Naftogaz??™s financial positions deteriorated last year, when the government completely banned exports of gas from Ukraine amid fears of domestic natural gas shortages. The decision to stop the exports was made by then-Prime Minister Yulia Tymoshenko.

Exports, at between 4 billion cu m and 6 billion cu m annually, were an important source of hard currency revenue for Naftogaz.

Naftogaz??™s prospects may further deteriorate as Ukraine will probably not be able to restart exports of natural gas following a Wednesday gas supply deal with Gazprom of Russia.

Ukraine was hoping that Russia will supply 62 billion cu m of gas annually in 2007-2009, which would open the possibility for Naftogaz to re-export about 7 billion cu m/year.

However, Russia on Wednesday had agreed to supply only 55 billion cu m/year during the period, which will be enough only to cover Ukraine??™s domestic demand.

Naftogaz has been seeking a $1 billion bailout from the government in early July as a way out of its financial crunch in order to pay debts owed for gas supplies, but the government rejected the request.

Naftogaz is the biggest Ukrainian company by revenues and also the biggest taxpayer. The company ships about 120 billion cu m of Russian and Central Asian gas to Europe annually, also producing up to 19 billion cu m/year of gas domestically.

Naftogaz??™s losses were reported at UAH1.84 billion ($364.7 million) on revenues of UAH36.9 billion ($7.31 billion) in 2005, according to financial audit conducted by Ernst&Young. (tl/ez)