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Diagnostic analysis ofreceivablesNational Joint-Stock CompanyNaftogaz of Ukraine

31 July 2015

UK-UA: Reform Assistance Advisory



Important notice

This document has been prepared for National Joint-Stock Company Naftogaz of Ukraine (the “Company” or “Naftogaz”) within the technicalassistance provided by the UK Government under the UK-UA: Reform Assistance programme. The objective of this document is to assist Naftogaz with the analysis of its receivables due from the sale of gas as set out in the Memorandum signed by the Ukrainian Government and theInternational Monetary Fund (the “IMF”) on 27 February 2015.

The work has been carried out in accordance with the Terms of Reference dated 9 June 2015, agreed between Naftogaz and the IMF. Given this work is strongly supported by the IMF and is a key part of their jointly agreed programme with the Government of Ukraine, the IMF can beconceived of as a secondary beneficiary of this document.



Andriy KobolevChairman of the BoardNaftogaz of Ukraine6, B.Khmelnitskogo Str.,Kyiv, 01001, Ukraine

Sergiy KonovetsDeputy Chairman of the Board

Naftogaz of Ukraine6, B.Khmelnitskogo Str.,Kyiv, 01001, Ukraine

Brett Nevin RaynerEconomist, EuropeanDepartmentInternational Monetary Fund700 19TH Street, NW

Washington, D.C. 20431

Stephen OldfieldT: +48227467266M: [email protected]

Donald BruceT: +48227467759M: [email protected]

31 July 2015

Dear Sirs

In accordance with your instructions as confirmed in the Terms of Reference dated 9 June 2015 (the “ToR” - Appendix 1), wereport on National Joint-Stock Company Naftogaz of Ukraine (the “Company” or “Naftogaz”) and its subsidiary undertakingsPublic Joint-Stock Company Ukrgazvydobuvannia (“Ukrgazvydobuvannia ”), Public Joint-Stock Company Ukrtransgaz(“Ukrtransgaz ”) and Subsidiary Company Gaz of Ukraine (“Gaz of Ukraine”) (together, the “Group”).

This report has been prepared in connection with the delivery of the Services set out in the ToR.

We draw your attention to important comments regarding the scope and process of our work, set out in Appendix 2.

Yours faithfully

Stephen OldfieldProject Leader



Table of Contents

Section Overview Page

1 Executive Summary 1

2 Background of the Group’s activities and regulations 5

3 Overview of receivables recovery process 11

4 Consolidated receivables of the Group 23

5 Individual receivables analysis 31

Appendices

1 Terms of Reference 41

2 Scope and Process 46

3 Additional Information 48

4 Glossary 56



31 July 2015

Section 1

Executive Summary

1

Diagnostic analysis of receivables • National Joint-Stock CompanyNaftogaz of Ukraine



31 July 2015

Summary of key issues (1 of 3)

Observation Comment

Consolidated debt of theGroup by customer categoryand year of origination

As of 31 December 2014, the total debt of the Group from the sale of gas amounted to UAH 38.7 bln, out of which 74%related to Naftogaz. Included in the gross amount of debt is UAH 2.9 bln of fines and penalties, which were accrued bythe Group following positive decisions of courts.

Complexity of the market Historically Naftogaz had limited visibility on amounts paid by the end user (e.g. households) and as such was reliant on

the intermediaries to pass on funds, once they themselves had been paid.

As such the Group was heavily dependent on the transparency and discretion of intermediaries (such as oblgases andheating companies) and the availability of national budget funds to cover any differences in tariffs and subsidies for thesocial vulnerable categories of population (e.g., pensioners). The introduction of special accounts (whereby a proportionof payments from end users is transferred directly to Naftogaz) has partially remedied the situation, although they haveonly recently been introduced for heating companies.

2

Section 1 – Executive Summary


UAH in millions

before

2010 2010 2011 2012 2013 2014 Total %

Heating companies 719 1,480 1,565 2,912 4,226 9,155 20,057 52%

Oblgases 126 2,111 250 41 1,012 4,436 7,976 21%Indus trial com pani es 788 1,926 1,977 381 39 1,698 6,809 18%

Other 934 255 26 1,659 600 363 3,837 10%

2,567 5,772 3,818 4,993 5,877 15,652 38,679 100%

as a % from total 7% 15% 10% 13% 15% 40% 100%

Source: Receivables ledgers of Naftogaz and Gas of Ukraine

Year of origination

As of 31 December 2014



31 July 2015


Observation Comment

Highly regulatedenvironment

Under the appropriate legislation Naftogaz is defined as a guaranteed supplier of gas and as such it is required to enternew contracts with customers despite the failure to pay for earlier gas supplies. However, the standard contractual termsof Naftogaz allow them to limit or terminate supply of gas or even terminate the respective contracts, if there is anunsettled overdue debt. Management commented that the clause on limiting or terminating the gas supply is regularlyapplied by the Company. However, historically Naftogaz did not terminate the contracts and the first cases where

Naftogaz has applied this clause are currently being challenged by the customers. The respective court decisions arepending.

Since 2005, legally the Group cannot enforce temporarily debt collection or bankruptcy for certain categories ofcustomers (further details are provided below). In addition, legislation was introduced in 2011 which imposed a write offof some debts for gas supplied prior to 2010 and a restructuring of debts for gas supplied in 2010. As a result, the Group

wrote off UAH 10,428 mln of debts and restructured UAH 3,765 mln (payable in instalments over a period of 20 years).

Similar legislation was adopted in May 2015, leading to potential write-off of fines and penalties for the debts of heatingcompanies which were accumulated prior to 2014, provided the principal is paid, and restructuring of debts whichoriginated in 2014 (payable in instalments over a 2 year period).

Legal work-out According to the information provided by the Group’s Legal Departments, the Group is currently managing

approximately 5 thousand cases in relation to debts for the sale of gas starting from 2010. The total claims since 2010amount to UAH 49.5 bln, including UAH 38.8 bln of principal and UAH 10.7 bln of fines and penalties.

Included in the court decisions in favour of Naftogaz are cases totalling UAH 2.5 bln, enforcement of which is currentlysuspended, mainly under legislative provisions of the Law of Ukraine On Measures Aimed At Ensuring Functioning ofEnterprises of Fuel and Energy Sector No.2711-IV dated on 23 June 2005 (with the major impact on the debts due fromthe heating companies).

In order to decrease the volume of court cases and make the process more efficient, legal actions to collect debts aredelayed until contact expiry, while initiation of the claim to be filed is at discretion of the responsible person. In somecases, claims are filed before the expiry of the contract (e.g., when a risk of insolvency has been identified).

3





31 July 2015


Observation Comment

Legal work-out

(continued)

There appears to be limited monitoring of the actual cash payment resulting from the debt collection enforced by thecourt decision. In addition, the actual enforcement is dependent on the State Enforcement Service and is not controlled

by the Group.

Large number of cases is managed in regional courts due to specific legislation norms, which causes additional pressureon timing of claims and resources of the Group.

Information on the businessgroups and beneficialowners

There is currently no legal requirement for Naftogaz to ask for this information and their internal regulations do notrequire it, and as such this information is not maintained on file.

Under the new legislation which becomes effective in September 2015, companies are required to disclose informationon their beneficial owners and provide such information to the State Registrar.

For the purposes of our analysis, we have reviewed records of the public database (smida.gov.ua) and IFRS financialstatements (where publicly available) for the debtors with balances over UAH 50 mln to identify any information relatedto shareholders. This by itself does not confirm who the beneficial owners are (with the exception of one company). Theresults of our analysis are presented in Section 5.

Receivables from customers

in Crimea and ATO zone

As of 31 December 2014, UAH 10.4 bln was due from customers located in annexed Crimea and ATO zone. In addition,

UAH 3.8 bln was due from customers located in close proximity to the ATO zone.

According to management, since February 2015 the Group terminated the gas supply to customers located within the ATO, and no supplies are expected going forward, until the conflict is resolved or respective decision to renew the supplyis taken by the Ukrainian Government. Nevertheless this issue requires monitoring from the Company’s management toavoid any debt enlargement.

Next steps We will work with the Group over the coming period to develop new collection targets and recommendations to improveand monitor the Group’s historic debt recovery and ongoing collection performance.

4





31 July 2015

Section 2

Background of the Group’s activities andregulations

5




31 July 2015

NaftogazGuaranteed supplier of gas to heatingcompanies and industrial producers

with annual volumes exceeding 3 ml cm;

Guaranteed supplier of gas to theregional gas distribution companies.

Naftogaz operates in a highly regulated market. The Company is engagedin development of the respective regulations

Cabinet ofMinisters

Government

• Execution of the state policy in thefuel and energy sectors;

• State management of the natural gasmarket;

• Approves the annual financial plan ofNaftogaz

• Approves annual planned volume ofgas consumption in the country

Ministry ofEnergy and Coal Line Ministry

• Develops and executes the statepolicy in the oil and gas sector;

• Develops special programmes for

diversification of gas supply;• Reviews and submits for approval

by the Cabinet of Ministers theannual planned volume of gasconsumption in the country and thefinancial plan of Naftogaz

Parliament

• Sets key framework legislation on theprinciples of gas market in Ukraine;

• Ratifies international agreements inthe energy sector.

National Commission Regulator

• Issues licenses related to commercialactivity on the natural gas market;

• Establishes standard templates ofcontracts on gas supply;• Establishes prices for gas and tariffs

for transportation, distribution,storage, pumping and supply of thenatural gas .

VerkhovnaRada

6


Section 2 – Background of the Group’s activities and regulations



31 July 2015

Debt collection of the Group is highlyimpacted by regulations (1 of 3)



Key legislative acts that historically have had a significant impact on theGroup’s debt collection performances are discussed below:

• Law No.2711-IV On Measures Ensuring Functioning ofEnterprises of the Fuel and Energy Sector adopted by theParliament on 23 June 2005, the main objective of which was toprotect state-owned assets in the energy sector frommisappropriation. This Law introduced a ban on bankruptcy and

forced debt collection against participants in the fuel and gasmarket, including heating companies and regional gas distributioncompanies.

• Resolution No.705 of the Cabinet of Ministers of Ukraine dated25 July 2012, which defined Naftogaz and regional gas distributioncompanies as guaranteed suppliers of gas.

• On 3 October 2012, the Cabinet of Ministers by its ResolutionNo.939 obliged Naftogaz to supply gas to guaranteed suppliers ofgas, i.e. regional gas distribution companies.

