Subject: Fwd: Naftogaz is close on the heels of Akhmetov and Zlochevsky
From: "Eric Schwerin" <[email-masked]>
To: "Hunter Biden" <[email-masked]>
Date: Tue, 1 Dec 2015 15:39:52 -0500

Eric D. Schwerin
Rosemont Seneca Advisors, LLC
1010 Wisconsin Ave., NW
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Washington, DC 20007
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> Begin forwarded message:
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> From: Sally Painter <[email-masked]>
> Date: December 1, 2015 at 3:37:47 PM EST
> To: Devon Archer <[email-masked]>, "[email-masked]" <[email-masked]>
> Subject: FW: Naftogaz is close on the heels of Akhmetov and Zlochevsky
> 
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> Have you seen this article?
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> From: Pero Jolevski 
> Sent: Tuesday, November 24, 2015 10:43 AM
> To: Sally Painter <[email-masked] <mailto:[email-masked]>>; Karen Tramontano <[email-masked] <mailto:[email-masked]>>; Jesica Lindgren <[email-masked] <mailto:[email-masked]>>
> Subject: Naftogaz is close on the heels of Akhmetov and Zlochevsky
>  
> Sean translated the article from Russian –
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> Naftogaz is close on the heels of Akhmetov and Zlochevsky
>  
> November 18, 2015
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> The state monopoly is preparing a large-scale offensive on the positions of private gas traders
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> Last week Naftogaz of Ukraine announced they are nearing completion on the question of generating gas reserves. Many core market participants did not pay attention to this message, considering it another humdrum report on the state company’s preparation for the upcoming heating season. But this is not the case. The first thing that is worthy of attention in Andrei Kobolev’s message is the classification of fuel reserves as “insurance.” “Gas supplies are sufficient to meet the requirements on formation of insurance reserves for January 2016. We are also ready to support the necessary volumes of reserves for the following months. This will guarantee the fulfillment of engagements for the implementation of Ukrainian consumers’ fuel needs, in accordance with our signed agreements,” said the state company in a release.  
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> It is interesting to note that not long ago Naftogaz profited from insurance reserves. It was easy to understand the company. At that time only so-called “guaranteed suppliers” were obligated to generate these reserves, which above all meant Nafotgaz itself. This procedure diverted tens of millions of hryvnias, making the company uncompetitive in comparison with private traders. Naftogaz considered this difference discriminatory and began to seek equal treatment. The eventual result of these efforts was Resolution 795 of the Cabinet of Ministers of September 30, 2015, “On approval of the procedure for creating insurance reserves of natural gas.” In conjunction with this resolution, all gas suppliers are obligated to generate these reserves. In addition, the level of insurance reserves was set at 100% of the trader’s planned delivery volume to the resource contractors for the following month. Previously it had been 10%.
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> This decision was presented under the guise of improving the reliability of supplies for industrial consumers. But the hidden part of the process obviously turned into something else: by forcing the entire market to generate insurance reserves, the government equalized Naftogaz with private companies. True, the state company did not suddenly become a full-fledged rival to the private companies. The reason was in the price: until recently Naftogaz was offering gas at 6,600 hryvnias/cubic meter, while traders were selling it at 10-18% cheaper. At that time Kobolev could not lower the bar to the level of his competitors, because of tariffs levied on the state company by NKREKU [state regulaor]. The situation changed a month ago, when the law “On the natural gas market” entered into force, depriving the regulator of the right to manually determine gas prices. Naftogaz there and then used the opportunity to lower tariffs to the level of private companies. This step, coupled with the aforementioned statement from the state business on the completion of generating insurance reserves, testify to the fact that Naftogaz is explicitly seeking to expand its contract base with industrial manufacturers, who are the most solvent category of consumers.
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> Kobolev has a long way to go in this direction: for the past several years the market share of his company in gas sales to industrial enterprises was only 10%, while the other 90% was covered by private companies. Especially by those who control gas extraction in Ukraine. Usually included here is Rinat Akhmetov’s DTEK group (under whose control is the largest private gas extractor “Neftegazdobicha); Burisma Holdings, no stranger to the ex-head of the Ministry of Environmental Protection Nikolai Zlochevsky; and Geo Alliance, close to Viktor Pinchuk. As DS News reported, last year the companies of the above businessmen made the decision of the district administrative court of Kiev, which nullified the decision of the Cabinet of Ministers on the prohibition of private gas producers to directly sell domestically produced gas to industrial consumers. This verdict last spring was upheld by the Supreme administrative court, maintaining the victory of the private companies. 
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> However, the new attempt to restore Naftogaz’s hegemony in the market is unlikely to succeed. It is highly doubtful that the largest domestic business groups want to opt out of closed production chains, meaning the supply of energy resources to related structures. But in any case, the increase in the number of Naftogaz’s industrial contractors will have a positive effect on its revenues. Another issue is that these resources may go to future development of enterprises, and to plugging its countless financial holes. A new hole will soon appear: Andrei Kobolev has already announced that he has launched a political decision to negotiate with the IMF on the reduction of loss-making tariffs on gas for the population.
>  
> http://www.dsnews.ua/politics/-naftogaz-nastupaet-na-pyatki-ahmetovu-i-zlochevskomu-17112015134000 <http://www.dsnews.ua/politics/-naftogaz-nastupaet-na-pyatki-ahmetovu-i-zlochevskomu-17112015134000>
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> Pero Jolevski
> Blue Star Strategies
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