players,  
including major European 
and global gas suppliers, have 
entered the Ukrainian market 
and are competing. Leading 
producers from the US, EU and 
China are participating in tenders 
announced by Naftogaz. Presence 
of these players is the best way 
to ensure irreversible reforms and 
diversification.

4.  Corporate governance reform 

according to OECD standards

Naftogaz is the first Ukrainian 
state-owned enterprise with 
a professional independent 
supervisory board. Though yet to 
be fully empowered, it has already 
become an effective barrier to 
corruptive political interference in 
Naftogaz’s operations.

Perhaps for the first time in the his-
tory of Naftogaz, its management 
is pursuing the interests of the 
company and its ultimate owner – 
the Ukrainian people – rather than 
the interests of financial-industrial 
groups, politicians, or other vested 
interests. This shift paves the way to 
achieving previously unattainable 
results in arbitration, courts, pro-
curement, fundraising fundraising 
and development of the group’s 
assets. 

But it’s just the beginning.

GAS MARKET REFORM MUST 

CONTINUE

Our objective is to fully  

integrate the Ukrainian  

gas market into the  

European market and  

transform Naftogaz into  

a powerful and efficient  

European energy company.

Ukraine has made significant 

progress in gas market reform, but 

changes need to be finalized in all 

market segments.

The first and the most important 

precondition for Ukraine’s 

success in the gas sector is the 

elimination of corruption in gas 

supply for households and the 

establishment of a transparent 

competitive market in this 

segment.

The second precondition is the 

completion of TSO unbundling 

in a way that would ensure 

significant use of the system’s 

capacity and non-discriminatory 

access for all players.

The third precondition for  

success is the completion of  

corporate governance reform at 

both Naftogaz and other SOEs.

NAFTOGAZ HAS TO BE  

TRANSFORMED

An integrated Naftogaz leads 

straight to the creation of a 

capital market in Ukraine and 

its growing welfare.

Naftogaz is currently representing 

Ukraine’s interests in the oil and 

gas sector. It is an effective tool 

for the government during mar-

ket reform, ensuring reliable gas 

supply.

Ukraine needs investments and 

new technologies to unleash its 

potential in the energy sector. 

The experience of other countries 

Before

Now

Gazprom was the only source of imported gas for Ukraine.
Naftogaz used to be a debtor to Gazprom and Ukraine was forced 
into political concessions in order to maintain gas supply.

For about 950 days, we have been living without Russian gas 
supplies. Naftogaz is able to purchase gas on transparent 
non­political terms and conditions from dozens of large Western 
companies that compete with each other. 
Gazprom owes Naftogaz USD 2.6 billion.

Naftogaz used to be a black hole in the Ukrainian state budget. The 
state has spent tens of billions of dollars to support the company, 
but much of that money has been stolen due to inefficiency and 
corruption in which senior politicians were involved.

Being a guaranteed supplier, Naftogaz automatically satisfied the 
needs of all customers regardless of status or solvency.

Naftogaz got rid of corrupt intermediaries, demonstrated record 
profits and is the largest source of revenues to the state budget, 
providing about 15% of state revenues in 2017.

 Naftogaz provides gas only for social consumers, the segment 
of commercial consumers has been liberalized.

Gas production was funded by the residual principle, because 
Naftogaz had to buy significant volumes of gas from Gazprom at an 
overcharge price, and the sale price to households was 85% lower 
than the purchasing price.

Accordingly, an extremely low price was set for gas produced by 
Naftogaz, which, coupled with corruption in procurement, led to a 
decline of the mining units of the group and the depletion of its 
resource base.

A significant part of the group’s output was taken by so­called joint 
venture partners who accessed the "partnership" through their po­
litical relations, failed to fulfill their investment obligations, and most 
probably were involved in siphoning off money.

 

LPG was sold at a low price on the single exchange then controlled 
by the state’s leadership.

Shebelynka refinery carried out only the basic oil refining process. 

The price of gas for production units increased, though not up 
to the market level. Naftogaz transfers more than 98% of the 
gas selling price. 