• Law No. 3319-VI On Debts for Consumed Natural Gas andElectrical Energy adopted by the Parliament on 12 May 2011, which resulted in a partial write-off and restructuring of debts ofsome customers of Gas of Ukraine (heating companies and regionalgas distribution companies). In particular, debts which originatedprior to 2010 were written off and debts accrued during 2010 wererestructured.

establishment of theGroup with Gas ofUkraine as the maintrader of gas

1998

introduction of special accounts forregional gas distribution companiesand traders of gas

2008

Law On Stabilization Of FinancialStanding Of Naftogaz

introduction of special accounts forheating companies which produce

electricity using gas

Law On Natural Gas Market

April 2015

May 2015

7

Timelines of key legislative changes

ban on bankruptcy and forceddebt collection, inter alia, in

respect of the heatingcompanies and regional gas

distribution companies

2005

Law On Principles OfFunctioning Of Natural Gas

Market

2010

transfer of trading operations fromGas of Ukraine to Naftogaz

Law On Write-off andRestructuring of Debts forConsumed Gas

2011

introduction of new algorithmfor special accounts

guaranteed suppliers of naturalgas are established

2012

introduction of specialaccounts for heating and

industrial companies

2014

changes to special accountsalgorithm for heating companies

March 2015



31 July 2015




• On 14 May 2015, the Parliament adopted Law No. 423-VIII OnStabilization of Financial Standing of Naftogaz. Under thisLaw debt of the heating companies for the natural gas consumed in2014 (excluding fines, late payment interest and inflationcompensation), which is outstanding as of 6 June 2015, is subject torestructuring and will be repaid in instalments during a 24-monthperiod. Such restructuring is possible only if companies repay theirdebts (excluding fines, late payment interest and inflationcompensation) for the gas consumed prior to 2014. In this case,fines, late payment interest and inflation compensation will be written off.

• In addition, according to Law No. 423-VIII, Naftogaz and Gas ofUkraine may sell their debts for the supply of gas via auctions (at adiscount). The Law became effective from 6 June 2015 and itsapplication in practice is untested.

• Special consideration in the regulations is made to the process forpayments received by Naftogaz from the customers for gas

consumed.• Resolution No.247 adopted by the Cabinet of Ministers of

Ukraine on 26 March 2008 which introduced special bank accountsfor oblgases and traders of gas, where funds received from endconsumers of gas were further automatically split between Naftogazand gas transportation companies (Ukrtransgaz and oblgases)according to a complex formula (approved by the Resolution of theNational Commission No.1529 dated 25 December 2008).


1998


2008




April 2015

May 2015

8


2005

2010



2011

2012



2014

March 2015






Market






31 July 2015




• On 2 August 2012, the formula was amended by ResolutionNo.1000 of the National Commission. According to management,the new formula did not allow Naftogaz to recover old debts, butonly service the current portion of receivables.

• Similar accounts were introduced for industrial companies(Resolution No.23 issued by the National Commission on 16January 2014) and for heating companies (Resolution No.217

issued by the Cabinet of Ministers of Ukraine on 18 June 2014(effective from 4Q2014). The algorithm established by ResolutionNo.217 also envisaged repayment of old debts.

Please note that by Resolution No.166 issued by the Cabinet ofMinisters of Ukraine on 18 March 2015 changes to the specialaccounts algorithm were introduced which eliminated thepossibility to recover the old debts, negatively effecting therecoverability of Naftogaz’s accounts receivable.

• On 20 May 2015, the Cabinet of Ministers of Ukraine issuedDecree No. 670-p introducing a new mechanism of settlements between electricity generating companies and the wholesalesuppliers of electricity. This decree introduced the mechanism ofspecial accounts in settlements with Naftogaz for the gas used bythe heating/electricity generating companies for the production ofelectricity.



1998


2008




April 2015

May 2015

9


2005

2010



2011

2012



2014

March 2015






Market






31 July 2015

- gas transportation services (main pipeline)

… and religious organizations

Naftogaz is a guaranteed supplier of natural gas in Ukraine for almost allcategories of customers

Regional gasdistributors (“0blgases“)

Ukrgazvydobuvannya(all gas produced is

sold to Naftogaz)

Other suppliers(Gazprom, European

suppliers, etc.)

Naftogaz,Gas of Ukraine*

Industrial companiesand other customers

Public entities

Heatingcompanies

Uktransgaz (gastransportation )

Gas traders

- Group companies

* - a trading company before December 2011.

- supply of natural gas (withouttransportation services)

- supply and distribution of natural gas by oblgases toend users

- gas distribution services by oblgases whenNaftogaz supplies gas via direct contract (i.e., notthrough oblgases)

10

- supply of natural gas including transportation services



- supply of heat

** - other customers only

*** - for heating purposes only

Note: the above chart is presented from the perspective of the Group rather than the market as a whole

***

**



31 July 2015

Section 3

Overview of receivables recovery process

11




31 July 2015

The Gas sales department oversees all interactions with customers fromcontract initiation to collection (1 of 2)

12

Diagnostic analysis of receivables • National Joint-Stock Company

Naftogaz of Ukraine

Section 3 – Overview of receivables recovery process

Gas sales department

Contractual work and gassales division

(9 people)

Payments controldivision

(18 people)

Settlements and analyticsdivision

(8 people)

• Daily analysis of payments

received for the gas sold andpayments by Naftogaz fortransportation and distributionservices (including postingrespective entries in theautomated system Navigator-IN(a system used by the Gas SalesDepartment to account for andanalyse sales related operationsand balances)

• Based on court decisions andrespective accounting records,

reflecting accruals andprovisions relating toreceivables and payables

balances in Navigator-IN

• Daily analysis of received

payments and receivable balances• Daily forecast of cash flows

from sales of gas• Preparation of reports for

management

• Development of standard contract

templates for gas sale• Ensure any agreements withcustomers are concluded inaccordance with the establishedprocedures of Naftogaz

• Recording the actual volumes ofnatural gas consumed byundertaking acceptanceprocedures with customers

• Informing the Legal Departmentregarding execution of theenforcement documents by the

debtors• Preparation of gas sales registers

and their submission to the Accounting Department to reflectgas sales transactions in theCompany’s accounts

Debt managementdivision

(16 people)

• Preparation of materials on

overdue debt, respective finesand penalties and theirsubmission to the LegalDepartment to proceed withcourt filing

• Off-set arrangements• Regular monitoring of official

information on bankruptcy orliquidation procedures initiatedin respect of the Company’sdebtors

• Consolidation of information on

receivables and payables of theCompany



31 July 2015

13

• As a guaranteed supplier of natural gas, Naftogaz cannot refuse toconclude new gas supply contracts with its customers even if thelatter have unpaid debts for gas supplied under old contracts. At thesame time, according to the standard gas supply contracts with itscustomers, Naftogaz can limit or terminate supply of gas. TheCompany actively applies this contract clause in accordance withthe Decree of the Cabinet of Ministers of Ukraine No1687 dated 8

June 2006 “On Approval of Mechanism of Limiting (Terminating)Supply of Gas (Except for Population)”.

• Moreover the standard contractual terms allow Naftogaz toterminate the contract, if there is an unsettled overdue debt. According to management, they did not apply the contracttermination clause until 2015, and as a result two court cases whereinitiated against Naftogaz (currently in progress). If Naftogazsuccessfully defends these cases, they will have an effective toolagainst problematic debtors.

• Before proceeding with the legal work-out, the Debt Management

Division of the Gas Sales Department, conducts negotiations withindividual debtors, reaching though regional authorities and tryingto influence payment discipline of the debtors (through regularcalls, official letters, etc.).

The Gas sales department oversees all interactions with customers fromcontract initiation to collection (2 of 2)

• Usually, Naftogaz files lawsuits against debtors to demandrepayment of overdue debts and respective fines and penalties onlyafter expiry of respective gas supply contracts. As such, the lawsuitscover only that portion of the debt which has not been paid after thecontract expiry date (i.e., problematic debt). According tomanagement, such approach helps the Group to decrease thenumber of claims to be filed and the volume of legal work.

• However, in cases where management identifies the risk that theprincipal debt may not be repaid, then the decision to file a courtcase is made before the contract expiry.

• There is no general practice of formal debt restructuring in theGroup, unless there is a respective court decision or restructuring isinitiated by the Parliament (see discussed earlier).


Naftogaz of Ukraine




31 July 2015

Overview of the main contractual terms of Naftogaz for supply of gas

Fines andpenalties foroverdue debt

Supply andpayment terms

Pricing

Naftogaz concludes annual contracts for the supply of gas, using standard templates which are set by Nafogaz internallyfor each category of customers (i.e., industrial companies, oblgases (separately for supply of gas to households, heatingcompanies, other entities), etc.). Per management, no changes to the standard contractual terms are usually allowed.Please note that the National Commission sets a standard template for the gas supply contract between owners of gas(e.g., Naftogaz) and oblgases which Naftogaz uses to prepare respective contract template with oblgases.

Gas prices are regulated at each stage from exploration to supply to end consumers by the National Commission whichsets either fixed prices (for supply of gas to households (through oblgases) as well as to heating companies for productionand delivery of heat to households) or maximum level of prices (for other customers).

Contacts stipulate volume of gas to be supplied at a certain price on a monthly basis. Depending on the customer’scategory, the payment terms may vary from 30% monthly prepayment with the remaining balance payable in two equalinstalments (i.e., 35% each) on the 5th and 15th day of the month of supply with final settlement to be made by the 14th dayof the next month (for industrial companies and other customers) to 1oo% payment for the planned volume of gas to beconsumed in the month of supply (for oblgases and heating companies) with the final clearance on the 15th (heatingcompanies) or on the 20th (oblgases) of the month following the month of supply.

1. Penalties (late payment interest) are calculated on a daily basis by multiplying the NBU’s double discount rate and theamount of payments in arrears.2. Fines is a one time fee set at 7% from overdue payment (only for supply of gas to industrial companies)3. Inflation compensation – 3% + inflation rate (as set by the State Statistics Service) multiplied by the amount ofpayment in arrears (on a daily basis).

Contractduration

Terminationclauses In case of overdue payments, according to the standard gas supply contracts (except for those with oblgases), Naftogaz

has the right to limit/terminate supply of gas until the overdue payment is settled.

14



Naftogaz of Ukraine



31 July 2015

Overview of the legal work-out procedures in Naftogaz and Gas of Ukraine

• Our analysis was focused on Naftogaz and Gas of Ukraine, sincethese companies are mainly involved in the sale and purchase of gasand, as a result, are engaged in respective litigations.

• The Legal Department of Naftogaz includes about 50 specialists of which 31 are litigation specialists (20 of which participate indrafting and filing court claims, other staff are responsible forenforcement proceedings and bankruptcy cases).

• The Group’s lawyers maintain special registers of the current courtcases with indication of debtors, amount of debt, penalties appliedfor non-payment or late payment of the debt etc.

• If a customer has not paid for the supplied gas according tocontractual terms, in most cases Naftogaz will initiate legalproceedings after the respective contract’s term expiration (1-year), when the final outstanding amount of the principal debt is known.Before the litigation process Naftogaz estimates additionalpenalties (fines, late payment interests etc.) for non-compliance with the contractual terms, which in most cases continue to be

accrued during the litigation.

• This approach is applied with the purpose to minimise costs and toavoid initiating a number of cases per one contract. This is alsodriven by the fact that under effective legislation a court claimregarding debt collection should be submitted at a debtor’s place ofregistration. Such legislative requirement actually complicates legal work-out with the Group’s debtors, which is managed out of Kyiv.

• In exceptional cases, upon approval of Naftogaz’s management, the

legal work-out in respect of the debtors is initiated before thecontract’s expiry date.

