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Ukraine's Naftogaz makes first step to unbundle gas shipments

Ukraine has taken the first step toward unbundling its natural gas sectorby creating a subsidiary to operate its pipelines, national energy companyNaftogaz Ukrayiny said Monday.

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The subsidiary, known as the Operator of the Gas Transportation System ofUkraine, or OGTSU, is incorporated under state gas shipper UkrTransGaz and isin control of assets and personnel needed for gas shipments.

The development underscores the government's efforts to go ahead with amajor reform to unbundle its state-owned gas company Naftogaz by splitting itand creating independent gas producing, shipping and trading entities.

OGTSU shipped 12 Bcm of both, Russian natural gas to Europe and Europeangas to Ukrainian customers, over the past 30 days, Naftogaz said.

The next step will be transferring OGTSU assets to MahistralniGazoprovody Ukrayiny, or MGU, an independent business entity created by thegovernment earlier this year.

The transfer will be supervised by the energy and coal industry ministryand will start shortly after the Stockholm court of arbitration rules on ahigh-stakes gas supply dispute between Naftogaz and Gazprom of Russia. Theruling is expected by the end of February 2018.

PricewaterhouseCoopers Polska, jointly with UkrTransGaz, compiled thelist of assets that are crucial for MGU to continue shipments of Russian gasto markets in the European Union.

The list also identifies 'toxic assets,' unprofitable, non-core assets orthose based on territory not controlled by the government that must beexcluded from the transfer. The list must be approved by the government.

Gazprom moves half of its Europe-bound gas supplies via Ukraine, but itstransit contract is due to expire in 2019.

Ukraine fears Gazprom may abandon Ukraine as a key gas shipping route infavor of other projects.

In January-November, transit of Russian gas through Ukraine increased by15.9% on the year to 85.5 Bcm, according to UkrTransGaz data.

--Alexander Bor,

--Edited by Jonathan Dart,