Artyom Kompan, the person in charge of Dmytro Firtash’s gas business: UAH6.99 is a political price, we will challenge it

How will the gas market change following the price fixing by the Government? What will Dmitro Firtash's companies do to maintain their positions? and What will be the outcomes of their war with Naftogaz?

In Dmytro Firtash group, Artem Kompan has been in charge of the sancta sanctorum, i.e. the gas sales, for eight years. Here volumes are measured in billions of cubic meters, and customers - in millions of people. All these figures are in the name of another one: the niche for which Kompan is responsible is capable of generating about UAH 100 billion in revenues per year.

Who is Artem Kompan

 

— There is no publicly available information about your biography. Could you, please, name the major milestones.

— I studied at the Kirovograd State Pedagogical University. I studied there for a year and a half and emigrated to Germany as a Jew. There, I learned the language, returned to Ukraine and got a job.

I worked as an auditor in a number of private companies and then moved to Poltava. I got a job as a metal worker without a category at Poltavagaz and at the same time received a second degree as an engineer in the oil and gas industry at the Poltava National Technical University named after Yuri Kondratyuk.

After that, I moved up through the career ranks in various companies. In addition to Poltavagaz, I worked at Sumygaz and Dnepropetrovskgaz.

— Usually a person progresses within the single company. How come that you progressed in three of them?

— In "Poltavagaz" I worked up to the foreman. At that time, the person who was the head of the department got a promotion. He was offered the job as a deputy head at Sumygaz. He took me and some other guys to work as engineers.

There, we achieved some success, following which I was invited to work as a deputy head of the regional gas department in the Dnipropetrovsk region, where my career took off, if I may say so.

 — Your associates describe you as a person with high intellectual and organizational skills, but it often happens that even a person who is anything but stupid needs assistance.

They say that you are a relative to Yurii Frenkel from Dnipropetrovskgaz. How significant was the role that he played in your career?

— He is my uncle. In a way, you can say that my career progress might be attributed to him. I really learned a lot from him, worked under his command, and my career growth in Dnepropetrovsk was partly due to the fact that we really worked together. Following my move to Kyiv, my career development is the result of the actions I pursued and decisions I made.

— You were also a local councilor at the Pokrovsky District Council in the Dnepropetrovsk Region.

— Yes, this is true.

— Did it take place parallel to your position at Dnipropetrovskgaz?

— Yes. I served as a local councilor at the Pokrovsky District Council, and if you would ask me this question, then yes, I was a member of the Party of Regions.

— The question is not about the Party of Regions. It's about the fact that the person who until recently was a metal worker in Poltava region becomes the deputy head of Dnipropetrovskgaz and, in parallel, a local councilor.

— Now, unfortunately, this is not the case, but in the past the attitude towards power engineers, including gas workers, was different. You need to consult people working in this area on certain issues.

If you held a certain office at that time, then you had to be a member of the regional council. When this attitude changed, I left office, resigned as a local councilor and moved to Kiev.

— In what year did you become the CEO of RGC "Trading" and who offered you this position?

— In 2013, since the inception of this company.

— Was it Oleksandr Prytyka who offered you this position? (former CEO of Dmytro Firtash's Gas Regional Company. – EP)?

— Yes, he was my immediate supervisor. I offered him a model of unbundling the regional gas business. He told me: "Once you've drawn this model, are you ready to implement and lead it?" I told hom: "Yes".

— As to your personal business: which companies can you identify?

— My personal business is not that big. I have two brick factories and a mineral water factory. This is a family business, I am not involved in it now. Other people are taking care of it.

— I will call several of your companies, and you tell me which ones are relevant. Poseidon Plus travel agency, Keramik-Pryluky trading company.

— I don't even remember these names. I assigned a task to my lawyers to shed assets off me that I do not deal with. I have already told you what assets belong to my family.

— When Prytyka left RGC, there was a period when Dmitro Firtash personally was in charge of this company. There is information that during this period you worked in direct contact with Firtash in Vienna.

— Dmytro Firtash has never dealt directly with RGC. It's true that I lived in Vienna. I moved there to live with the family. I was involved in the development of business infrastructure to open the gas market. I was building an infrastructure that would allow importing gas from EU to Ukraine directly.

Naturally, I communicate with Dmytro Firtash, but I am his hired manager, we have a purely employer-employee relationship. I have a contract that I must honor.