• Contract management (including conclusion of contracts, controlover their execution, penalties accrued for non-compliance withcontractual terms) is executed by the Gas Sales Department(discussed earlier). If a counterparty is in breach of the contractualterms, this Department prepares and transfers materials to theLegal Department in order to initiate court proceedings in respectof such a counterparty. The Economic Security Department isresponsible for monitoring counterparties solvency in order to

timely react in case bankruptcy procedures are initiated in respectof a debtor.

• Gas of Ukraine ceased its activity related to supply of the naturalgas in 2011, however, is actively involved in litigation proceedings with its debtors regarding unpaid balances of principal debts andpenalties including late payment interest, fines etc.


15




31 July 2015

Key Responsible Departments

Gas Sales Department Legal DepartmentEconomic Security

Department

• Regular interaction with enterprises,establishments, organisations andcitizens with the aim to receivenecessary information regardingfinancial standing and solvency of thedebtors

• Checking on the status and accuracy ofthe court decision execution by theState Enforcement Service

• Identification of possible illegal actionscarried out by the debtors aimed atsidestepping the recovery of the debtand notification of the lawenforcement authorities if such actionsare identified

• Provision of methodical and advisoryassistance during pre-court workoutprocedures

• Legal work-out related to draftingcourt claims, appeals, cassation ofclaims or objections to them

• Upon approval of the management,involves representatives of thestructural departments to represent

the Group’s interests in the courthearings• Control over process of receiving of the

enforcement documents• Maintaining records regarding court

cases and enforcement proceedings

• Collection and preparation ofinformation necessary to file the claim

• Identification of the counterparties forthe legal work-out

• Transfer of the case materials to theLegal Department in order to comply with statutory terms for filingdocuments to the courts etc.

• Informing the Legal Department

regarding execution of theenforcement documents by the debtors• Regular monitoring of the official

publications regarding bankruptcy orliquidation proceedings initiated inrespect of the Group’s debtors

16



Naftogaz and Gas of Ukraine undertake any legal work in accordance withthe established procedures set out in the internally approved Regulations



31 July 2015

All legal work in the Group related to debt collection is done in-house

Preparation and filing of the claims

Representation in thecourt of all instances

Enforcement proceedings

Includes also appeal claimsand cassation claims and bankruptcy cases initiated inrespect of the Group’s debtors

This work issupported by the GasSales Department

17



Monitor the status of enforcement,including its initiation by the StateEnforcement Service, execution,etc.

1. 2. 3.

Maintaining records regarding court cases and enforcement proceedings



31 July 2015

Starting from 2012 Naftogaz filed claims for the total amount of UAH 27,184 mln

• Our analysis of the court cases of the Group was mainly focused onNaftogaz and Gas of Ukraine, since these two companies wereinvolved in sale and purchase of gas and were heavily engaged inrelated litigation. Although Ukrtransgas and Ukrgazvydibuvanniaare also involved in litigation, this relates to gas transportation andthe collection of intragroup debts and as such falls outside the termsof reference.

• We further split our analysis into two sections: (i) covering Gas of

Ukraine from 2010 till February 2015 (see further in the report);and (ii) Naftogaz from 2012 to May 2015 (see below), i.e. startingfrom the year when they engaged into gas trading activities.

• According to legislation, Naftogaz is a guaranteed supplier of thenatural gas to large industrial enterprises with the annualconsumption of the natural gas over 3 mln. cm, heating companiesand regional gas distribution companies.

• Contracts are concluded by Naftogaz for a period of one year.Hence, for each calendar year Naftogaz concludes a new set ofcontracts with the same customers (counterparties). As aguaranteed supplier of the natural gas Naftogaz is not permitted torefuse concluding a sale and purchase contract for a new period,even if a customer has debts for the purchase of natural gas underold contracts for prior periods.

• Usually, legal action is initiated after expiry of the sale and purchasecontract in order to minimise the quantity of claims filed andresources of Naftogaz involved in the process of court claims.

• Other claims filed by Naftogaz in courts relate to its day-to-dayactivity (loan agreements, disputes with the state authorities, non-material commercial disputes). However, their number is smallcompared to disputes regarding sale and purchase of natural gas.

• Our analysis of legal cases of Naftogaz includes legal cases, initiatedfrom 2012 till May 2015. The total number of legal cases is 2,725.

• The total amount of the claims filed during the above mentioned

period, including the principal debt, fines, late payment interestand inflation compensation (inflation rate and 3% per annum), isUAH 27,184 mln, including: (i) court cases with the total claims ofUAH 18,953 mln, where final court decision was taken (and withrespect to which UAH 14,327 mln were confirmed by the court);and (ii) court cases with the total claims of UAH 8,231 mln pendingfinal decision of the court (see details in table on the next page).

• According to the Ukrainian legislation, the court is empowered torevise downward the amount of fines and late payment interest onits own discretion, taking into account the following circumstances:actual execution of the contract by a debtor, financial standing ofthe parties, their material and non-material interests. Also theamount of principal debt may be decreased by the court or by theparties due to its full or partial payment.

• Therefore, the amount of claims satisfied by the court in favour ofNaftogaz may significantly differ from the amount claimed byNaftogaz. Our analysis shows that the average recovery rate for theclaims where the final decision of the court was taken is 76%(calculated by dividing the amount of confirmed court claims by theclaims amount where final decision was taken). This does not takeinto account the actual outcome from the enforcement.


18




31 July 2015

Out of UAH 18,953 mln of claims, where the final decision of the court hasbeen taken, Naftogaz is allowed to enforce UAH 14,327 mln

• According to the information provided by the Legal Department,the total claims of UAH 3,577 mln from the confirmed by the courtcases were paid by debtors and UAH 5,154 mln are currently in theprocess of enforcement by the offices of the State EnforcementService of Ukraine. Currently, enforcement of claims in the amountof UAH 2,491 mln is suspended mainly under legislative provisionsof the Law of Ukraine On Measures Aimed At Ensuring Functioning

of Enterprises of Fuel and Energy Sector No.2711-IV dated on

23 June 2005, the effect of which is expected to expire on 01September 2015 (with the major impact on the debts due from theheating companies).

• In addition, UAH 27 mln shall be collected by Naftogaz under out-of-court enforcement procedure based on the notary’s executiveinscription (in cases this is envisaged by the contractual terms withcustomers). This procedure does not involve application to court

by Naftogaz and is not included in the total claims filed to court.

19



Source: Information of the Legal Department of Naftogaz

* - as a percentage from total claims where final decision have been taken

Legal cases filed by Naftogaz against debtors and their status

UAH in

millions

Principal

debt

Fines and

Penalties

Final

court

decision

t aken Pen di ng

Total

amount

Enforcement

procedure

Restruc

tured Paid

Suspended

enforcement

Wri tt en

off

Bankruptcy

proceedings

AT O zone

and Crimea

Total

amount

% 0f claims

confirmed*

Industrial

companies 1 868 55 0 1 514 904 2 418 53 8 50 6 297 3 - - - 1 344 89%

Electricity &

heating 15 081 4 364 13 151 6 294 19 445 4 369 27 2 3 196 2 467 - 62 47 10 413 7 9%

Oblgases 1 466 393 1 213 646 1 859 95 30 60 21 55 - 14 27 5 23%

Other 2 47 6 986 3 075 387 3 462 15 2 23 24 - - - 2 096 2 295 7 5%

20 891 6 293 18 953 8 231 27 184 5 154 831 3 577 2 491 55 62 2 157 14 327 76%

Total claims Claims confirmed by the court



31 July 2015

From 2010 till February 2015, the total claims filed by Gas of Ukraineamounted to UAH 22,315 mln, out of which UAH 17,734 mln have final court

decision with the recovery of 76%

• Starting from 1998 till November 2011 Gas of Ukraine was engagedin the purchase and sale of natural gas. In November 2011, thelicense of Gas of Ukraine for sale and purchase of the natural gas was terminated. Currently, the main activity of Gas of Ukraine iscollection of debts which accumulated before November 2011.

•Our analysis of legal cases of Gas of Ukraine includes legal casesinitiated from 2010 till February 2015. The total number of legalcases analysed and relating to collection of debts for the sale of gasis 2,273.

20



Source: Information of the Legal Department of Gas of Ukraine

• The total amount of the claims filed during the above mentionedperiod, including the principal debt, fines, late payment interest andinflation compensation (inflation rate and 3% per annum) is UAH22,315 mln, including (i) court cases with claims of UAH 17,734 mln where final court decision was taken (and with respect to which

UAH 13,395 mln were confirmed by the court); (ii) and court cases with the total claims of UAH 4,581 mln pending final decision of thecourt.

• Our analysis shows that the average recovery rate for the claims where final decision of the court was taken is 76% (calculated bydividing the amount of confirmed court claims by the claimsamount where final decision was taken). This does not take intoaccount the actual outcome from the enforcement.


Legal cases filed by Gas of Ukraine against debtors and their status

UAH in millions

Principal

debt

Fines and

Penalties

Final court

decision

taken Pending

Total

amount

Enforcement

procedure

Wri tt en-

Off Restructured Paid

Suspended

enforcement

Bankruptcy

proceedings

Total

amount

% 0f claims

confirmed*

Industrial

companies 5 367 1 932 2 823 4 476 7 299 7 42 11 5 81 1 302 - - 2 240 7 9%

Electricity &

heating 9 401 1 908 11 220 89 11 309 2 726 2 511 658 2 455 14 12 8 8 492 7 6%

Oblgases 3 019 57 8 3 581 16 3 597 10 1 573 908 10 2 - - 2 593 7 2%Other 94 16 11 0 - 11 0 12 13 1 44 - - 7 0 64%17 881 4 434 17 734 4 581 22 315 3 490 4 212 1 648 3 903 14 128 13 395 76%




31 July 2015

31% of the claimed amount confirmed by courts was written-off under provisions of the Law of Ukraine

• According to the information provided by the Legal Department,the total claims of UAH 3,903 mln from the confirmed by the courtcases were paid by debtors and UAH 3,490 mln are currently in theprocess of enforcement by the offices of the State EnforcementService of Ukraine.

21



• Debts of Gas of Ukraine considered by courts in the amount of UAH4,212 mln were written-off under provisions of the Law of Ukraine“On Certain Issues on Debts for the Consumed Natural Gas andElectricity” No.3319-VI dated 12 May 2011. In 79 court cases withthe total claims of UAH 1,648 mln debts are restructured.

Legal cases filed by Gas of Ukraine against debtors and their status

UAH in millions

Principal

debt

Fines and

Penalties

Final court

decision

taken Pending

Total

amount

Enforcement

procedure

Wri tt en-

Off Restructured Paid

Suspended

enforcement

Bankruptcy

proceedings

Total

amount

% 0f claims

confirmed*

Industrial

companies 5 367 1 932 2 823 4 476 7 299 7 42 11 5 81 1 302 - - 2 240 7 9%

Electricity &

heating 9 401 1 908 11 220 89 11 309 2 726 2 511 658 2 455 14 12 8 8 492 7 6%

Oblgases 3 019 57 8 3 581 16 3 597 10 1 573 908 10 2 - - 2 593 7 2%Other 94 16 11 0 - 11 0 12 13 1 44 - - 7 0 64%17 881 4 434 17 734 4 581 22 315 3 490 4 212 1 648 3 903 14 128 13 395 76%






31 July 2015

Positive court decisions with low chances to be executed are estimated atUAH 9,281 mln

Case Description

Debtors located in Crimea and ATOzone

Debts confirmed by the court decisions in the amount of UAH 6,374 mln for Naftogaz and UAH 1,193 mln forGas of Ukraine are due from companies registered in Crimea, Donetsk and Lugansk regions, which are notcontrolled by the Ukrainian Government. Currently local offices of the State Enforcement Service of Ukraineresponsible for execution of the court decisions on these territories are not operating. Therefore, it is uncertain

whether enforcement proceedings in these cases will result in actual recovery of debt.