For the first time in many years, Ukrhazvydobuvannya received 
new licenses and reached a record level of daily extraction for 
the last 24 years. 

Due to a dramatic change in the procurement system, billions 
of hryvnias were saved. New suppliers and manufacturers now 
participate in tenders.
All joint venture agreements have been challenged in court, 
seven out of eight have already been terminated, and gas is 
diverted to the needs of households. 

LPG is sold at auctions. 

Shebelynka refinery has been modernized and switched to the 
production of Euro-5 fuels.

Purchases of works, goods and services in Ukrtransgaz were 
non­transparent.

The state of filling the UGS was unclear, which gave grounds for 
Gazprom manipulation.
 

The loan agreement with the EBRD and the EIB to upgrade the 
Urengoy–Pomary–Uzhhorod pipeline (UPU) has been blocked for 
more than five years.

Naftogaz was able to influence the work of the transmission 
system operator and other market players

Ukrtransgaz joined ProZorro's purchase system. With the facilita­
tion of the General Prosecutor’s Office, Ukrtransgaz managed to 
get rid of duty to pay for goods under a fictitious agreement.

The information on the company's website about residual 
volumes of gas in the underground storage facilities is updated 
on a daily basis.

The loan agreement with international financial institutions has 
been concluded. The German concern Ferrostaal has begun 
reconstruction of the Bar station, with financial support via  
a loan from Deutschebank.

The unbundling process was launched to separate  
the TSO function.

Naftogaz did not resist the construction of by­pass gas pipelines, 
did not implement the reforms required to get the EU support and 
deliberately lost the litigations initiated by Gazprom.

Naftogaz takes every opportunity to defend its interests in the 
European market, including relations with Gazprom and coun-
teractions related to the bypass gas pipelines.

   What we have achieved and what has changed in the past four years

OUR MARKET AND 

REFORMS

shows that the engagement of 
powerful international players 
in joint projects is yet another 
guarantee of political support and 
security.

A transformed and powerful 
Naftogaz will help Ukraine to 
achieve this goal, as potential 
investors and creditors are more 
willing to engage with big and 
stable national players.

Being an integrated national 
company, Naftogaz is also a 
noteworthy and natural partner 
for international oil and gas 
companies and professional 
investors from other countries.

We have set ourselves an 
ambitious goal to prepare 
Naftogaz for IPO within the next 
several years. While the ultimate 
decision on the placement lies 
within the competence of the 
Cabinet of Ministers of Ukraine 
and the Verkhovna Rada of 
Ukraine, it takes much time and 
changes within Naftogaz to make 
the company IPO-ready. We have 
begun this process.

Naftogaz’s IPO may be held 
simultaneously on one of 
the major international stock 
exchanges and in Ukraine if the 
government decides that it is 
viable and the market conditions 
are favorable. In that case, all 
Ukrainians will be able to be 
not only the ultimate owners 

of Naftogaz as a state-owned 
enterprise, but also to trade its 
shares using them as a personal 
investment tool.

We believe that the development 
of a capital market in Ukraine 
is key to fueling substantial 
economic growth, which implies 
bet-ter quality of life for all 
Ukrainian citizens.

Over the past four years, we have 
completed a business turnaround 
and achieved much. The next 
step is to transform Naftogaz 
into a transparent and effective 
national corporation that will 
serve as a role model for others 
and drive Ukraine’s economic 
growth. It is a big goal worth 
every effort.

I would like to thank the team 
of Naftogaz group for their hard 
work in line with our core values, 
which are courage, openness, 
conscientiousness and fairness.   
I believe that our corporate goals 
can be achieved exclusively by 
the team with common values.

We appreciate the attention and 
support from all who care about 
what we are doing. We believe 
that common values and deter-
mination to develop our country 
enable us to achieve the most 
ambitious goals.