I did not communicate with Dmytro Firtash before moving to Vienna.

— How did you get to know him?

— I don't remember the details. I came upon request. I was offered to head the European direction. When it became clear that the gas market was about to open, I returned to Ukraine to get the company ready to work under the market conditions and sell gas to end consumers in Ukraine.

On gas price regulation, Egaz margin and the war with Naftogaz

 

— What is the gas overstock of your company? In billions of cubic meters (bcm).

— I have about 9 contracts with different suppliers and each one of them has its own terms of payment. I am working on deferred payment. There is no other way to work in Ukraine.

— They say that the company's debt to European suppliers is equal to 3 bcm. How accurate is this estimation?

— 3 bcm of gas is equal to three months of consumption by our customers. This is not the case. In our case, the deferred payment is 45-50 days, and the monthly consumption is about 1 bcm.

Our debt to suppliers is in line with this time frame. We do not see this as a problem. We do not stop working. We work on a delivery cycle. It was like that all the time.

— 45 days is equal to 1.5 bcm of consumption.

— Yes, approximately.

— Now these 1.5 bcm are turning into a hard-to-recover amount by

Egas (Egas LLC at the end of 2020 was renamed as Ye Energiya LLC. – EP) because of the price fixing by the Government?

— The state sets a limit on 1 February. Consumers will receive gas bills for February in March.

— That is, you manage to break even on your current contracts with European gas sellers, but you have no idea how you will enter into contracts for new periods.

— You have to decouple the problem. This is not the first time when the state has resorted to such price regulation. In January 2020, the Cabinet of Ministers of Ukraine have already obliged all private suppliers to change the price. This led to the accumulation of losses that have already been presented to the state. They are the subject of the court proceedings.

We have not yet made a decision on the current situation, but we will be ready to announce it in the nearest future.

— The spread in gas prices for the population between Egaz and NJSC "Naftogaz of Ukraine" is about 40%, while 6 months ago it was only about 5%.

Does this mean that now, when Egaz faces the risk of losing consumers, it is not so much the government with price regulation that is to blame as Egaz with predatory price?

— Super profits or super margins are a myth. Let's see why the spread in prices between us and NJSC "Naftogaz of Ukraine" now is different than it used to be in the past.

First, NJSC "Naftogaz of Ukraine" has large reserves of imported gas, built at the expense of taxpayers' money. Second, NJSC "Naftogaz of Ukraine" owns 70% of the Ukrainian gas produced through the rights to Ukrgasvydobuvannya. This "mix" allows them to have a cheap resource.

We do not have access to the gas produced by Ukrgasvydobuvannya on understandable payment terms, so we continue to fight to ensure that access to the gas of Ukrainian production is equal for all suppliers.

During these months we have been working under contracts with European suppliers. Therefore, as soon as gas prices began to grow in the global markets, our price for the end consumer began to grow too, while for NJSC "Naftogaz pf Ukraine" it stalled at a certain level. I would call it a "political" price because it does not reflect the market trends.

— What is the margin of Egaz sales companies selling gas to the population?

— First, we are tied to import parity. Second, we have the infrastructure that we pay for. It includes online and offline customer support centers, receipts, banking services, etc.

At the present, this infrastructure costs about UAH600 per 1,000 cubic meters. We work in terms of a 10% mark-up, as is customary in all civilized European countries.

— Is this 10% mark-up to stay?

— It remained at 10% until February when the government introduced a cap on the final price at UAH6.99.

When the decision was under discussion, we wrote: guys, UAH6.99 is a political price, we will challenge it. We are ready to show our import contracts, show the indices at which we purchase gas.

You can compensate us as a supplier or the European companies that supplied us so that we do not owe them, or the end consumer. This is the most civilized approach. This approach works throughout Europe. We are ready to break down our margin.

— They say, you have a margin of at least 20%.

— This is not the case. When they calculate our margin, they calculate based on the lowest price in Ukraine, the price of NJSC "Naftogaz of Ukraine", but it sell gas not at the market price.

What will happen next? If the government did not introduce price regulation, suppliers could work to improve their contracts for the coming season. The decision to regulate prices implies the reversal of the reform that scares European companies. This raises questions and rejection from Europeans and major players.

— Have you considered the option of lowering your price in order to push the government to abandon the idea of its manual regulation?

