Fitch affirms Naftogaz

Fitch Ratings said it affirmed Ukraine-based OJSC Naftogaz's local- and foreign-currency issuer default ratings at B+, affirmed the company's $500 million eurobond due 2009 at B+ with a recovery rating of RR4 and removed the ratings from Rating Watch negative.

The outlook is stable.

Fitch said the company has outlined a plan to deal with its rising imported gas cost base. This includes raising domestic gas prices by 35% to 36% in 2007, in line with the recently announced import-gas price increase, and is consistent with the decree from the Cabinet of Ministers in April 2006 that allows the company to raise tariffs to "economically justified" levels in 2007.

A new tariff structure recently passed by parliament allows for a 20% reduction for households not using gas for heating purposes, but implements a progressive tariff structure for more intensive gas consumers, Fitch added. The result is an increase in net earnings for Naftogaz of about $80 million. Therefore, Fitch said it doesn't expect a financial impact on the company due to rising import prices to be as severe in 2007 as it has been in 2006.

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