CEO 

Andriy Kobolyev

OUR MARKET AND REFORMS

ANNUAL REPORT 2017

15

14

MACROECONOMIC ENVIRONMENT: 

TRAPPED BY OLD INSTITUTIONAL 

PROBLEMS

•  Ukraine's real GDP has been 

growing for the second 

consecutive year – however 

the pace is very slow, so 

gap between Ukraine and 

developed countries – as 

well as most of developing 

countries – is increasing

•  The country's economy 

remains weak

•  International partners note 

the problems related to 

the pace of reforms and 

perceptions of corruption

•  The risk of rising inflation, 

frozen military conflict, 

negative demographic 

trends and the risk of 

activating populists on 

the eve of a new political 

cycle

Source: Thomson Reuters, State Statistics Service of Ukraine, calculations by Naftogaz of Ukraine
Notes:  The index is calculated as the weighted average price of key products exported by Ukraine (iron ore, steel, wheat and corn). The weights used for 

calculation corresponded to the share of relevant products in the total export of goods. 

  Average annual price index of key Ukrainian export products

01�01�15

01�01�16

01�01�17

320

300

280

260

240

220

Despite these factors, real 

GDP increased by only 2.5% 

in 2017 – that is, the growth 

rate of the Ukrainian economy 

was slower than the growth 

rates of the global economy 

in general, and in particular, 

developing countries. Taking 

into account that in the last 10 

years the Ukrainian economy 

decreased on average 2-3% 

annually (while all other regions 

of the world grew), the growth 

rates achieved in 2016-2017 

remain unsatisfactory. An 

increase in GDP of 2.5% per 

year is not sufficient to close 

the gap between the economy 

of Ukraine and the EU and, 

consequently, between the 

relative standards of living.

+21%

Source: IMF, State Statistics Service of Ukraine, calculations by Naftogaz of Ukraine

Source: IMF, UN, CIA factbook, State Statistics Service of Ukraine 

   Real GDP growth rate estimate in 2017, %

   Population, area and GDP comparison  of European and African countries 

A crucial gap between Ukraine 

and the EU can be seen if its 

economy is compared with the 

economies of comparable areas 

and population such as Spain 

and France. The chart below 

shows that Ukraine by these 

indicators is more comparable 

to some countries in Africa 

0

400

800

90

60

30

0

Population, million

Country area, thousand sq� km 

Global economy

Developing countries

European developing countries

Developed countries 

EU

Ukraine

3.45%

4.48%

4.05%

2.03%

2.12%

–3.03%

Average growth rate  

in 2014-2017    in the recent 10 years 

3.62%

4.64%

4.50%

2.17%

2.34%

2.50%

3.33%

5.07%

3.46%

1.20%

0.84%

–2.05%

than European countries. This 

gap can be seen, if Eastern 

Europe and the CIS countries 

are observed, which are often 

compared to our economy. 

The data presented on the 

chart below shows that Ukraine 

remains a small economy, is one 

of the poorest in comparison 

with other European countries, 

and is at high risk of increasing 

this gap if Ukraine's current 

economic growth does not 

improve. Even the expected 

future growth rates of real GDP 

are not enough to overcome 

Ukraine's current lag in the 

medium-term. According to IMF 

forecasts, Ukraine's real GDP 

will grow by an average of 3.7% 

every year during 2018-2022, 

Spain

France

Ukraine

Morocсo

Kenya

  African countries                          European countries 

The size 

of the bubble 

corresponds to 

nominal GDP 

in 2017

In 2017, the price situation on the main commodity markets of Ukrainian exports improved 

(due to an increase in average annual prices for steel, iron ore and grain), while domestic 

demand was supported by the restoration of expenditure of the public administration (and 

loosening of fiscal policy) and the maintenance of high rates of nominal wage growth. 

OUR MARKET AND REFORMS

ANNUAL REPORT 2017

17

16

which is similar to the world 

economy as a whole, but much 

lower than the expected growth 

rates for developing countries. 

Under such conditions, the 

Ukrainian economy can be 

referred to as an example of the 

so-called "growth disaster" – its 

share in the global economy 

decreased from 1% in 1992 to 

less than 0.3% in 2017. 