Debtors in bankruptcy procedure UAH 1,714 mln (Naftogaz - UAH 975 mln, Gas of Ukraine – UAH 739 mln) is subject of collection from thecompanies which are currently in the bankruptcy procedure. Chances of collecting such debts are low, since itis unclear whether debtors will be able to pay their debts in full.

22



Source: Information of the Legal Department of Gas of Ukraine and Naftogaz



31 July 2015

Section 4

Consolidated receivables of the Group

23




31 July 2015

24

Section 4 – Consolidated receivables of the Group

• As of 31 December 2014, the gross receivables of the Group for thesale of gas, excluding intra-group balances, amounted to UAH38,679 mln (including UAH 2,897 mln of fines and penalties).

• Receivables are recorded in the Group’s accounting records basedon gas sales registers provided to the Acounting Department by theGas Sales Department before the 15th day of the month followingthe month of supply.

• According to the standard contractual terms, acceptance acts

confirming volumes of gas supplied and its price should be signed by Naftogaz and its customers by the 8th of the month following themonth of supply. Once acceptance acts are signed, they aretransferred to the Accounting Department. If there are differences between the sales registers and the signed acceptance acts in termsof volume or price of gas supplied, respective adjustments are madein the Company’s accounts.

• As discussed earlier in the report, the gas supply contracts stipulatefines and penalties for the late payments. According tomanagement, such fines and penalties are recorded in the Group’s

books only if there is a respective decision of an appeal court. Untilsuch ruling is obtained, no respective accrual is made in the Group’saccounting records.

Naftogaz and Gas of Ukraine account for almost all debt of the Group forthe sale of gas


UAH in million

Heating

companies

Industrial

companies Oblgases Other Total

Naftogaz

Trade receivables 15,882 2,548 5,535 2,924 26,889

Fines and penalties 937 78 108 647 1,769

16,819 2,626 5,643 3,570 28,658

Gas of UkraineTrade receivables 2,559 3,871 2,267 192 8,889

Fines and penalties 678 309 66 74 1,128

3,237 4,181 2,333 266 10,017

Ukrgazvydobuvannya

Trade receivables - - - 3 3

- - - 3 3

Ukrtransgaz

Trade receivables - - - 1 1

- - - 1 1

20,056 6,807 7,976 3,840 38,679

% from total 52% 18% 21% 10% 100%

The Group companies' receivables in respect of gas sale

operations as of 31 December 2014


Naftogaz of Ukraine



31 July 2015

Recoverability of the Group’s debt is impacted, primarily, by the amountrecovered from heating companies (1 of 2)

0

20

40

60

80

100

2010 2011 2012 2013 2014

Total

Other clients

Industrial companies

Oblgases

Heating companies

Recoverability of current debt*, %

• - recovery rates were calculated by dividing the amount of payments received during the year andrelating to debts which originated in prior periods by the amount of such debts outstanding at the beginning of the year

0

20

40

60

80

2010 2011 2012 2013 2014

Recoverability of old debt*, %


Other clients

Oblgases

Heating companies

Total

• - recovery rates were calculated by dividing the amount of payments received during the yearfor the gas supplied by the amount of revenue (including VAT) accrued in the respectiveperiod

• The debt recovery rate for the heating companies is the lowest whencompared to other categories of the Group’s customers. There is asignificant dependency of debt recovery rates in respect of theheating companies’ debt on the amount of transfers from the state budget. Heating companies receive compensation from the state budget for the difference between the price of gas purchased for thepurposes of heat production and supply to households and the priceof gas included in the respective heating tariffs to households.

According to the information provided by Naftogaz, in 2012 heatingcompanies received UAH 9.8 bln of such compensation, which waseventually used to settle the debt for the gas consumed, while in2013 no such compensation was paid to heating companies. In2014, the compensation from the budget amounted to UAH 10.8 bln.

• As mentioned earlier in the report, in 2014 – 2015 some initiatives were introduces to improve the payment discipline of the heatingcompanies (eg, introduction of special accounts, adoption of LawNo.423 allowing Naftogaz to limit supply of gas to heatingcompanies in case of overdue payments).

• While in 2011 – 2013 recoverability of the current debt of oblgases was rather stable (appx. 84%), in 2014 it dropped to 71%. The majorfactor that has negative impact on the recoverability in 2014 wasincrease of prices for gas, including gas purchased by oblgases forproduction purposes, i.e. industrial and technical losses (“ITL”). Atthe same time, the price of gas for ITL included in the gasdistribution tariff and charged to customers in 2014 was lowercompared to the actual price, resulting in oblgases’ inability to payfor respective gas in full. Naftogaz intends to recover full amount ofdebt for gas for ITL but it may prove to be challenging.

25

Source: Accounting records of Naftogaz and Gas of Ukraine


Naftogaz of Ukraine




31 July 2015

Recoverability of the Group’s debt is impacted, primarily, by the amountrecovered from heating companies (2 of 2)

0

20

40

60

80

100

2Q131Q13 3Q13 4Q13 1Q14 2Q14 3Q14 4Q14

Total

Other clients


Oblgases

Heating companies

Recoverability of current debt*, %

• - recovery rates were calculated by dividing the amount of payments received during the year andrelating to debts which originated in prior periods by the amount of such debts outstanding at the

beginning of the year. Calculation was done on a cumulative basis.

Recoverability of old debt*, %

0

10

20

3040

50

4Q143Q142Q141Q13 1Q143Q13 4Q132Q13


Total

Heating companies Other clients

Oblgases

• - recovery rates were calculated by dividing the amount of payments received during the year forthe gas supplied by the amount of revenue (including VAT) accrued in the respective period.Calculation was done on a cumulative basis.

26

• Quarterly recovery rates were calculated on acumulative basis as gas sales contracts are for aperiod of one year and payments made bycustomers during the year are not linked to themonth of supply in the Group’s accountingsystem.

• Fluctuations of quarterly recovery rates for the

current debt of oblgases and heating companiesreflect the seasonality of gas consumptionduring the year (i.e., which is increasing in coldmonths with respective payments being delayedand made in the following periods). In the firstquarter of the year, the current debt recoveryrate is the lowest, while it improves in thefollowing quarters.

• For industrial companies and other clients theconsumption is less dependant on the season.

• Improvement of recoverability of the currentand old debt of heating companies in the 4th quarter of 2014 reflects receipt by Naftogaz ofthe heat tariffs compensation from the state budget which related to the supply of gas in thecurrent and previous years (UAH 10.8 bln).


Naftogaz of Ukraine




31 July 2015

53%

As of 31 December 2014, heating companies and oblgases accounted for72% of the Group’s total debt

of the total debt wasoriginated prior to2014

67%

60%

out of the debt whichoriginated prior to 2014 isdue from heatingcompanies

47%

of debt of industrialcompanies is due fromcompanies of the

chemical sector

• Payment discipline of heating companies is one of major concerns of

the Group’s management. In 2014, settlements through special accounts were introduced for these companies and, according to management, ithas a positive impact on the recoverability of their debt.

• Annexation of Crimea, ATO, increase of maximum level of gasprices in 2014 for industrial companies from UAH 3,113 perthousand cm to UAH 5,900 per thousand cm (which is also applicable togas purchased by oblgases for ITL as well as gas consumed by heatingcompanies to produce heat for commercial and public entities) were themajor factors negatively impacting the debt repayment of the Group in2014 (see analysis further in the report).

of the total debt of othercustomers is due fromone counterparty (UAH2,046 mln) - LLCGazukraina-Commerce.

27

Debt as of 31 December 2014, UAH in millions

2013

5,877

600

391,012

4,226

2012

4,993

1,659 381412,912

2,567

934788

126719

2011

3,818

261,977

2501,565

2010

5,772

2551,9262,111

1,480

Prior to2010

9,155

Total

38,679

3,837

6,809

7,976

20,057

2014

15,652

3631,698

4,436Other

Oblgases


*Heating companies

7%

15%

10%

13%

15%

40% 100%

* - includes heating companies which also produce electricity


Naftogaz of Ukraine




31 July 2015

As of 31 December 2014, 49% of the Group’s debt was originated under gassupply contracts for households and public organisations

28

• All contracts concluded by Naftogaz with its counterparties are split by theend consumer category as gas prices and heat tariffs vary depending on theconsumer category (i.e., the price of gas sold for households is lower than theprice for the industrial companies). Note that there is no separate category ofhouseholds entitled to subsidies (individuals identified as socially vulnerable)as prices at which gas is supplied to oblgases and heating companies are thesame for all households. The subsidies are paid from the State budget tooblgases and heating companies.

• Given that payments for consumed gas are made by customers of oblgasesthrough special accounts with further automatic distribution between theprovider of gas (i.e., Naftogaz) and providers of transportation anddistribution services (Ukrtransgas and oblgases), debt structure of oblgasesaccurately reflects the “ultimate” debtors of the Group.

*- primarily for production of electricity

*** - primarily, traders, Chornomornaftogas, condominiums, public organizations, etc.

Source: Receibables ledgers of Naftogaz and Gas of Ukraine

26%0%

11%

24%

2%

11%

25%


Heating companies

Other

Public and municipal organizations

Households

Religious organizations

Oblgases

UAH in millions

Gas of

Ukraine Naftogaz Total %

Heating companies

Public organizations 1,451 6,948 8,399 22%

Households 982 5,573 6,555 17%

Industrial companies* 254 2,472 2,726 7%

Municipal organizations - 1,105 1,105 3%

Heating companies** - 708 708 2%

Religious organisations - 1 1 0%

Other 541 12 553 1%3,228 16,819 20,047 52%

Oblgases

Industrial technical loss es (ITL) 1,049 3,322 4,371 11%

Households 671 1,812 2,483 6%

Industrial companies 449 261 710 2%

Public organizations 52 133 185 0%

Households - heating 1 55 56 0%

Public organizations - heating - 45 45 0%

Religious organisations 9 15 24 0%

Other 101 - 101 0%

2,332 5,643 7,975 21%

Industrial companies -

Industrial companies 4,142 2,546 6,688 17%


Public organizations - heating - 22 22 0%Municipal organizations - heating - 15 15 0%

4,177 2,626 6,803 18%

Other

Other*** 237 3,256 3,493 9%

Households - gas 14 188 202 1%


Public organizations - heating 4 61 65 0%

Public organizations - gas 3 - 3 0%

279 3,570 3,849 10%

10,016 28,658 38,674 100%

Receivables of Gas of Ukraine and Naftogaz by the end consumer,

as of 31 December 2014


Naftogaz of Ukraine




31 July 2015

As of 31 December 2014, 73% of the Group’s debt was originated under gassupply contracts with oblgases and heating companies

29

• The debt structure of heating companies may not properly reflect the “ultimate”debtors, as the mechanism of special accounts for heating companies started tofunction only in November 2014 (following the adoption of the respectivelegislation in June 2014) and till that time payments for purchased gas had been made by the heating companies at their discretion and did not reflect theactual payment discipline of the ultimate customers.

