Cablegate: Ukraine: Naftohaz Pays Debt to Rosukrenergo; Still Owes

VZCZCXYZ0000
RR RUEHWEB

DE RUEHKV #4484 3411311
ZNR UUUUU ZZH
R 071311Z DEC 06
FM AMEMBASSY KYIV
TO RUEHC/SECSTATE WASHDC 0632
INFO RHEBAAA/DEPT OF ENERGY WASHINGTON DC
RUCPDOC/DEPT OF COMMERCE WASHDC
RUEATRS/DEPT OF TREASURY WASHDC
RUEHMO/AMEMBASSY MOSCOW 0041
RUEHAH/AMEMBASSY ASHGABAT 0003

UNCLAS KYIV 004484

SIPDIS

SIPDIS
SENSITIVE

STATE FOR INRB
DOE FOR LEKIMOFF, CCALIENDO
TREASURY FOR LEE/MGAERTNER
USDOC FOR 4231/ITA/OEENIS/NISD/CLUCYK

E.O. 12958: DECL: NA
TAGS: EPET EFIN PINR RS TX UP
SUBJECT: UKRAINE: NAFTOHAZ PAYS DEBT TO ROSUKRENERGO; STILL OWES
OTHER CREDITORS

Sensitive but Unclassified. Not for Internet Distribution.

1. (U) On December 4, Ukraine's state oil and gas monopolist
NaftoHaz paid off its $306 million debt to RosUkrEnergo (RUE) for
1Q2006 natural gas supplies, according to NaftoHaz Deputy Chairman
Aleksandr Kovalko. In a December 7 press interview, Kovalko said
NaftoHaz paid the debt with part of a $350 million Credit Suisse
loan received December 1. NaftoHaz's total debt now stood at $2.17
billion, with over 90% due to foreign banks.

2. (U) Kovalko said NaftoHaz could not pay off its RUE debt earlier
this year because the National Electricity Regulatory Commission did
not raise residential gas rates until after parliamentary elections.
Kovalko implied that paying the RUE debt before the New Year would
ensure NaftoHaz a stable 2007 gas supply from RUE, Gazprom, and
Central Asian suppliers. NaftoHaz's debt to capital ratio was
35-36%, Kovalko claimed, approximately the same as that of other
national oil and gas monopolies like Gazprom or Ruhrgas. Kovalko
said NaftoHaz management had used all $2.17 billion to meet payment
obligations to the state budget or suppliers. To his knowledge, no
loans had been used for investment projects. Kovalko was optimistic
that NaftoHaz's finances would improve in 2007 with the introduction
of higher residential gas rates.

Comment
-------

3. (SBU) Kovalko's sanguine view of NaftoHaz's debt-to-capital
ratio fails to mention that, unlike state monopolists elsewhere,
NaftoHaz has not used its credit for productive investment. While
2007 utility rates have gone up significantly, the increases are
unpopular and being contested in the courts. End Comment.

4. (SBU) BIO: Aleksandr Kovalko (DOB: 1970) is the son-in-law of
former Prime Minister and current member of parliament Anatoliy
Kinakh. Kovalenko's father, Mykola Kovalko, is a former member of
parliament and current member of NaftoHaz's Supervisory Council.
Aleksandr Kovalenko was appointed Deputy NaftoHaz Chairman in 2002.
He is also a member of UkrTransNafta's supervisory board. He was
appointed UkrNafta's Deputy Chairman for Economic Affairs in 1997.

GWALTNEY

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