OREANDA-NEWS. November 23, 2007. Naftogaz of Ukraine's representatives suspended gas talks in Moscow due to the threat of tax authorities to block company's operations. Ukrainian tax authorities say they can suspend operations of Naftogaz because of company's debt to the state budget. Therefore Naftogaz of Ukraine's delegation working in Moscow under the leadership of Executive Board Chairman Evgeniy Bakulin, ceased negotiations on natural gas deliveries in 2008-2010 with Gazprom and urgently returns to Kiev to prevent possible forced freeze of company's work by the tax authorities of Ukraine.

Naftogaz of Ukraine said in its official statement that it possessed information about the possibility of forceful seizure of company's administrative building by tax authorities for the execution of administrative arrest of the enterprise. Ukrainian tax authorities say Naftogaz of Ukraine ought to pay about 89 million hryvnia ($17.6 million) to the state budget of Ukraine. This debt was formed in Q1 2006 when the company was headed by Alexander Bolkisev.

In the beginning of August 2007 Ukraine's National Security and Defense Council ordered the government to explore and analyze the financial situation in the Naftogaz of Ukraine by August 20, 2007. The Cabinet was to prepare the proposals concerning the financial recovery of the company and approve measures to prevent the possible loss of company's assets (such as main pipelines, gas distribution networks, underground storage facilities), in particular, by their transfer under debt obligations. Later the President of Ukraine Viktor Yushchenko in its letter to Prime Minister Viktor Yanukovich expressed an opinion that the government is not interested in the financial recovery of Naftogaz of Ukraine. The President pointed out that companies financial plan for 2007, approved by the government, demonstrates the significant decrease of the company's sales and turnover compared to 2006. In November 2007 Yushchenko said that Naftogaz of Ukraine's 2008 financial plan should be balanced and contain no deficit. This document was to be approved before the 2008 state budget law would be passed, Yushchenko insisted.

Earlier, on August 7, 2006, Ukraine's First Vice Prime Minister Nikolai Azarov said Naftogaz of Ukraine was "a bankrupt in fact" and the government planned to initiate the revision of its business, including the gas sales scheme. On August 17, 2006 Ukraine's new Vice Prime Minister Andrei Kliuev informed that Naftogaz's cash deficiency reached $1.6 billion. He added that the government had developed a special plan aimed at the financial recovery of the company and would like "to pull it from the hole" by February-March 2007. In the beginning of March 2007 Ukraine's Minister of Fuel and Energy Yuri Boyko said that the financial position of the Naftogaz of Ukraine had already stabilized and all the talks about the company's bankruptcy "became political and were really baseless without any solid grounds."

Moreover, Naftogaz of Ukraine decided not to publish its 2006 financial results under International Financial Reporting Standards (IFRS) which it was obliged to present according to the conditions of 2009 Eurobonds issue.

The National Joint Stock Company (NJSC) Naftogaz of Ukraine is the leading enterprise in Ukraine's fuel and energy complex, one of the biggest Ukrainian companies. In 2005, NJSC Naftogaz of Ukraine produced one-seventh of the GDP of Ukraine and brought $2.25 billion in state budget revenues. The total number of the Company's employees is about 170,000, or about 1% of Ukraine's employable population. NJSC Naftogaz of Ukraine is a vertically integrated oil and gas company engaged in full cycle of operations in gas and oil field exploration and development, production and exploratory drilling, gas and oil transport and storage, supply of natural gas and LNG to consumers. Over 97% of all the oil and gas in Ukraine is produced by the enterprises of the company. Naftogaz of Ukraine processes gas, oil and condensate at the company's five gas processing plants, which produce LNG, motor fuels and other types of petroleum products. The company has its own brand filling station network. Aside from commercial operations, the company plays an important social role and supplies natural gas to households, budget-funded institutions and utilities at prices set by the state. Naftogaz of Ukraine is the main operator of Russian gas transit to European countries.