Ukrainian energy company Naftogaz will not service loans for two years

Dhe warning shot came on Tuesday evening. During the day, the CEO of the Ukrainian state-owned company Naftogaz, Yuriy Vitrenko, claimed that 7.6 billion euros were needed for additional gas purchases in order to fill the storage facility with 19 billion cubic meters of gas and make it winterproof. In the evening, international lenders were asked to agree to a two-year moratorium on payments of principal and interest on current bonds – including those payments that are due in the next few days. The deadline for approval is Thursday next week.

Because Naftogaz is also Kiev’s biggest taxpayer, some in the market see it as the harbinger of an even bigger bankruptcy: that of the Ukrainian state. The finance minister had ruled out such a step, but parliamentarians had speculated about it. There had already been heated debates last week. By then, Naftogaz had announced that it would review its “liquidity and operational requirements in line with support for Ukraine’s strategic priorities, including with a view to preserving cash on hand.” As a result, the price of Ukrainian foreign currency bonds fell again. It is now hovering around 20 percent of face value, just as it was just after the Russian raid began.

The consequences of war are everywhere

Gunter Deuber can understand the worries about a payment default. But the chief economist at Austria’s Raiffeisenbank International (RBI) doesn’t see the financial situation as black. In fact, Naftogaz is not about very large amounts. The gas company should have enough cash in its foreign currency accounts to pay the $335 million in question. Deuber prefers to distinguish “between the ability and the will to pay”. He sees the deferral proposal to creditors more as a political wake-up call, “a warning signal from Ukraine to the West: you have to do more.”

Naftogaz justified the step with the liquidity bottleneck caused by the war imposed by Russia. Many customers could no longer pay their bills. The war led to a “significant economic and business downturn in Ukraine.” A month ago, the Eastern European bank EBRD granted Naftogaz a loan of 300 million dollars for the purchase of gas. Apparently that’s no longer enough. Electricity suppliers are also feeling the slump in business, reporting payment defaults and hoping for improvement because 80 percent of the income from the recently started electricity export to Central Europe is now shared among all companies.

The consequences of war are everywhere. Employees of the Ukrainian branch of the steel group Arcelor-Mittal only work two-thirds of the regular working hours – and they only get paid for them: “We are forced to radically reduce our costs in all directions,” company boss Mauiro Longobarod wrote to the workforce, according to the Ukrainian media .

New harvest in full swing

Economic activity is only recovering slowly, according to Olga Pindyuk, an economist at the Vienna Institute for Comparative Economic Research. Capacity utilization is still 40 percent below the level before the start of the war. The country’s economic output will fall by more than a third compared to the previous year.