  The gap between the Ukrainian economy and its peers

Source: IMF, UN, State Statistics Service of Ukraine, calculations by Naftogaz of Ukraine
Source: 2017 S&P Global Platts Top 250 Global Energy Company Rankings, Naftogaz

5 000 

10 000 

15 000 

20 000 

25 000 

30 000 

35 000

8

7

6

5

4

3

2

1

0

Aver

age G

DP gr

owth r

at

e per capita 

 

as per P

PP

, 1992-2017

, %

GDP per capita  

per PPP, USD

Belarus

Romania

Poland

Slovakia

Ukraine

Kazakhstan

Russia

Turkey

Hungary

The size 

of the bubble 

corresponds to 

the population of 

the country

Given the small size of the 

economy and its low growth 

rates, several statements by 

international partners of Ukraine 

pronounced in 2017 are relevant. 

The IMF and the US Department 

of State noted that the problem 

of corruption perceptions remains 

a significant obstacle to ensuring 

economic growth and improving 

living standards in Ukraine. In 

their statements

1

, they noted that 

fighting corruption is necessary to 

ensure sustainable and equitable 

economic growth. The problem of 

high corruption perception car-

ries considerable risks of reversal 

of the reforms achieved. The only 

solution is ensuring the rule of 

law of the country. This will help 

eliminate high transaction costs in 

the economy, create a favorable 

investment climate, and stimulate 

domestic investment demand.

2

Position of  these organizations 

is relevant, in particular because 

Ukraine, due to significant repay-

ments of sovereign debt in 2018-

2020, remains dependent on 

international donors, and a lack 

of progress in the areas specified 

by them may lead to disruption 

of cooperation with them. In turn, 

this will increase sovereign risk, 

will negatively affect the percep-

tion of Ukraine's development 

by investors in terms of Ukrainian 

companies entering European 

markets, and would limit the 

opportunities for Ukrainian com-

panies to enter the international 

capital market in 2018 (despite 

the return of Ukraine to the Euro-

bond market in September 2017).

1 

See, for example:
•

 

https://nv.ua/opinion/Yovanovich/muzhestvo-dvihatsja-vpered--2443217.html 

•

 

https://www.state.gov/r/pa/prs/ps/2017/12/276235.htm 

•

 

https://www.imf.org/en/News/Articles/2017/12/07/pr17473-ukraine-imf-statement-on-the-efforts-to-fight-corruption

•

 

IMF, “Ukraine: Selected Issues”, April 2017

2 

According to a study by the European Business Association, the main obstacles to investing in Ukraine are still corruption, insecurity of property rights, state 
capture by oligarchs and the war in the east. For more details see. http://ces.org.ua/en/wp-content/uploads/2017/09/2017_InvestorSurveyResults.pdf. Economic 
experts expect all these obstacles to remain even if they do not increase in 2018. In the expert environment, it is also noted that there is a significant risk that 
pre-election populism will add to these obstacles, which will lead to an increase in the budget deficit and inflation (with a corresponding devaluation pressure on 
the hryvnia).

Source: Bloomberg (as of 11.04.2018), calculations by Naftogaz of Ukraine

For 2017 and early 2018, the 

persistence or even exacerbation 

of other problems for the 

Ukrainian economy was observed, 

including those that influenced 

Naftogaz group operations:

• Inflationary pressures remained

significant. Consumer inflation in 

2017 amounted to 13.7% yty and 

thus exceeded the target of the 

NBU by 8% ± 2 pp. at the end of 

the year. In view of the strength-

ening of inflationary risks in the 

fourth quarter of 2017, the NBU 

switched to tightening monetary 

policy, raising the discount rate 

twice.

• The labor market still

experiences imbalances between 

supply and demand and there 

was an increase in migration 

processes, which also stimulated 

further wage growth despite 

maintaining a high level of 

unemployment.

• Continued Russia's armed

aggression and occupation of the 

part of Ukraine's territory. In the 

case of favorable developments for 

Ukraine (and institutional reforms 

inside the country), the reduction 

of the risk premium would increase 

investment attractiveness with a 

corresponding inflow of capital, 

acceleration of economic growth 

and revaluation pressure on the 

hryvnia. Instead, an escalation in 

hostilities could lead to worsening 

expectations and negative socio-

economic implications.

• Ratings of populist minded poli-

tician grew up. 

