Oleksii Tiutiunnyk: Gas industry cannot function without mutual dialogue as this is a single entity

Oleksii Tiutiunnyk, General Director of RGC, about how gas workers managed to keep gas distribution during the war, about efforts to restore gas networks, about taking the four companies by force, searches and lack of dialogue in the industry.

 

RGC is a production and technology company specializing in operational, production, engineering and R&D solutions for the gas distribution industry. 20 operators of gas distribution networks (the former regional gas companies) work under this brand throughout Ukraine. However, the last year has been very difficult for the company.

 

And not only because of the war. Corporate rights of distribution networks operators were seized to subordinate them to National Joint Stock Company “Naftogaz of Ukraine”. Management has already changed in four companies, and searches have been carried out in RGC head office. In addition, Oleh Nykonorov, who was heading the Company for 5 years, resigned from the position of RGC General Director in mid-February.

 

Oleksii Tiutiunnyk became a new head. He told NV about the aftermath of occupation of the northern regions of Ukraine for the gas business, about the confrontation with Naftogaz and the need for dialogue between all actors of the gas market.

 

— Let’s start with the latest events. At the end of March, law enforcement agencies conducted investigative actions at the head office of RGC. What is your reaction to these events?

 

— This is not for the first time when investigative actions are conducted against RGC-branded companies. Such events have already happened. But we always handled these situations with dignity. And in this case, it will be proven as well that all companies acted within the limits of legislation in force.

 

We provide seamless and accident-free gas distribution services to 8 million household consumers and 100,000 legal entities. This is the most important task that we faithfully fulfil despite the searches. Even during the war.

 

— Nevertheless, there is already a case of management change in four gas distribution companies operating under RGC brand. Do you have any information about what happens there, how they work?

 

— In practice, the entire management team has already been dismissed, and dismissals have begun among line managers. And it is odd, since it was thanks to these people that the companies operating in the front-line territories in Kharkiv and Dnipropetrovsk regions had been restored. All efforts were focused on resuming the gas supply to almost 300,000 consumers who reside in the war zone and the de-occupied territories.

 

It turns out that they waited until the moment when we calm the situation at the enterprises, and then changed the management.

 

Legal validity of actions in the case of the State Bureau of Investigation raises comments too. After all, blocking of securities transactions does not automatically entitle to change the management team. We consider these actions illegal, and we will defend our position in courts.

 

— You mentioned that these enterprises are subsidized, and located near the war zone. Could it be a motivation to take them under control because the situation is visually the worst there?

 

— The situation was critical from the first days of the war, but the previous management team did not run away, and stood by the employees to keep networks in operating condition. All enterprises operating under RGC brand, from Lviv to Kyiv, were assisting them with equipment, people, transport, and materials.

 

Three weeks before the raid, Kharkivmiskgaz employees who had stayed in the city since the beginning of the war were awarded honorary awards by the President of Ukraine. And then we have a change of management...

 

— Naftogaz says about its intention to change the management at other gas distribution networks operators. What do you think about such statements?

 

— Nobody’s insured against this. These are actions on the part of Naftogaz and state bodies. For example, we employed in RGC all key employees who were dismissed from gas distribution companies. To preserve these people. Because the key issue in operation of regional gas companies is not hardware, but specialists we have trained. A high-class specialist in the industry develops for 10–15 years. For 5 years, an employee observes and gains experience. For 5 years, he or she reflects and analyses. And only after 10 years, the employee can join the pool of employees who generate the future of the industry. And such specialists are simply thrown out of work. And inexperienced people are employed instead.

 

— How did gas distribution companies go through the last year and winter? We mostly heard about the heroic work of the energy workers who were restoring generation facilities and transmission lines. But it is likely that the gas sector had difficult situations too?

 

— The beginning of the war took all of us by surprise. It was a hot mess about until March 1, 2022. The most difficult situation was in the border regions — Chernihiv, Kharkiv, Sumy, Kyiv. But people did not leave their workplaces. They stayed almost all. They were monitoring the process of infrastructure protection and gas supply support. For example, in March, gas remained the only energy source in Chernihiv. They had neither light nor heat. Without gas, people simply would not survive. Unfortunately, 10 of our employees died while performing their professional duties.

 

At that time, we were actively restoring manageability of the company. We calmed the situation, returned people, equipment, and fitters, we developed military maps for them; we practically switched to a war footing.

 

As late as on March 8, we drew up the gas balance and the information was transferred to the gas market operator (UA Transmission System Operator).

 

As early as in May, we managed to convince our international partners to continue logistics of supply of the key technology and components. And we run the logistics and production of gas pressure regulating equipment (GDP and GPRC) to replace it in the de-occupied territories.

 

— Do you get ready for a major Ukrainian counteroffensive? Because the liberated territories will need restoration.

 

— We have had such experience in Kyiv, Kharkiv and other regions. Among our companies operating under RGC brand, those of them in Zaporizhzhia region are currently in the occupied zone. We have a clear road map, we have elaborated an action plan. An emergency materials stock has been compiled. A “transparent warehouse” system is in operation, through which each company can see what materials others have.

 

I am sure that after these areas will have been de-occupied, we will be able to restore gas supply in a reasonable time.

 

— Does the new management team of distribution networks operators seek your help?

