Board of Directors reviews ongoing activities for creating single operators of network facilities in NCFD

The Gazprom Board of Directors reviewed the information on the creation of single operators of network facilities in the constituent entities of the Russian Federation that form part of the North Caucasus Federal District (NCFD), with transfer of network assets onto their balance sheet.

It was noted that Gazprom pays the utmost attention to the modernization of gas facilities in the NCFD. In 2018, in accordance with the instructions received from the Russian Government, the Company compiled a list of gas distribution companies (GDCs) of the Gazprom Group that could serve as single operators of network facilities. With support from regional authorities, GDCs are working throughout the NCFD to inventory gas networks, assess their technical condition, and buy out gas distribution assets that can be considered liquid and duly registered by their owners.

At the same time, systematic consolidation of gas assets in the NCFD is facing major challenges. In most cases, network buyouts are hindered by the lack of duly executed documents for property and corresponding land plots. There are many instances of property rights overlaps when the same asset is owned by different persons. Another significant challenge is the occurrence of losses during gas supplies due to extensive wear of supply networks and unauthorized tie-ins to gas pipelines, as well as insufficient tariffs for gas transmission. For these reasons, it makes no economic sense to acquire most of these assets.

Real prerequisites need to be created in order to establish single operators of network facilities and ensure that they are fully functional. Specifically, tariffs need to be made economically viable, and regional authorities need to intensify their efforts in regard to registering ownership rights for gas distribution assets and land plots. Moreover, it is important to draft single programs for asset overhaul and renovation in every region, outlining the sources of financing and the responsibilities of network owners in the implementation of such programs.

The Management Committee was tasked to continue working to create single operators of network facilities in the constituent entities of the Russian Federation that form part of the NCFD, with transfer of network assets onto their balance sheet.