Low rates of implementation 

of structural and institutional 

reforms in the country and, 

consequently, low economic 

  Ukraine’s sovereign debt (including guaranteed debt) repayment time schedule for 2018-2021,  

          

USD billion

Q1  Q2  Q3 Q4

2019

Q1  Q2  Q3 Q4

2020

Q1  Q2  Q3 Q4

2021

Q1 Q2 Q3

2018

4�5 

4�0 

3�5 

3�0 

2�5 

2�0

1�5 

1�0 

0�5

0

  Interest payment                       Loan payment                       Bond payment  

   Total Ukrainian population aged 15-70 and the share of Ukrainian 

migrants

3

3 

Since 2014 – without AR Crimea and the city of Sevastopol, since 2015 – without certain areas of Donetsk 
and Luhansk regions.

40

30

20

10

0

   Total Ukrainian 

population aged 
15-70, million 
persons

   Share of migrants 

in the Ukrainian 
population aged 
15-70, %

35�4

Survey period 

from 01�01�2005 

tо 01�06�2008

Survey period 

from 01�01�2010 

tо 17�06�2012

Survey period 

from 01�01�2015 

tо 18�06�2017

4�2

3�4

4�5

+3�5 

(estimate)

28�8 

(estimate)

34�1

Source: SSSU, Institute of Demographics and Social Policy named after Ptukha of the NAS of Ukraine

2�9

3�4

3�0

2�9

3�8

3�2

1�8

1�9

1�8

2�7

3�4

0�3

0�6

0�5

0�8

OUR MARKET AND REFORMS

18

growth rates affect the activities 

of the oil and gas sector and 

Naftogaz group. Given the small 

size of the Ukrainian economy, it 

becomes more understandable 

why Naftogaz group has such 

a large share in the Ukrainian 

economy (providing 14% of 

the state budget revenues and 

a contribution to GDP at the 

level of 6-7% in 2017). This is 

not because Naftogaz group is 

a large company comparable 

to international integrated 

oil and gas companies, but 

reflects the fact that Ukraine's 

economy is relatively small. 

As far as Naftogaz group is 

concerned, it remains much 

smaller than the leading global 

oil and gas companies, and is 

more comparable to national 

companies of a relatively small 

size. 

International organizations 

emphasize weak progress in 

institutional reforms in Ukraine. 

An example is the response 

of international organizations 

and creditors to the demarche 

of Naftogaz supervisory board 

in September 2017, caused by 

the preservation of political 

influence on the company, the 

lack of progress in the corporate 

governance reform, and the 

opposition to gas market 

reform, including the failure to 

approve the corporate strategy 

of Naftogaz group.

Sinopec

PetroChina

Shell

Exxon Mobil

BP

TOTAL S�A�

Gazprom 

Chevron

LUKOIL

Rosneft

Naftogaz group

284

238

234

198

183

128

107

103

92

84

7

   Revenue of the biggest global oil and gas companies and 

Naftogaz group, USD billion

Source: 2017 S&P Global Platts Top 250 Global Energy Company Rankings, Naftogaz

Naftogaz's supervisory board 
to VPM Kistion regarding their 
intention to resign due to 
lack of progress of

 corporate 

governance reform

EBRD limits access to 
the loan because of 
unapproved financial plan 
and  delays in 

corporate 

governance reform

Energy Community 
Secretariat to VPM 
Kistion regarding 
Draft Law 6778 and 

unbundling

Charles 
Proctor’s 

resignation 

note

Energy Community Secretariat

and World Bank regarding the 
monopolization of gas supplies to 
households and setback in  

Gas market law impelemenation

IMF's First 

Deputy Chairman 
regarding risks 
of setback of

  

IMF program

EBRD President 

regarding lack of 
progress in the  

reform of state-

owned enterprises

Independent 
directors of 
Naftogaz to 
V. Kistion

resignation note

April 

2017

July 

2017

August 

2017

September 

2017

EBRD's president to President 
of Ukraine Poroshenko  
regarding lack of progress of 
corporate 

governance reform

  Timeline about setback in reforms