 

— We have already received the first requests from them for the supply of gas pressure regulating equipment, because we are the only company that can produce it in a short period of time. So, they began to understand that a dialogue was needed.

 

— Alongside cabinets and equipment, what else needs to be replaced due to damage?

 

Many things: gas pipelines, valves, meters, gas pressure regulating units, that act as “transformer substations” on gas networks. For example, thanks to our production of metering devices, we could replace 75,000 meters destroyed during hostilities.

 

During the war, last December, a metrological center was opened in Ivano-Frankivsk. There, verification of meters for five gas distribution companies and assembling of household and industrial meters is already under way.

 

— Do you plan to export them?

 

— We are now certifying these meters for the Eastern Europe market. And we feel the consumers’ interest.

 

— The winter was warm, so Ukraine had enough gas. But I wonder how consumers behaved?

 

— Gas consumption in industry decreased by 50 %, thermal utility companies decreased it by 25 %, and people’s consumption decreased by 8–10 %. Please note that this information is only about gas distribution companies operating under our brand.

 

— Do you expect an increase in gas consumption by industry for 2023?

 

— We made all calculations based on last year’s parameters. We have not yet seen a large increase in consumption.

 

— By the way, we can constantly hear discussions about the volume of the process gas use. As if regional gas companies overestimate it.

 

— Production and process costs exist in each gas production site. About a billion cubic meters of process gas are used during extraction, and about a billion cubic meters are also used by UA Transmission System Operator and gas storage facilities, and the same is with distribution. For some reason, the public discussion always revolves around gas distribution operators and their production and process costs. But only they have methodologically confirmed volume of process gas consumption, which is fixed in methodology. All other actors in this process use their internal regulations to calculate these figures. At the same time, gas distribution operators have the lowest indicators of process costs compared to all other utility service providers.

 

— Who developed this methodology?

 

— It was developed by scientists of the Lviv Polytechnic National University and other research centers. Process costs are related to laws of physics, not to changes in management.

 

— Can these costs be reduced by optimizing and upgrading the networks?

 

— Yes, they can. That is why we draft network redesign projects. Gas distribution system of Ukraine has excess capacity, as it was built at Soviet times and designed to distribute 100 billion cubic meters of gas. Now we distribute 15 billion. We need to reduce the infrastructure of the system, and align it with the volumes of distribution. For example, over the past 4 years, we have replaced only 10 % of 35,000 existing gas regulating points.

 

— What are the approximate cost savings in places where you replaced them?

 

— It is about 20 %. Just imagine the scale of the task. It will take billions of dollars and 5–10 years to redesign and optimize the entire gas distribution network served by RGC-brand companies.

 

— What do you think about the prospect of connecting biogas production plants to your networks?

 

— We move towards Europe, we have no other way. Biomethane technology actively develops on the European market. Therefore, we should join this process.

 

— How quickly can this become practical?

 

— It has already become. Gas distribution operators who work under RGC brand were the first entities to order the implementation of standards for connecting biomethane plants to gas distribution networks in Ukraine and they paid for this work.

Biomethane will be launched at the first plant soon. A few more projects are in progress. We have studied these technology for 2 years, including the European experience.

 

— There is always a story about debts that exist between gas distribution operators and the UA Gas Transmission Operator. How is communication with partners on the gas market currently structured and whether you can see any positive changes there?

 

— For gas distribution production activities, the only source of funds is a tariff approved by the regulatory body within the license. Since 2014, the tariffs approved have remained marginal. Without an economically justified tariff for distribution, there will be someone to take the fall in terms of debts in the chain of extraction, storage, transmission and distribution, in any case.

 

By the law adopted, the state acknowledged that the gas distribution operators sustained losses because of unjustified tariffs, and they should be compensated. We have worked with the regulatory authority, we have updated the amounts of losses, and we are waiting for compensation.

 

— What was the financial result of gas distribution operators last year?

 

— Minus UAH 4 billion of short-received revenue in 2022, which is 20 % of the plan. Total losses for the year that passed amounted to UAH 7 billion.

 

— The dismissal of your predecessor, Oleh Nykonorov, came as a surprise. Why did that happen? Did he terminate cooperation with RGC and the gas sector?

 

— Oleh Nykonorov headed RGC in 2017 and actually created the company development strategy — from IT solutions to gas equipment production plants, which we were implementing as a team. Now he is engaged in other strategic directions, but it is too soon to speak of it. I think that the industry will hear about him more than once.

 

— Was the change in management team connected with the events in Kharkiv and Dnipro cities?

 

— In no way. These processes are separated at all. We should not look for conspiracy here.

 

— Then we can look for a conspiracy theory towards you. You have experience of work in a company with the word “Gazprom” in its title. How did you get in there, when and why did you leave?

 

— I never worked for Russian Gazprom, but I worked for Gazprom Sales Ukraine in Kyiv. This is a company that sold gas under contracts with Naftogaz. I joined the industry in 2007. Up the career ladder, I worked my way to the position of a Head of Dnipropetrovskgaz, JSC. In 2011, this company offered me the position of financial director. At that time, all managers of gas industry of Ukraine dreamed of a similar offer.

 

I had worked in this position until 2014. Right after the annexation of Crimea, I applied for dismissal because of my pro-Ukrainian attitude. In 2015, I joined the Regional Gas Company.