— We are a law abiding company, we are not going to break the laws, and we never did. Our proposal is simple: the government must support market participants - consumers, suppliers or manufacturers - and compensate for the difference between the market and regulated prices.

— NJSC "Naftogaz of Ukraine" estimated the number of customers who changed the suppliers at 10,000 -12,000 per day. Do you confirm this loss of customers?

— Indeed, there is a loss of customers. I heard a statement about 10,000 - 12,000 customers per day. We are now seeing a loss rate of 2% of our customer base. 2% is 150,000 - 200,000 per year.

— Do you plan to supply gas at a fixed price and then go to court for compensation?

— We hope that the government will listen to our opinion. I am not alone in this reasoning. As soon as we started talking about the price, we immediately came forward with our proposal for subsidies.

I see that this topic has been picked up. According to the Minister of Finance, the IMF is not happy with the regulation. We will explain that the trial will be between us and the European partners who supply us with gas. We will go to court.

We do not plan to let consumers go to the supplier of the last resort for two months. We are considering various options and we will fight for our business in compliance with the laws.

The state raidership and favoring the monopoly of NJSC "Naftogaz of Ukraine" completely contradicts the obligations that the Cabinet of Ministers took before the international partners. In addition, we turned to the AMCU with a demand to deal with the issue of dumping.

What is the market share of the companies and what does Kompan discuss with Kobolev

 

— What does the market look like now? How close to reality are the following figures: you have more than 85% of consumers, while NJSC "Naftogaz of Ukraine" has slightly more than 5%, and the supplier of "last resort" has 6.2% (shortly before the interview Andriy Kobolev, CEO, NJSC "Naftogaz of Ukraine", stated that the company supplies gas to 9% of consumers. – EP)?

— Gas sales companies a priori have the lion's share of consumers, because historically it was their client portfolio. If we talk about frequent disputes, then NJSC "Naftogaz of Ukraine", tentatively speaking, while having 100% access to the gas produced by Ukrgazvydobuvannya, plans to seize a monopoly on the end-consumer market.

In order to estimate the market shares of the suppliers, we, as the Association of Energy Suppliers, have ordered an independent audit as we want to understand this issue.

Historically, the companies that supplied gas as public service obligations (PSO), now sell to more consumers than does NJSC "Naftogaz of Ukraine".

If we talk about competition, we see more risks from oblenergo (the regional power distribution companies) – EP) rather than from NJSC Naftogaz of Ukraine". In my opinion, NJSC "Naftogaz of Ukraine" has taken a certain position and lays claims to the consumer segment, which is in "digital", but this is a very small share of customers.

Historically, many customers go to offline points of sale. Each supplier chooses for itself the segment in which it is more comfortable to work. Nobody is forcing anyone to purchase gas at one price, if he or she can purchase the gas at another price. The choice is yours. Nobody stands in the way of the customer who wants to change the supplier, even more so that the transition has been simplified.

— Your opponents say that local gas DSOs and gas sales companies are still unbundled and jointly take efforts not to allow the customers to change the suppliers.

— Then where does this figure 15,000 customers changing suppliers every day – EP) come from?

— DSOs employees were recorded as saying that they were instructed regarding the customers' who wants to change the suppliers.

— I have no knowledge about such recordings. There are designated authorities to address this issue. I don't believe in any fake stories. Many people try to shunt the shortcomings in the work that they do onto the shoulders of other companies and say that they are failing because they are not allowed to do anything.

I repeat my question: where do 15,000 transitions per day come from? If this was the case, I think there would not be so many transitions.

Our business model suggested no artificial blocking of customer transfers. We were ready for the outflow.

— Perhaps this outflow would be even greater if there were no such stories? There are cases when EIC-code is printed on the side edge of the bill, which also complicates the transition.

— EIC-code is not a problem, the operator has it. Each consumer has a personal EIC-code recorded in the personal account. This is also one of the common fakes: "We have a problem, if the EIC-code was printed not in the left corner, but in the right one, then, probably, we would have 30,000 transitions instead of 15,000. This is an unprofessional.

— Developments around the gas price looks like a fray between NJSC "Naftogaz of Ukraine" and your group...

— There is no fray, we are not at war with anyone. We are in a situation they put us in. It would be fair for us if all market participants had equal access to the gas produced by Ukrgazvydobuvannya. We are not alone in this judgment.

