The company "GTS Operator" reports paying large amounts of taxes, but is in no hurry to show financial results, is practically not engaged in the reconstruction of the GTS and is mired in lawsuits and proceedings with the Antimonopoly Committee, writes A business.
Photo: GTS OperatorPhoto: GTS Operator
For one year and four months, GTS Operator of Ukraine LLC has been operating in the Ukrainian energy sector. It is a natural gas monopoly, providing transportation services for natural gas and the only certified operator of the gas transmission system, which, according to the company's official website, is completely independent of vertically integrated companies. The company's shareholder is Main Gas Pipelines of Ukraine JSC, 100% owned by the Ministry of Finance of Ukraine.
During this time, the company has achieved impressive results. Based on tax payments in 2020, GTS Operator ranked eighth among Ukraine's largest taxpayers, according to the publication "Rating. Business in Official Figures," based on the State Tax Service database.
The company claims to have paid UAH 14,9 billion in taxes to the state budget (UAH 11,8 billion excluding the unified social contribution and taxes assessed in 2020 but paid in early 2021). As a result, GTS Operator became the eighth largest taxpayer in Ukraine and the fifth largest among public sector companies. Furthermore, in just one year of its existence, GTS Operator has entered the top 25 best employers according to the Vlast Deneg magazine rating and the top 50 best employers according to Forbes. Ukraine and Work.ua.
It's all positive. But there's another, more hidden side to the life of Ukrainian Gas Transmission System Operator LLC, which a Delo.ua correspondent investigated. This includes bizarre procurement, scripted tenders, and abuse of monopoly power. But first things first.
Valuable games
In February 2020, over a year ago, the Gas Transmission System Operator (GTSO) changed the marginal selling and purchasing prices for natural gas for all transportation service customers. This would have been fine, but in February, the company changed the prices for January, a month that had already ended.
Customer companies—traders and gas suppliers—supply gas to their customers. To do this, they submit daily consumption forecasts to the GTS operator platform and supply the required volume of gas to the entry points.
If a company consumes more gas on a given day than forecast, the Ukrainian Gas Transmission System Operator (GTSO) provides gas balancing services to gas suppliers. This means, by law, the company is required to supply the missing gas to a specific gas supplier. The price of such gas is usually higher than the market price. However, in January 2020, the GTSO also revised this price upward. And retroactively, in February.
Companies that ordered transportation from January 1, 2020, to January 31, 2020, operated through the GTS Operator's information platform and, accordingly, relied on the prices listed there. However, in February, prices suddenly changed. As a result, traders and gas suppliers found themselves owing the GTS Operator an additional 800 million hryvnias. Formally, given its monopoly position, this constitutes a violation of Articles 50 and 13 of the Law of Ukraine "On the Protection of Economic Competition."
As a result, the parties to the case filed complaints in the courts and the Antimonopoly Committee. The courts sided with the traders and suppliers:
— On July 21, 2020, the Kyiv Commercial Court, at the request of Energy Trade Group LLC, decided to recover UAH 26,296,380.21 from the GTS Operator;
— On August 18, 2020, the Kyiv Commercial Court, at the request of Euroenergotrade LLC, decided to recover UAH 28,152,872.35 from the GTS Operator;
— On September 1, 2020, the Kyiv Commercial Court, at the request of Gazenergopostach LLC, decided to recover UAH 6,543,821.86 from the GTS Operator;
— On September 28, 2020, the Kyiv Commercial Court, in response to a claim filed by TAS Energy of the Country LLC, decided to recover UAH 6,790,927.96 from the GTS Operator.
There are five more similar lawsuits totaling over UAH 100 million. All are awaiting their respective hearings. Gas suppliers have informed us that they are also preparing to file lawsuits. The total claims against the GTS Operator are expected to reach UAH 800 million.
Just recently, the Supreme Court of Ukraine ruled in favor of TAS Energy. In it, the court stated that it is necessary to examine the question of whether the GTS Operator is performing balancing actions as the basis for setting marginal prices. In other words, whether the service itself is being provided or merely an invoice issued for its provision.
People and connections
The GTS Operator is being defended against lawsuits by market participants by the law firm AEQUO. Maria Nyzhnyk, former First Deputy Head of the Antimonopoly Committee of Ukraine (AMCU), is a partner and head of its antitrust and competition law practice. In April 2019, President Volodymyr Zelenskyy dismissed her from the committee amid controversy over two journalistic investigations into corruption totaling over one and a half billion hryvnias.
By a strange coincidence, the Antimonopoly Committee of Ukraine (AMCU) has so far been slow to consider companies' complaints. Moreover, at the end of 2020, the antimonopoly authorities responsible for protecting competition agreed to the GTS Operator's demand that the National Commission for Regulation of Electricity and Utilities Prices, which regulates the market, be involved in reviewing market participants' complaints. This, according to many market participants, is not entirely consistent with the law, which prohibits duplication and overlap between two different responsibilities of state bodies. Furthermore, the National Commission itself has yet to participate in the inspection of the GTS Operator of Ukraine, initiated by independent gas suppliers.
