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