• Please note that till May 2015, payments for the gas supplied by Naftogaz tooblgases for ITL (price of which is included into the distribution tariff of

oblgases) were outside the special accounts mechanism and were made atdiscretion of oblgases. In May 2015, changes in the respective regulations weremade introducing the algorithm for such payments, but only when there wasan overdue debt under gas supply contracts for the network operationpurposes.

• In such cases, a part of the distribution tariff of oblgases which relates to cost ofgas purchased for ITL is automatically distributed from special accounts ofoblgases to special accounts of Naftogaz, once payments for gas and connectedservices (i.e. transportation and distribution) are made by the end consumers.If the overdue debt is settled, respective payments are made at oblgases

discretion..

*- primarily for production of electricity

*** - primarily, traders, Chornomornaftogas, condominiums, public organizations, etc.

Source: Receibables ledgers of Naftogaz and Gas of Ukraine

** - Includes UAH 675 m of debt due from Kharkivski Teplovi Merezhi which originated from debt

assignment agreement concluded between Nafrogaz and Kharkivska TETs-5. According to this agreement,

debt of Kharkivska TETs-5 due from Kharkivski Teplovi Merezhi was reassigned to Naftogaz as a

settlement for debt of the former originated under gas supply contracts


Naftogaz of Ukraine

UAH in millions

Gas of

Ukraine Naftogaz Total %

Heating companies

Public organizations 1,451 6,948 8,399 22%

Households 982 5,573 6,555 17%

Industrial companies* 254 2,472 2,726 7%

Municipal organizations - 1,105 1,105 3%

Heating companies** - 708 708 2%

Religious organisations - 1 1 0%

Other 541 12 553 1%3,228 16,819 20,047 52%

Oblgases

Industrial technical loss es (ITL) 1,049 3,322 4,371 11%

Households 671 1,812 2,483 6%

Industrial companies 449 261 710 2%

Public organizations 52 133 185 0%


Public organizations - heating - 45 45 0%

Religious organisations 9 15 24 0%

Other 101 - 101 0%

2,332 5,643 7,975 21%

Industrial companies -

Industrial companies 4,142 2,546 6,688 17%


Public organizations - heating - 22 22 0%Municipal organizations - heating - 15 15 0%

4,177 2,626 6,803 18%

Other

Other*** 237 3,256 3,493 9%

Households - gas 14 188 202 1%


Public organizations - heating 4 61 65 0%

Public organizations - gas 3 - 3 0%

279 3,570 3,849 10%

10,016 28,658 38,674 100%

Receivables of Gas of Ukraine and Naftogaz by the end consumer,





31 July 2015

As of 31 December 2014, 26% of the Group’s debt was due from customerslocated in the ATO zone (or in a close proximity) or in annexed Crimea

In 2014, Naftogaz continued to supply gas to its counterparties located onterritories, which were not under control of the Ukrainian Government(primarily, to heating companies and oblgases). During the second half of2014 repayment of the respective debt for gas supplied deterioratedsignificantly resulting in accumulation of overdue balances.

30

Source: Naftogaz information

V o l y n ’ r e g i

o n

3 7 9

V i n n y t y a r e g i o n

5 5 1

Z a p o r i z z h y a r e g i

o n

1 , 1 6 5

R i v n e r e g i o n

1 , 6 7 4

O d e s s a r e g i o n

1 , 6 4 0

L v i v r e g i

o n

1 , 1 5 7

K y i v r e g i o n

1 , 1 8 4

K y i v

2 , 4 1 5

K h a r k i v r e g i

o n

2 , 9 3 9

D n i p r o p e t r o v s n k r e g i o

4 , 8 4 9

6 , 3 7 6

L u g a n s k r e g i

o n

F o r e i g n c o u n t r i e s

C r i m

e a

461

3 , 9

8 6

A T O z o

n e

2 , 0 3 9

D o n e t z k r e g i

o n

1 , 7 5 9

C h e r n i g i v r e g i

o n

5 3 8

C h e r n i v t z i r e g i o n

2 5 3

C h e r k a s y r e g i

o n

1 , 0 2 7

K h m e l n y t s k r e g i o n

3 5 4

K h e r s o n r e g i

o n

3 4 2

T e r n o p i l r e g i

o n

5 7 9

C u m y r e g i o n

3 9 3

P o l t a v a r e g i

o n

7 4 4

M y k o l a i v r e g i

o n

2 8 1

3 0 3

3 5 0

I v a n o - F r a n k i v s k r e g i

o n

5 7 0

Z a k a r p a t t y a r e g i

o n

3 7 1

Z h y t o m y r r e g i

o n

K i r o v o g r a d r e g i

o n

Other

Oblgases


Heating companies*

Debt as of 31 December 2014 by region, UAH in millions


Naftogaz of Ukraine




31 July 2015

Section 5

Individual receivables analysis

31




31 July 2015

As of 31 December 2014, 91% of the Group’s debt was due from 119 debtors

Section 5 – Individual receivables analysis

32

Concentration analysis of the Group's debt

DebtNumber of

debtorsDebt

Number of

debtorsDebt

Number of

debtorsDebt

Number of

debtorsDebt

Number of

debtors

Heating companies* 2,377 453 7,262 47 4,997 8 5,421 4 20,057 512

Oblgases 234 15 6,443 31 1,299 2 - - 7,976 48

Industrial companies 495 277 1,269 13 2,691 4 2,354 2 6,809 296

Other 356 1,553 1,434 7 - - 2,047 1 3,837 1,561

3,462 2,298 16,408 98 8,987 14 9,822 7 38,679 2,417

% from total 9% 95% 42% 4% 23% 1% 25% 0%

Debtors owing less

than UAH 50 m

Debtors owing

betwee n UAH 50 m

and UAH 500 m

Debtors owing

between UAH 500 m

and UAH 1000 m

Debtors owing more

than UAH 1000 mTotal



• The largest category of debtors includes balances between UAH 50 mln – UAH 500 mln, which in total represent 42% of theGroup’s debt for the sale of gas, covering 98 debtors.

• 48% of the total debt is due from 21 debtors with individual exposure over UAH 500 mln.

•Such clients include trading companies (e.g., LLC Gazukraina-Commerce – UAH 2,047 mln.), large chemical producers (such asRivbeazot PJSC, Concern Stirol PJSC, Severodonetzke objednannya Azot CJSC and Cherkassy Azot PJSC) with total debt of UAH3,881 mln), as well as heating companies (Kharkivski teplovi merezhi CE – UAH 1,569 mln., Kyivenergo PKSC - 1,331 mln., etc.).


Naftogaz of Ukraine



31 July 2015

The Group’s receivables by ownership category of the debtor

33



• As at 31 December 2014, 54% of the total debt of theGroup was due from privately owned companies withoblgases and industrial companies being the maincategories of customers.

• 60% of the debt owned by the Group from heatingcompanies were attributed to legal entities inmunicipal ownership.

• 67% of the debt due from the industrial companies

were concentrated within the chemical sector, with themajority of legal entities being privately owned.

UAH in millions Total 2014 2013 2012 2011 2010

before

2010

Privately owned companies

Oblgases 7,848 4,342 984 41 247 2,108 126

Heating companies* 4,049 2,648 755 238 140 191 77

Other 2,991 156 584 1,421 10 5 815

Industrial companies 5,936 1,060 39 379 1,951 1,859 648

Chemical 3,931 84 9 2 1,725 1,813 298

Metallurgical 1,107 895 - - - - 212

Other industries 898 81 30 377 226 46 138

5,936 1,060 39 379 1,951 1,859 648

20,824 8,206 2,362 2,079 2,348 4,163 1,666

SOEs

Oblgases 128 94 28 - 3 3 -

Heating companies* 4,026 1,362 1,057 805 498 242 62

Other 763 164 7 236 2 246 108

Industrial companies 870 637 - 1 25 67 140

Chemical 658 568 - - 23 62 5

Metallurgical 2 2 - - - - -

Other industries 210 67 - 1 2 5 135

870 637 - 1 25 67 140

5,787 2,257 1,092 1,042 528 558 310

Municipally owned companies

Heating companies* 11,982 5,145 2,414 1,869 927 1,047 580

Other 35 27 4 2 - - 2

Industrial companies 3 1 - 1 1 - -

12,020 5,173 2,418 1,872 928 1,047 582

Households 20 6 - - 12 1 1

Public entities 28 10 5 - 2 3 8

38,679 15,652 5,877 4,993 3,818 5,772 2,567

Consolidated debt owed to the Group by group of customers and year of origination,


Year of origination


Naftogaz of Ukraine




31 July 2015

As of 31 December 2014, the top 20 debtors accounted for 47% of theGroup’s total debt (1 of 7)

34

The Group's debtors with debt more than UAH 50 m, UAH in million

Name of the debtor Owner Category

Before

2010 2010 2011 2012 2013 2014 Total

Gazukraina-Commerce LLC No information Other - - - 1,420 579 47 2,046

Kharkivski Teplovi Merezhi MC No information Heating companies 40 227 159 109 113 921 1,569

Rivneazot PJSCOstchem Enterprises Lim ited (Cyprus) -

96.4898% Industrial companies 297 978 20 - - 47 1,341

Kyivenergo PJSC Mr. Rinat Akhmetov Heating companies 0 - - - 36 1,295 1,331

Donetskmiskteplomerezha MC No information Heating companies 0 24 21 407 333 502 1,287

Kryvorizhskaya Teplocentral SE No information Heating companies 0 114 236 381 288 215 1,235

Concern Stirol Gorlivka PJSCOstchem Investments Limited (Cyprus) -

90.5271% Industrial companies - 75 935 - - - 1,009

Severodonets k union Azot JSC Os tchem Ventures Lim ited (Cyprus ) - 100% Industrial companies - 556 344 - - - 900

Donetskteplocomunenergo MC No information Heating companies 0 92 38 233 163 299 825

Krymteplocomunenergo RE No information Heating companies 5 25 24 147 294 277 773

Lvivhaz PJSC

Naftogaz - 25%,

Roloks PJSC - 10.6%,

Hastek PJSC - 13.1%

Ternoproms ervis - 10.6%

Meteron Limited PJSC - 22.95% Oblgases - 318 - - 26 313 657

Luhanskgas PJSC

Naftogaz - 25%

Gastek PJSC - 26%

Holder Stock PJSC - 23.9% Oblgases - 307 - - 87 247 641

Cherkas y AZOT PJSCPLG UALIMITED, Cyprus - 75.57%OMBRYDZH Ltd. - 20.1%

Uralkali PJSC - 11.3403% Industrial companies - 204 427 - - - 631

Teplocomunenergo Luhansk MC No information Heating companies 102 25 83 150 158 109 627

Miski Teplovi Merezhi Koncern No information Heating companies - 40 69 100 164 219 592

