Unbundling / What the Unbundling of the GTS Operator Is, Why Naftogaz Is Doing This, and What Has Already Been Done

The matter of unbundling the transmission system operator, or the TSO, has turned into a fetish of sorts.

Calls for unbundling are being sounded by those who are eager to plunder Naftogaz while there’s still time, or those who just want to “divide and rule” it in order to perpetuate corrupt schemes.

Demands for unbundling also come from those who are doing reforms for the sake of appearances, “just to check the box”. They focus on form, not substance, and appear to not care for a correct sequence of reforms, which has implications for their outcomes.

What’s probably most important is that Russia is actively lobbying for the unbundling of the Ukrainian TSO through its agents of influence in Europe and in Ukraine. Moscow knows that real unbundling, if it were to be completed before the expiration of the transit contract in 2019, requires either suspending transit (and then Russia will deprive Ukraine of the revenue for transporting gas to Europe) or obtaining consent from Gazprom (and Gazprom does not seem inclined to give it).

In other words, Russians understand that Ukraine cannot currently comply with this requirement of the European legislation. Which is why the Kremlin’s agents of influence are promoting the “fetishizing” of this issue, making it a thorn in the side of Naftogaz and Ukraine as a whole. They are also using it as one of the arguments in favor of the construction of Nord Stream 2 (a pipeline that would bypass Ukraine, thus accomplishing its goal of depriving Ukraine of its gas transit revenues).

The fact that the aforementioned interest groups have joined forces in trying to spread allegations that “Naftogaz does not want unbundling” makes it difficult to make myself heard when I’m trying to tell what has already been done towards that goal. However, I promised I would cite specific examples when talking about what was accomplished under my purview. And there are things absolutely worth mentioning.

For example, I have led the effort to create an Ukrtransgaz subsidiary called “GTS Operator”. This subsidiary is currently ready to be unbundled in full accordance with European legislation. This effort has received positive marks from a competent European institution.

Yes, the process has not yet been completed. But during all that period of time I have not seen anybody else actually do something towards unbundling the TSO rather than talk about it.

Unbundling is form, not substance. The substance is ensuring non-discriminatory access to the GTS for all participants of the wholesale gas market.

But this is not even my main point. Unbundling is form, not substance. The substance is ensuring non-discriminatory access to the GTS for all participants of the wholesale gas market. If we base our judgment on substance – well, then, we have already provided this access. At least I have not heard any well-grounded complaints to this effect from market participants.

There is only one important catch here: Gazprom has preferential access to the Ukrainian GTS – a fact that has been acknowledged by the Secretariat of the Energy Community. At the same time, the Russian company is refusing to modify the transit contract with a view to having it comply with the general practice. Precisely this factor is the main obstacle on the path to the unbundling.

*The feature series “Naftogaz Against Gazprom” is running in partnership with Yuriy Vitrenko, Executive Director of Naftogaz Group. Opinions expressed in these features do not necessarily reflect the views of Naftogaz Group or NV editorial team.