The January wholesale gas price for households, heat producers and other protected consumers receiving gas under the terms of public service obligations (PSO) will be UAH 4.65 per cubic meter (net of VAT, retail margin, transmission and distribution costs). This price is 25% lower than that of January 2019 and 15% lower than the price offered by Naftogaz for January 2020 in December 2019.
Naftogaz has calculated the new price according to the government’s Resolution #17 of 24 January 2020. With the new guidelines on PSO gas pricing, Ukraine is honoring its commitment to the IMF to deregulate the Ukrainian retail gas market gradually and introduce competition in this segment.
The wholesale price offered by Naftogaz reflects import parity level. According to the new formula, the price for the current month is based on actual gas trading data during the first 22 days of a given month. The company will publish the price for the current month within several working days after the 22nd of the month.
Naftogaz has also disclosed all components of the wholesale PSO price and provided links to public sources of this data.
Composition of the new gas price
According to the Cabinet’s Resolution #17 of 24 January 2020, the gas price for households, heat producers and other privileged consumers receiving gas from Naftogaz under the terms of public service obligations (PSO) is based on the following components:
· TTF prices. Average end of day gas prices (Day-Ahead and Weekend) at TTF hub for the first 22 days of the gas delivery month. Source: Powernext/EEX: https://www.powernext.com/spot-market-data
· Spread between prices at TTF and at the Ukrainian border, consisting of the spread between TTF and NCG, the closest liquid gas hub to Ukraine, and the cost of transmission from NCG to the Ukrainian border via the shortest route (Germany – Austria – Slovakia).
· Entry tariff to the Ukrainian GTS at interconnectors with Poland/Slovakia/Hungary paid to the Ukrainian TSO. Source: Ukrainian regulator (NERC): https://www.nerc.gov.ua/?id=18343
· Trade margin to cover Naftogaz costs arising from gas sales/supply to consumers, including gas storage costs and loan interest. The trade margin is 1.917% according to item 6 of CMU Resolution #867 of 19 October 2018 applied to purchasing domestically produced gas.
It is expected that the gas pricing formula approved by the government will be applied to gas for PSO consumers until 30 April 2020. Naftogaz will use this formula to calculate its monthly prices from January to April 2020 inclusive.
The approved procedure means that the gas price for PSO consumers in Ukraine will change according to European market trends. The price may either decrease or increase depending on market situation, supply and demand balance, as well as weather conditions.
Ukraine committed itself to fully liberalize its retail gas market and ensure competition in this segment starting from 1 May 2020.
The retail price for end users also includes other components beyond control of Naftogaz. They are defined by the government or energy regulator and include gas transmission and distribution costs, retail margin of 2.5% and 20% VAT.
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