There's another curious detail. On February 17, 2021, the National Commission for State Regulation of Energy and Public Utilities (NKREKP) approved a resolution "On approving the candidacy of the controller of the Ukrainian Gas Transmission System Operator (GTSO) Limited Liability Company." According to the resolution, Iryna Komarida is to oversee GTSO. According to open sources, she is a former assistant to Ukrainian MP Olga Belkova. This is the same Olga Belkova who currently holds the position of Director for Interaction with Government Agencies and International Organizations at GTSO. This is the same Olga Belkova whom Oleksandr Lisnichenko, head of Main Gas Pipelines of Ukraine (owner of GTSO LLC), claimed in July 2020 that she was hired in violation of the Law on the Prevention of Corruption, according to a letter from Lisnichenko published by Ukrainian News.
Moreover, this is not the first instance of the National Commission for State Regulation of Energy and Public Utilities (NEURC) playing into the hands of the GTS Operator. In August 2020, the regulator permitted the company to refuse financial guarantees from gas suppliers issued by banks not considered systemically important by the NBU. Among these is state-owned PrivatBank, whose Supervisory Board member is Serhiy Alekseenko, a former colleague of the head of the GTS Operator, Serhiy Makogon. PrivatBank profits considerably from providing financial guarantees to natural gas suppliers, which market participants estimate to be worth UAH 3 billion per day over the six-month heating season.
Ultimately, the suppliers appealed to the Antimonopoly Committee of Ukraine and the courts, and in October 2020, a court suspended the NKREKP's decision. The Antimonopoly Committee of Ukraine, however, deemed the decision a "threat to competition in the market" and recommended that the GTS Operator amend the GTS Code to accept financial guarantees from all financial institutions holding the appropriate license from the National Bank.
Purchases and repairs
According to the Ukrainian GTS development plan for 2020, investments in construction, major repairs, and reconstruction of gas transmission system components were expected to total UAH 1,492 billion. However, according to the GTS Operator's financial statements, only 14% of this plan was funded in the first nine months of 2020.
In particular:
• construction of gas pipelines - 0,05% of UAH 43,125 million
• major repairs of gas pipelines - 3,95% of UAH 19,556 million
• reconstruction of gas pipelines - 14,15% of UAH 188,070 million
• reconstruction of gas distribution stations - 0,64% of UAH 15,760 million
• construction of compressor stations - 0,88% of UAH 25,892 million
• major repairs of compressor stations - 0% of UAH 18,710 million
• reconstruction of compressor stations - 28,74% of UAH 435,787 million
• technical re-equipment of compressor stations - 15,39% of UAH 209,444 million.
Meanwhile, in June, the GTS Operator halted gas injection into Ukrainian storage facilities from the west, shutting down the Budyntse connection point for repairs. Market participants then began to question why repairs began in the summer, when cheap European gas could be pumped into Ukrainian storage facilities, and not in October, when prices began to rise. Back in July 2020, Oleksandr Lisnichenko of Main Gas Pipelines of Ukraine complained to the Supervisory Board of MGU that the head of the GTS Operator, Serhiy Makogon, was directing funds toward bank deposits and the purchase of natural gas, instead of reconstructing the gas transmission system.
Here's where the company's money goes: in March 2021, RBC-Ukraine published an article titled "American Gas Pipeline Company Becomes Main Valve Supplier for GTS Operator." According to this article and data on the Dozorro website, the American intermediary company Vorex LLC won OGTSU's most recent tenders for the supply of shutoff valves for gas pipelines. According to data on the government procurement website, at the end of 2020, Vorex LLC won two tenders organized by OGTSU for a total of UAH 289,9 million. On January 5, Vorex LLC won a procurement tender from Ukrgazvydobuvannya worth UAH 156 million.
Vorex LLC is registered in the United States, in the industrial zone of the American town of Erie, by Fedir Zakusilo, a native of Ukraine. Energy expert Yuriy Kolomiets writes on Facebook that Fedir Zakusilo, along with another company, Liberty Tool International, has been cooperating with Naftogaz and its numerous subsidiaries since 2017. Deliveries peaked in 2019, when Liberty Tool International received the majority of its casing orders from China. Liberty Tool International and Vorex LLC also won tenders for various equipment, such as pumps and compressors.
According to an investigation by Nashi Groshi, the Naftogaz Group also purchased calibrators—devices for measuring the accuracy and calibration of measuring instruments—in a rather odd manner from 2015 to 2020. Firstly, the tender price was twice the price at the Ukrainian customs border. Secondly, preference was given (even under equal supply conditions) to Artvik Ukraine.
In short, the company "GTS Operator" is only a year old, but in this short time it has accumulated interesting details and operating methods that baffle both market participants and experts.
Despite the end of the financial year, the company is in no hurry to share its results and summarize its findings. The Ukrainian Gas Transmission System Operator (GTSO) was supposed to publish its financial statements on March 1, including those on balancing activities in 2020. From the report, all market participants could assess the scale of the costs incurred by the GTSO on system balancing. However, two months after the official deadline, this data is being concealed from market participants.
This also gives rise to unpleasant thoughts about why the state-owned company is so reluctant to share information about its activities with the people.
Dmitry Filipenko
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