— The issue is that both NJSC "Naftogaz of Ukraine" and you have resources to withstand the fixed price. There are just over 10 independent suppliers. What shall they do? They have neither gas produced by Ukrgasvydobuvannya nor the number of customers that you have.

— Many of these companies are members of our association, we are consolidating our actions with them. Naturally, they are afraid of going bankrupt. They are blown away, to say the very least.

They were promised market conditions, they entered the market, received client portfolios, began to negotiate with European partners about long-term relationships and other forms of contracts for the summer period.

Many of them wanted to offer new portfolios since spring. This would allow them to compete, and people would get a much greater effect from this rather than from lowering the price down to UAH 6.99 for two months. They are really worried.

We have consolidated our position and have already written an official appeal to the Office of the President, the Prime Minister of Ukraine and the IMF with a request to help and call on the politicians to a more civilized model.

— These are temporary changes. The authorities say that during this time it is necessary to prepare structural changes to prevent market power abuse by private companies, meaning you, apparently.

— I watched the speech of the Prime Minister of Ukraine and I want to say that without investigation, analysis and facts, no one has the right to speak about any abuses.

So far, these are, unfortunately, populist statements. If we talk about the decision, then, in our opinion, it is emotional, it's a blow to reforms and works in favor of one market participant, i.e. NJSC "Naftogaz of Ukraine".

— How will this decision change the market structure?

— What do you think will happen when private suppliers, who believed in the market opening, incur losses and some of them default on European contracts?

Following this decision, when will the European partners want to go down in history again with the market for individuals and what will happen to these suppliers? They will simply lose their business and go to court against the Government.

— How good are the chances in court if the ruling is adopted not as an act of regulating the commercial activities, but within the restrictions for the quarantine period?

— I am not a lawyer. Only court can decide whether this decision is legitimate. I am more than sure, though, that private companies that incurred losses will go to court.

— During the period that this decision will stay in force, the authorities will prepare options for changes to the law. They discuss the possibility of using the "hub minus" price formula.

— The "hub minus" price formula is actually a price cap (fixing a price ceiling. – EP). If we are talking about the market, then it should be the market, and not the Government regulation. There are only two models: socialism and the market, and there is no need to reinvent the Ukrainian bicycle.

There is a market approach: there is supply and demand, and then there is AMCU, which should control these processes.

If we are talking about socialism, then everything is very simple. The Government says that they have gas produced by Ukrgazvydobuvannya at the cost of UAH 3,000. We understand that we have a young country, people are not able to pay market prices, then the Government says that they will sell gas for UAH3,000 to all customers.

If we live in socialism, then we must have cheap gasoline, bread, gas, heat, electricity. This decision is up to the state, which sets the rules of the game.

So far, all talks about some kind of "hub minus" or "hub plus" are just declarative statements; though, "hub minus", in any case, is not a market approach.

— There are talks to resume direct purchases of gas in Russia. Recently, Yurii Vitrenko  talked about it.

— We are looking into various options. Naturally, we would buy where it would be more profitable to buy. At present, there are a number of technical issues that do not allow us to look in this direction. I'm not even talking about political issues.

If we talk about technical issues, then the only two exit points from Russia (Sudzha and Sokhranovka), in my opinion, have been completely bought out by NJSC "Naftogaz of Ukraine". There is no even a tariff for other exit points.

— What is your professional relationship with Andrey Kobolev? Do tensions between companies affect the relationship between managers?

— We are in a production dialogue with him, discussing various issues. I have my own opinion on how the market should operate, and my own judgment about market approaches.

We have some discrepancies. I believe that such an attitude towards Ukrainian gas production, as it is now, does not allow it to develop. I have my own vision how Ukrgazvydobuvannya should develop.

Energy is my hobby, my job and my whole life; so I have my own opinion on how it could develop. I believe that the "Program 2020" failed not because of unprofessionalism, but because populism exceeded the issue of professional approaches to the development of Ukrgasvydobuvannya.

I have always advocated for Ukraine to be a gas hub, given the existence of such underground gas storage facilities. Kobolev and I sometimes discuss these issues.

— Relationship between Kobolev and Prytyka did not work out at all. From Kobolev's side, it looked like "I have nothing to talk about with Firtash's manager." Why does he have something to talk about with you?

— I didn't know anything about the kind of relationship they had. I did not ask them these questions, to be honest, I am not interested.