Ukraine Update

RNS Number : 5601Y

Enwell Energy PLC

17 January 2022

 

17 January 2022  

Enwell Energy plc
("Enwell" or the "Company")

Imposition of Temporary and Partial Gas Price Regulation

by the Ukrainian Government to Support Social Initiatives

Enwell Energy plc (AIM: ENW), the AIM-quoted oil and gas exploration and production group, announces that the Ukrainian Government has issued governmental decrees to impose temporary and partial gas price regulation in order to support the production of certain food products through the supply of gas at regulated prices to the producers of such products.

These recently published governmental decrees establish a scheme (the "Scheme") under which all independent gas producers in Ukraine (as identified by a committee set up by the Ukrainian Government (the "Committee")) must sell up to 20% of their natural gas production for the period until 30 April 2022 at a price set at the cost of sales of the relevant gas producer (based on established accounting rules) for such gas, plus a margin of 24%, plus existing production taxes (the "Regulated Price"). This gas is then to be sold to specified producers of designated socially important food products (as identified by the Committee) at the Regulated Price, so as to reduce the energy costs of such producers during the period through to 30 April 2022. The designated products are certain types of flour, milk (with up to 2.5% fat), bread, eggs, chicken and sunflower oil, for sale in the Ukrainian domestic market.

Under the Scheme, the specified food producers must notify the Committee of their respective gas requirements for the forthcoming month, based on their production estimates for the designated food products during that month. The Committee will then notify the independent gas producers of the quantity of gas required under the Scheme, and the gas producers are obliged to supply such quantity of gas on a pro rata basis in proportion to each producer's prior month's share of the total production of such independent producers. The gas is then to be sold at the Regulated Price to certain specified gas traders via an existing electronic gas trading platform named the Ukrainian Energy Exchange (the "UEE"), who are then obliged to sell such gas to the specified food producers in accordance with their previously notified gas quantity requirements. There is also regulation on the margin that the respective specified food producers can apply in selling their designated products.

The Scheme is expressed to be a temporary measure until 30 April 2022 in order to support the production of the designated food products and to moderate the price of such food products for domestic consumers in a period where gas prices have been high in Ukraine. However, the regulation of gas prices through this mechanism, does present some serious inconsistencies between the market rules established at the time of deregulation of the gas supply market in Ukraine in 2015, as well as the commitments given to the international community at that time in relation to the functioning of the gas supply market in Ukraine.

In light of the very early stage of the Scheme, the precise mechanisms and procedures of the Scheme are not yet entirely clear, and the actual functioning of the Scheme in practice will need to be monitored and understood as it is implemented. Accordingly, the Company intends to closely monitor the implementation and operation of the Scheme, which will enable an assessment to be made, in due course, of the likely impact on the Company's operations and financial condition. However, since the Scheme sets the Regulated Price for a certain quantity of gas each month (with a maximum of 20% of production), the overall impact on the Company will be dependent on the quantity of the Company's gas requested by the Committee each month and the difference between the Regulated Price and the general market gas price.

The Company is continuing to investigate and monitor the Scheme and its implementation, and will provide a further update when more information is available.

Sergii Glazunov, Chief Executive Officer, said : "The imposition of this gas price regulation, albeit on a temporary basis, is a very concerning situation for the independent gas producers in Ukraine, and indeed for the investment climate in Ukraine generally. However, we recognise the underlying social issues that this Scheme is intended to address, and will monitor its impact on the market and our business."

This announcement contains inside information for the purposes of Article 7 of EU Regulation 596/2014, which forms part of United Kingdom domestic law by virtue of the European Union (Withdrawal) Act 2018, as amended.

For further information, please contact:

Enwell Energy plc	Tel: [phone]
Chris Hopkinson, Chairman
Sergii Glazunov, Chief Executive Officer
Bruce Burrows, Finance Director
Strand Hanson Limited	Tel: [phone]
Rory Murphy / Matthew Chandler
Arden Partners plc	Tel: [phone]
Ruari McGirr / Elliot Mustoe (Corporate Finance)
Simon Johnson (Corporate Broking)
Citigate Dewe Rogerson	Tel: [phone]
Ellen Wilton

 

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