Lisichanskiy glass factory Proletary PJSCFG Plant Holdings Limited, (Cyprus) -

66.6685% Industrial companies - - 200 375 11 5 592

Dnipropetrovsk Mis'ki teplovi merezhi MC No information Heating companies - 7 73 20 140 329 569

Odessa Port Plant PJSC State-owned Industrial companies - - - - - 568 568

Kryvorizhteplomerezha MC No information Heating companies 0 55 38 7 89 361 550

Odes sa Teploelektrotsentral PJSC State-owned Heating companies - 38 77 111 192 125 544

Year of origination


Naftogaz of Ukraine




31 July 2015


35

The Group's debtors with debt more than UAH 50 m, UAH in million (continued)


Before

2010 2010 2011 2012 2013 2014 Total

Krym tepl oelektrots entral PJSC As erm ill Ven tures LTD , (C yp ru s) - 62.77 17%Heating companies - 55 - 18 198 207 479

Kyivoblgas PJSC

Naftogaz - 25%

LLC TRANSIT-Invest - 15%

LLC Omega-Capital - 20.4%

LLC MASHDIBUR - 13.6% Oblgases - 75 0 0 49 354 478

Dnepropetrovskgas PJSC Naftogaz - 25%,PJSC Haztek - 50.8% Oblgases - 142 - - 34 285 461

Itera LLC Rosneft Other 457 - - - - - 457

Kharkiv Teploelektrotsentral-5 JSCLimited liability companyt UKRISTHAZ -

99.8563% Heating companies - - 4 - 161 288 454

Makiivteplomerezha MC No information Heating companies 14 57 41 26 120 166 423

Kharkivhaz PJSCLasfano Ukraine LLC - 17.65%,

Sodeman Limited -17.19% Oblgases 2 92 3 - 35 263 396

Dniprodzerzhyns'k Teploelektrotsentral PJSC No information Heating companies 0 - 33 71 113 161 378

Donetskoblhaz PJSC

Naftogaz - 38%

GrandGas - 24.9%

GasCity - 24.9% Oblgases - - - - 61 295 356

Sevteploenergo MC No information Heating companies - 18 63 85 100 72 337

Zakarpathaz PJSC

Roloks PJSC - 15%

Haztek PJSC - 21%

Ahropromkomplekt PJSC - 15% PJSC

Ternoprominvest - 15% Oblgases - 158 - 7 46 117 329

Horlivskteplomerezha PJSC No information Heating companies 10 15 5 47 97 150 325

Ivano-Frankivskgas PJSC

Naftogaz - 25%

PJSC Haztek - 35%

PJSC Rolyuks - 15.2% Oblgases 15 118 - - 29 156 317

Vinnitsagaz PJSC

Naftogaz - 25%

Rolyuks PJSC - 19%

Hastek PPJSC- 34.7%

Ahropromkomplekt PJSC - 19.1% Oblgases - 78 - - 16 220 314

Year of origination


Naftogaz of Ukraine




31 July 2015


36



Before

2010 2010 2011 2012 2013 2014 Total

Poltavaoblenergo PJSC

FC Meridian LLC - 12.6%

Ltd. IR Business-Invest - 12,75%

Larva Investments limited - 25%

UA Energy Distribution Holding Limited -

23.29%

Bikontia Enterprises Limited - 23.9% Heating companies - - 1 37 92 166 296

Chernomorneftegaz PJSC State-owned Other - - - 231 - 49 280

Zaporizhgas PJSC

Naftogaz - 25%

Hastek PJSC - 49.9%,

Centragas Holding Limited - 14.5% Oblgases - 79 - 7 21 172 280

Chernihivgas PJSC

Naftogaz - 25%

Lasfano Ukraine LLC - 13.28%

Roloks PJSC - 19.65%

Hastek PJSC - 13.08%

Ahropromkomlekt PJSC - 10% Oblgases 5 93 - - 49 131 279

Odesagas PJSC

Zemare Limited - 20.36%

Semenco Limited - 20.3%

Vorean holdings & Investments Limited -

20.74%

Raysure Limeted - 20.31% Oblgases 0 - 59 - 71 145 275

Zuevskaya experimental Teploelektrotsentral SE No information Heating companies 0 15 59 19 97 85 274

Dniprogaz PJSC

Sagacity Limited - 16%

Humgate Holdings Limited - 21%

Tanter Holdings Lim ited - 16%

Eriswell Trading Limited - 16% Oblgases - 42 104 - 51 73 271

Volynhaz PJSC

Roloks PJSC - 14.3%

Hastek PJSC - 38.6%

Ahropromkomplekt PJSC - 14.3%

Ternoprominvest PJSC - 14.3% Oblgases 2 108 - - 18 120 248

Poltavagaz PJSC No information Oblgases - 31 - 2 63 144 240

State Reserve Agency of Ukraine State-owned Other - 238 - - - - 238

Teplopostachannya of Odessa MC No information Heating companies - 0 0 25 19 187 231

Lvivteploenerho MC No information Heating companies 0 45 4 38 40 102 229

Year of origination





31 July 2015


37



Before

2010 2010 2011 2012 2013 2014 Total

Severodonetsk teploelektrotsentral SE No information Heating companies - 11 20 14 - 180 225

Teploenergo Dnipropetrovsk City Council MC No information Heating companies 2 1 7 11 131 64 216

Zhytomyrteplokomunenerho MC No information Heating companies - 55 3 32 48 74 212

Khmelnitskgaz PJSCNaftogaz - 25%,

Hastek PJSC - 50.89% Oblgases 21 44 - - 13 130 208

Zhytomyrhaz PJSCHastek PJSC - 50%

Khmelnitskgaz PJSC - 24% Oblgases - 71 - - 13 123 207

Sumyhaz PJSC

Naftogaz - 25%Hastek PJSC - 25.78%

Stoke Holder PJSC - 20.85%

Oksilend Ltd. - 24.17% Oblgases 2 55 - - 25 104 186

Chernivtsihaz PJSC

Roloks PJSC - 14.69%

Hastek PJSC - 34.3%

Ternopromservis PJSC - 14.69% Oblgases 0 48 0 - 31 101 181

Luhanskteplokomunenerho No information Heating companies 162 5 4 8 - 1 179

CP HMR coals Vuhlyk MC No information Heating companies 3 11 15 25 58 66 179

Orion Kyiv No information Other 178 - - - - - 178

Khers on Teploelektrots entral JSC State-owned Heating companies 10 11 12 34 22 86 176

Oblteplocomunenergo PJSC No information Heating companies 9 27 8 48 24 56 171

Alchevsk Metallurgical Plant PJSC No inform ation Indus trial com panies - - - - - 166 166

Kharkivmiskgaz PJSC

Sodeman Limited - 18.1%

Humgate Holdings Limited -19.17%

Tanter Holdings Limited - 18.88%

Eriswell Trading Limited - 20.06% Oblgases 35 28 0 0 10 86 159

Rivnegaz PJSC

Naftogaz - 25%

Hazek - 31.6%

Ahropromkom plekt - 16%

MATHERON L IMITED - 24.8% Oblgases 14 38 - - 13 87 151

Vinnytsyamiskteploenerho MC No information Heating companies 0 3 15 - 47 82 147

Mykolayivgas PJSCNaftogaz - 25%

Haztek PJSC - 50.22% Oblgases - 50 2 - 9 83 144

Energom as hs pets stal PJSC EMSS Holdings Lim ited (Cyprus ) - 92.6771 Industrial companies - - 8 - - 129 137

Lysychanskteplomerezha MC No information Heating companies 21 22 25 26 18 24 136

Management of infrastructure of territory HO MC No information Heating companies 4 6 7 39 41 33 130

Year of origination


Naftogaz of Ukraine




31 July 2015


38



Before

2010 2010 2011 2012 2013 2014 Total

Dneprovskiy Metallurgical Plant im.F.Ye.

Dzerzhinsky PJSCNo information

Industrial companies - - - - - 123 123

ISD No information Industrial companies 121 - - - - 0 121

Ivano-Frankivskteplokomunenergo SME No information Heating companies 0 29 7 38 14 31 119

Rivneteploenergo LLC No information Heating companies - 10 11 - 3 94 119

Donetskmis khaz PJSC

Sodeman Limited - 21%

Humgate Holdings Limited - 19%

Tanter Holdings Limited - 14%

Eriswell Trading Limited - 22% Oblgases 1 8 - - 6 104 118

Nikopolteploenergo MC No information Heating companies 0 8 12 23 30 46 118

Ternopilmiskhaz PJSC No information Oblgases 9 8 20 11 19 45 112

Ternopilhaz PJSCNaftogaz - 25%

Ltd. PROMTEKHRESURS - 42.75% Oblgases 6 4 26 1 20 56 112

Hlib of Ukraine SE State-owned Industrial companies 110 - - - - - 110

Kryvorizhhaz PJSC

PJSC Dniprogaz - 10.7%

Sodeman Limited - 13.8%

Humgate Holdings Limited - 21.08%

Tanter Holdings Limited - 15.02%

Eriswell Trading Limited - 17.77%

Sagacity Limited - 12.51% Oblgases - 8 - - 8 88 103

Bilotserkivteplomerezha MC No information Heating companies - 22 1 10 16 53 102Power system MC No information Heating companies 0 1 0 1 43 53 98

Ukravtohaz SE No information Other - - - - - 98 98

Mariupol met. Plant Ilyich PJSC Mr. R inat Akhm etov and Mr. Vad im Novins kyyIndustrial companies - - - - - 97 97

Teplotrans MC No information Heating companies - - 3 5 41 46 96

Edyni Energy Systems of Ukraine No information Other 94 - - - - - 94

Kirovohradteplo LLC No information Heating companies 0 5 17 22 21 29 93

Energetyka ta palyvo Ukrainy SE No information Other 90 - - - - - 90

Makiyivka metal lurgist. integrated works Mr. Rinat Akhmetov and Mr. Vadim NovinskyyIndustrial companies 89 - - - - - 89

Kirovogradgas JSC State-owned Oblgases - 1 3 - 21 63 89

Heat supply system MC No information Heating companies 0 - 5 - 12 71 88

Year of origination





31 July 2015


39



Before

2010 2010 2011 2012 2013 2014 Total

Kyivgas PJSC

PJSC Kyyivenerhoholdinh - 60%

DEPARTMENT OF KYIV mun icipal property

executive body of Kyiv City Council (Kyiv City

State Adminis tration) - 28.4553% Oblgases - 20 1 - 36 30 88

Alchevskteplokomunenerho MC No inform ation Heating companies 13 2 1 1 36 33 87

SGS Plus LLC No information Heating companies 4 9 17 6 26 25 87

Cherkasygaz PJSC

Lasfano Ukraine LLC - 20.35%,

Interregional trade com pany Ltd - 15.81%

Perrit Select investments Limited - 22.56% Oblgases - - - - 25 61 86

Sumykhimprom PJSC State-owned Industrial companies 0 62 23 - - - 85

Pavlohradteploenerho MC No information Heating companies 0 7 15 15 12 31 80

Chervonohradteplokomunenerho MC No information Heating companies - 6 4 26 26 19 80

