Naftogaz to be profitable in 2024-2028 with financial results depending strongly on Public Service Obligations - MinFin
MOSCOW. Oct 31 (Interfax) - The Naftogaz Group will be profitable in 2024-2028 depending on the amount of Public Service Obligations, and the group's tax payments on how much the state budget compensates it for PSO.
Ukrainian media reported that the forecast was part of annual information on fiscal risks drafted by the Ukrainian Finance Ministry based on data from state-owned companies in the framework of the 2025 state budget's adoption.
The document gives three possible development scenarios for each of the eight largest government-related enterprises based on macroeconomic scenarios developed by the Economy Ministry. The positive scenario envisages the crisis ending during 2024, the baseline scenario by the end of 2024 and the negative scenario by the end of 2025. Each GRE provided input data on specific variables for each scenario.
"The Naftogaz Group is expected to be profitable in the medium term in all scenarios. Its operating results largely depend on PSO, which affect profitability. For all scenarios, revenues are higher in the years when compensation for PSO is paid," the information says.
Cash flows for the budget will be negative due to the significant amount of PSO compensation expected this year, under the baseline and negative scenarios in 2025.
In all three scenarios, the group will receive PSO compensation of UAH 41.9 billion in 2025, and potentially UAH 20 billion in the baseline scenario in 2026. The group's capital expenditures increase from UAH 36.5 billion in 2024 to UAH 50 billion in 2028 in the baseline scenario, while in the negative scenario they remain at UAH 33 billion per year.
The government renewed PSO for Naftogaz in 2022 to serve the interests of the general public and ensure the effective functioning of the natural gas market, and they can be extended indefinitely. The company expects to receive PSO compensation for 2022-2023 in 2025-2026. A delay of several years between costs incurred and receipt of compensation affects the company's liquidity.
The document says Naftogaz swung to profit in 2023 from losses in 2022. The improvement in profitability was due to higher revenues combined lower expenses. Despite higher productivity, the company's 6% return on equity in 2023 did not provide the government with acceptable return on invested capital.
Naftogaz's liquidity also improved in 2023. The current liquidity ratio was 1.4, up from 1.0 in 2022, but remained below historical levels of 2.5-3.0.
"This indicates that the company has enough working assets to meet its short-term obligations, but the buffer is limited," the Finance Ministry said.
Naftogaz still needs a long time to collect debts from its debtors, with 86 days for accounts receivable turnover in 2023 and 99 days in 2022. The number of accounts payable turnover days was unchanged at about 30 days, indicating that the company pays its suppliers on time.
The company's debt to assets ratio in 2023 was level with 2022 at 40%, which is above the historical 30%. The crisis has had limited impact on oil and gas production, and the group expects to increase this.