Zaporizhstal JSC

Zaporizhstal-PC LLC - 21.83%

Kyiv Sekyuritiz Group LLC - 24.5%

Hals-Invest Ltd.- 17.06%

Global steel investments limited - 12.35%

Midland Capital Management LLC -11.22% Industrial companies - - - - - 80 80

Khersongas PJSCPJSC Neycherel end likvified Petrolem CEO -

60.9% Oblgases - - - - 18 56 74

Donetsk-Energy LLC No information Heating companies - - - 4 22 45 71

Interpipe Niko Tube LLC No information Industrial companies - - - - - 70 70

Interpipe Nizhnedneprovskiy Rolling Plant PJSC Saleks Investments Limited - 60%Industrial companies - - - - - 69 69

Poltavateploenerho No information Heating companies - 2 1 - - 63 67

Umanteplokomunenerho Uman MC No information Heating companies - 5 1 9 12 38 66

Ukrspirt SE State-owned Industrial companies - - - - - 66 66

Melitopolhaz JSC

Naftogaz - 25%

Limited Liability Company investment

company FINLEKS-INVEST - 40.8% Oblgases 13 20 0 - 10 22 64

UZHKH MC No information Heating companies 4 5 1 25 12 17 64

Mykolayivoblteploenerho RMC No information Heating companies - 11 - 2 1 47 62

Lutskteplo SE No information Heating companies - - 3 21 - 38 61

Melitopol's'ki Thermal Network LLC No information Heating companies - 10 3 10 17 21 61

Year of origination





31 July 2015


40



Before

2010 2010 2011 2012 2013 2014 Total

Mykolaiv Teploelektrots entral PJSC State-owned Heating companies - - 2 - 2 57 61

Krymhaz PJSC

Naftogaz - 25%

Haztek PJSC - 24%

National Joint Stock Comp any

Chornomornaftogas PJSC - 15.5%,

Lasfano Ukraine LLC - 15% Oblgases - 37 - 2 15 6 60

Chernivtsiteplokomunenerho MC No information Heating companies - 3 - 12 3 41 59

PJSC Azovstal Mr. Rinat Akhmetov and Mr. Vadim NovinskyyIndustrial companies - - - - - 57 57

Smela Energoinvest LLC No information Heating companies - 1 8 9 18 20 57

Ternopilmiskteplokomunenerho MC No information Heating companies - - 1 - - 55 56

Mariupolgaz PJSCLtd. Mahraz - 76,9%

UITC LIMITED - 11,24% Oblgases 1 - - - 8 46 55

Heat networks meters. Volnogirsk MC No information Heating companies - 3 11 15 25 - 53

Eastern European teploenerhoheneruyucha

companyNo information

Heating companies 17 16 20 - - - 53

Stanis lav thermal power Co., LLC No information Heating companies - - - 11 17 25 53

Teplocomunenergo Antratsitovsky MC No information Heating companies 3 1 5 5 24 14 51

Year of origination

Source: smida.gov.ua, IFRS financial statements for 2014 (where publicly available)


Naftogaz of Ukraine




31 July 2015

Appendix 1

Terms of Reference

41




31 July 2015

Terms of Reference (1 of 4)

Appendix 1 – Terms of Reference

42




31 July 2015

Terms of Reference (2 of 4)


43




31 July 2015

Terms of Reference (3 0f 4)


44




31 July 2015

Terms of Reference (4 0f 4)


45


Naftogaz of Ukraine



31 July 2015

Appendix 2

Scope and Process

46


Naftogaz of Ukraine



31 July 2015

Scope and process

Scope Process

Scope of our work This report covers analysis of external receivables due from the sale of gas and recorded on the books of Naftogaz,Ukrgazvydobuvannia, Ukrtransgaz and Gaz of Ukraine (the Group). It does not cover any intra-group receivables

which originated from transactions between the companies of the Group.

Exclusions from scope As instructed, we have not carried out any analysis of other receivables recorded on the books of the Group and which did not relate to the sale of gas. In addition, the following receivables were excluded from our analysis:

• Receivables of Ukrtransgaz due for the transportation services in relation to the gas sold by Naftogaz to theregional gas distribution companies for further supply to households and budget organisations, as suchservices and related receivables are subject to individual contracts between Ukrtransgaz and its customers andare separate from Naftogaz’s contracts for the sale of gas;

• Receivables of Gaz of Ukraine for the sale of condensed gas, as this type of gas is classified as oil product whichis subject to seprate regulations.

Review process

Our work was performed over the period starting from 12 June 2015. We visited the headquarters of the Group as well as offices of Ukrgazvydobuvannia, Ukrtransgaz and Gaz of Ukraine. We had access to the Deputy Chairmanof the Board Mr. Sergiy Konovets and various other members of senior management.

Access to information

Our work has comprised a review and analysis of the financial and other information provided to us by the Group

and discussions with management. We have assumed that this information and management’s explanations andrepresentations are complete, accurate and reliable.

We note that we were not provided with the information on the business groups and beneficial owners of theGroup’s debtors, as such information was not available in the books and records of the Group.

Basis of our work We have not carried out anything in the nature of an audit nor, except where otherwise stated, have we subjectedthe financial or other information contained in this report to checking or verification procedures. Accordingly, weassume no responsibility and make no representations with respect to the accuracy or completeness of theinformation in this report, except where otherwise stated.

47

Appendix 2 – Scope and Process


Naftogaz of Ukraine



31 July 2015

Appendix 3

Additional Information

48


Naftogaz of Ukraine



31 July 2015

The Group’s receivables by customer category and year of origination

49

UAH in millions

before

2010 2010 2011 2012 2013 2014 Total %

Heating companies 708 1,480 974 75 - - 3,237 32%

Oblgases 126 1,991 215 1 - - 2,333 23%

Indus trial com panies 338 1,926 1,916 - - - 4,180 42%

Other 245 5 16 - - - 266 3%

1,417 5,402 3,121 76 - - 10,016 100%

as a % from total 14% 54% 31% 1% 0% 0% 100%

Year of origination

Debt owed to Gas of Ukraine by customer category and year of origination,


UAH in millions

before

2010 2010 2011 2012 2013 2014 Total %

Heating companies 11 - 591 2,837 4,226 9,155 16,820 59%

Oblgases - 120 35 40 1,012 4,436 5,643 20%

Indus trial com panies 450 - 61 381 39 1,698 2,629 9%

Other 684 250 10 1,659 600 363 3,566 12%

1,145 370 697 4,917 5,877 1 5,652 28,658 100%

4% 1% 2% 17% 21% 55% 100%

Year of origination

Debt owed to Naftogaz by customer category and year of origination, as of

31 December 2014


Naftogaz of Ukraine

Appendix 3 – Additional Information



31 July 2015

The introduction of special accounts was an important step in improving payments from the Group’s major customers (i.e., heating companies and

oblgases)• Special accounts were introduced for all

categories of the Group’s customers in2008 (except for heating companies, for which they were introduced only in2014).

• Payments from customers for gas (toNaftogaz or oblgases) or heat (to heatingcompanies) are made to special account

where they are automatically distributed between providers of gas, heat andtransportation services (i.e., Naftogaz,heating companies, Ukrtransgas andoblgases).

• The major advantage of special accounts,is that oblgases and heating companiesare not allowed to withdraw funds fromsuch accounts and payments to Naftogazdo not depend on their discretion, but on

the level of payment made by endcustomers.

50

Special distribution accountsopened by oblgases for each

group of customers*

Special distribution accountsopened by Heating

companies for each group ofcustomers**

Special distribution accountsopened by Naftogaz

End customers

Current account of Ukrtransgas (gastransportation fee)

Current accounts of

oblgases

(gas distribution fee (including ITL))

Current account ofUkrtransgas (gastransportation fee)

Current accounts of

oblgases

(gas supply anddistribution fee (including ITL))

Naftogaz current account (gas)

Current accounts of Heatingcompanies (premises

heating and water heating fee)

Current account ofUkrtransgas (gastransportation fee)

Current accounts of

oblgases

(gas distribution fee (including ITL))

Gas supply company level Heating company level Naftogaz level

* Population, Public organizations, Industrial companies and otherentities, religious organizations, Heating companies and othercustomers

** Population, Public organizations, other customers

Naftogaz special account

Industrial companies and otherentities

Distribution of fees for ITL of gas (if there is an overduedebt)


Naftogaz of Ukraine




31 July 2015

Debtors with the largest claims from the Group (1 of 2)

51


Naftogaz of Ukraine



Debtors of Naftogaz with the total claims over UAH 500 mln

UAH in millions

Principal

debt

Fines and

Penalties

Final

court

decision

t aken Pen di ng

Total

amount

Enforcement

procedure

Restruct

ured Paid

Suspended

enforcement

ATO

zone

and

Crimea

Total

amount

% 0f claims

confirmed*

1 Kyivenergo, PJSC

Electricity and

heating 2 491 496 1 367 1 620 2 987 332 7 96 16 0 - 595 44%

2 Gas Ukraine Commerce, LLC Other 1 896 7 17 2 494 11 9 2 613 - - - - 2 081 2 081 83%

3 Kharkivski teplovi meregi, MC

Electricity and

heating 780 335 97 1 14 4 1 115 11 - 7 7 627 - 7 15 7 4%

4 Kryvorizka teplocentral, SCElectricity andheating 812 233 1 045 - 1 045 51 6 - 128 322 - 966 92%

5 Kharkivska TEC-5, PJSC

Electricity and

heating 739 269 1 008 - 1 008 64 - 195 55 7 - 816 81%

6 Mariupolteplomerega, MCC

Electricity and

heating 767 227 544 450 994 17 0 16 8 45 - - 383 7 0%

7

Donetskteplocomunenergo

Oblasne, MC

Electricity and

heating 57 6 17 0 549 19 7 7 46 253 2 11 1 - 267 49%

8 Krymteplokomunenergo, LC

Electricity and

heating 595 11 4 37 8 331 7 09 235 - - - 9 244 65%

9 Cherkasygaz, OJSC Oblgases 650 12 41 621 662 36 - 4 - - 40 98%

10 Poltavaoblenergo, PJSC

Electricity and

heating 329 293 90 532 622 68 - - - - 68 7 6%

11 Donetskmiskteplomerega, MCC

Electricity and

heating 501 95 441 15 5 596 - - - 65 - 65 15 %

12Lysyschnskyy sklozavod“Proletariy”, PJSC

Industrialcompanies 481 92 57 3 - 57 3 29 486 - - - 51 5 90 %

13 Interpipe NZD, OJSC

Industrial

companies 432 13 2 - 564 564 - - - - - - n/a

14 Krymteploelectrocentral, LLC

Electricity and

heating 426 10 3 29 50 0 529 - - 28 - - 28 97 %

11 475 3 288 9 530 5 233 14 763 1 714 663 584 1 732 2 090 6 783 7 1%

Total claims Claims confirmed by court




31 July 2015

Debtors with the largest claims from the Group (2 of 2)

52


Naftogaz of Ukraine




Debtors of Gas of Ukraine with the total claims over UAH 400 mln

# UAH in millions

Principal

debt

Fines and

Penalties

Final

court

decision

taken Pending

Total

amount

Enforcement

procedure

Restruct

ured

Wri tt en-

Off Paid

Total

amount

% 0f claims

confirmed*

1 Kyivenergo, PJSC

Electricity and

heating 2 244 35 1 2 595 - 2 595 - - - 1 027 1 027 40%

2 Rivneazot, PJSC Industrial 1 417 326 47 5 1 268 1 74 3 19 - - 446 465 98%

3 Concern Stirol, PJSC Industrial 1 009 660 - 1 669 1 669 - - - - - n/a

4 Severodonetsk union Azot, CJSC Industrial 817 483 - 1 300 1 300 - - - - - n/a

5 Kharkivski teplov i merezhi, MC

Electricity and

heating 954 19 7 1 151 - 1 151 65 8 43 291 - 992 86%

6 Cherkasy Azot, OJSC Industrial 539 240 631 14 8 7 7 9 631 - - - 631 100%

7 Interpipe Nizhnedneprovskyy

Rolling Plant, PJSC Industr ial 57 1 67 57 1 67 638 - - - 57 1 57 1 100%

8 Kryvo rizka Teplocentral, SE

Electricity and

heating 493 11 3 606 - 606 320 - 25 8 - 57 8 95 %

9 Donetskmiskteplomerezha, MCC

Electricity and

heating 399 80 47 6 3 47 9 95 7 9 17 2 14 9 495 104%

8 443 2 517 6 505 4 455 10 960 1 723 122 721 2 193 4 759 73 %

Total claims Claims confirmed by court



31 July 2015

Regional allocation of Naftogaz claims against debtors

53


Naftogaz of Ukraine



UAH in millions

Principal

debt

Fines and

penalties

Final

court

decision

taken Pending

Total

amount

Enforcement

procedure

Writte n-

Off

Restructu

red Paid

Suspended

enforcement

Bankruptcy

proceedings

AT O zon e

and

Crimea

Total

amount

% 0f claims

confirmed*

Ky iv 16 20 34 2 36 5 - - 1 - - - 6 18%

Ky iv region 3 01 9 7 98 1 950 1 867 3 817 621 2 30 15 9 21 0 - - 1 022 52 %

Lv iv region 396 169 456 10 9 565 289 - 31 54 36 - - 410 90%

Odessa region 510 21 5 489 236 7 25 191 - - 34 39 - - 264 54%

Rivne region 492 188 67 5 5 680 52 5 - - 36 7 - - 568 84%

Zaporizzhya region 419 16 1 11 8 462 580 61 3 - 4 5 - - 7 3 62%

Vinn yt sya regi on 244 7 5 17 8 141 31 9 89 1 - 17 - - - 10 7 60%

Vo lyn' re gion 11 7 38 15 1 4 15 5 3 - - 380 10 - - 393 260%Zhytomyr region 208 7 8 27 9 7 286 19 6 4 - 5 24 - - 229 82%

Zakarpattya region - 10 10 - 10 - - - - 1 - - 1 10 %

Iv ano-Frankiv sk regi 1 09 68 16 7 10 17 7 38 - 17 3 69 - - 12 7 7 6%

Kirovograd region 250 67 25 5 62 31 7 68 - - 63 59 - - 190 7 5%

Mykolaiv region 1 06 50 11 3 43 15 6 8 - - 21 - - - 29 26%

Poltav a region 47 6 357 25 0 583 833 10 0 - - 22 38 - - 160 64%

Sumy region 83 45 7 6 52 12 8 12 - 3 9 - - - 24 32%

Ternopil region 7 6 21 90 7 97 19 - - 1 1 - - 21 23%

Kharkiv region 1 990 7 56 2 502 244 2 746 14 9 6 7 4 360 1 183 - - 1 7 7 2 7 1%

Kherson region 251 59 27 1 39 31 0 12 8 - - 90 29 - - 247 91 %

Khmelny tsk region 228 80 19 2 11 6 30 8 92 - 2 54 - - - 14 8 7 7 %

Cherkasy region 883 64 323 624 947 17 0 - - 69 - - - 239 7 4%

Chernivtzi region 1 42 38 17 9 1 180 27 - - 38 - - - 65 36%

Chernigiv region 381 90 35 4 11 7 47 1 6 - 18 11 5 67 56 - 262 7 4%

Donetzk region 2 852 7 29 2 284 1 297 3 581 630 - 17 0 598 95 6 4 1 503 66%

Lugansk region 1 060 21 2 1 216 56 1 272 37 1 39 485 10 58 - 1 964 7 9%Dnip ro pe tro vs k re gio 2 9 17 7 85 2 7 1 3 989 3 702 97 6 - 1 1 149 560 - - 2 686 99%

Crimea 3 666 1 120 3 628 1 158 4 786 380 - - 285 - - 2 152 2 817 7 8%

20 891 6 293 18 953 8 231 27 184 5 154 55 831 3 577 2 491 62 2 157 14 327 76 %

T otal claim s Claim s confirm ed by court




31 July 2015

Regional allocation of Gas of Ukraine claims against debtors

54


Naftogaz of Ukraine




UAH in millions

Principal

debt

Fines and

Penalties

Final

court

decision

t ak en Pen din g

Total

amount

Enforcement

procedure

Writt en-

Off

Restruct

ured Paid

Suspended

enforcement

Bankruptcy

proceedings

Total

amount

% 0f claims

confirmed*

Kyiv 2 496 407 2 901 2 2 903 7 2 39 49 1 083 - - 1 243 43%

Kyiv region 17 9 50 229 - 229 10 4 33 16 50 - - 203 89%

Lviv region 395 81 47 4 2 47 6 40 27 0 11 6 8 - - 434 92%

Odessa region 825 95 920 - 920 1 11 2 10 0 15 1 - 36 400 43%

Rivne region 1 594 364 690 1 268 1 958 54 7 7 53 480 - - 664 96%

Zaporizzhya region 1 27 9 61 3 421 1 471 1 892 7 1 19 1 7 6 47 - - 385 91 % Vin nyt sy a reg ion 247 54 30 1 - 30 1 3 10 8 3 14 8 - 7 269 89%

Vo lyn ' regio n 16 7 30 19 7 - 19 7 39 90 - 24 - 25 17 8 90%

Zhytomyr region 231 62 288 5 293 10 7 11 5 2 20 - 1 245 85%

Zakarpattya region 204 29 233 - 233 - 16 0 32 - 14 17 223 96%

Iv ano-Frankiv sk regio 27 1 51 322 - 322 25 17 3 95 2 - - 295 92%

Kirovograd region 99 30 12 9 - 12 9 33 35 - 42 - - 11 0 85%

Mykolaiv region 137 23 16 0 - 16 0 1 10 7 10 - - - 11 8 7 4%

Poltava region 205 47 233 19 25 2 27 11 2 1 49 - - 18 9 81%

Sumy region 138 34 16 8 4 17 2 1 81 15 19 - - 11 6 69%

Ternopil region 153 31 18 4 - 184 1 54 61 37 - - 15 3 83%

Kharkiv region 2 183 7 7 8 2 245 7 16 2 961 7 05 7 83 89 222 - - 1 799 80%

Kherson region 83 19 10 2 - 10 2 21 14 - 8 - - 43 42%

Khmelnytsk region 223 55 27 7 1 27 8 64 - 66 64 - - 19 4 7 0%

Cherkasy region 689 285 826 14 8 97 4 649 57 - 82 - - 7 88 95 %Chernivtzi region 24 5 29 - 29 1 8 8 9 - - 26 90%

Chernigiv region 207 41 248 - 248 45 13 8 36 10 - - 229 92%

Donetzk region 1 817 421 2 014 224 2 238 51 2 31 0 41 8 340 - 27 1 607 80%

Lugansk region 1 384 27 7 1 033 628 1 661 27 7 326 221 19 - 15 858 83%

Dnip ro pe tr ov sk r eg io n 2 0 7 3 444 2 439 7 8 2 517 400 7 55 12 0 966 - - 2 241 92%

Crimea 57 8 10 8 67 1 15 686 237 64 61 23 - - 385 57 %

17 881 4 434 17 734 4 581 22 315 3 490 4 212 1 648 3 903 14 128 13 395 7 6%

T otal claim s Claim s confirm ed by the court



31 July 2015

Recently adopted legislation regulating general principles of the naturalgas market in Ukraine

Law No. 1645-VII On Reform of the Unified GasTransportation System adopted by the Parliament on 14 August 2014

• This Law envisages, inter alia, creation of the Operator of the unitedgas transportation system (UGTS), a company founded by the stateor by a company owned by the state/the company with at least 51%of the corporate rights owned by the state. Such Operator should bedetermined by the executive body responsible for the oil and gassector. Co-founder of the UGTS Operator can be a legal entity, which is owned or controlled by the resident of the EuropeanUnion, the USA, or from the countries included to the EuropeanEnergy Union under certain conditions set by the mentioned Law.

Law No. 329-VIII On the Natural Gas Market adopted by theParliament on 9 April 2015

• This Law was developed in order to fulfil the Law of Ukraine “OnRatification Of The Protocol Regarding Accession Of Ukraine ToIncorporation Of Energy Union” No.2787-VI dated 15 December2010 and implementation of the EU Association Agreement. Itestablishes economically substantiated approaches to theorganisation of the natural gas market. Key pillars are as follows:

1) Separation of the Operator’s functions from functions of gasproducers and suppliers;

2) Clear division of functions of the state and the NationalCommission;

3) Free pricing for wholesale and retail natural gas market, exceptfor cases when the Cabinet of Ministers uses its right to imposespecial obligations on the market participant;

4) Free choice of natural gas supplier, etc.

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Appendix 4

Glossary

56


Naftogaz of Ukraine



31 July 2015

Glossary of terms and abbreviations

Term Definition

ATO zone Parts of Donetsk and Lugansk regions which are not controlled by the Ukrainian Government

CJSC Closed Joint-Stock Company

cm Cubic meter

Company or Naftogaz National Joint-Stock Company Naftogaz of Ukraine

EU European Union

Gas of Ukraine Subsidiary Company Gaz of Ukraine

Group, the Naftogaz and its subsidiary undertakings Ukrgazvydobuvannia, Ukrtransgaz and Gas of Ukraine

IMF International Monetary Fund

LC Lease Company

LLC Limited Liability Company

LLP Limited Liability Partnership

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Appendix 4 – Glossary


Naftogaz of Ukraine



31 July 2015

Glossary of terms and abbreviations (cont’d)

Term Definition

m, mln Million

MC Municipal Company

MCC Municipal Commercial Company

MLC Municipal Lease Company

National Commission National Commission for State Energy and Public Utilities Regulation of Ukraine

Oblgases Regional gas distributors

OJSC Open Joint-Stock Company

PJSC Public Joint-Stock Company

SE State-Owned Enterprise

Q Quarter

ToR Terms of Reference

UAH Ukrainian hryvnya

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Glossary of terms and abbreviations (cont’d)

Term Definition

UGTS Operator Operator of the united gas transportation system

UK United Kingdom

Ukrgazvydobuvannia Public Joint-Stock Company Ukrgazvydobuvannia

Ukrtransgaz Public Joint-Stock Company Ukrtransgaz

VAT Value Added Tax

Gas distribution Transportation of gas through distribution pipelines

ITL Industrial technical losses



report diagnostic analysis 310715 eng

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