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Experts presented the agenda for energy reforms for the government by the end of the year

27 September 2017

The agenda of reforms was formed following the results of monitoring of the implementation by Ukraine of the EU-Ukraine Association Agreement in the energy and environment areas for June-August 2017.

Experts from the public organization "DIXI GROUP", Civil Network OPORA, All-Ukrainian Public Organization "Energy Association of Ukraine", Resource and Analysis Center "Society and Environment", and the association "European-Ukrainian Energy Agency" have presented the agenda of reforms in the energy and environment areas within the implementation by Ukraine of the EU-Ukraine Association Agreement.


The summer has recorded conflicts and attempts to resolve them. We have observed a series of disputes between Naftogaz and the Ministry of Energy and Coal Industry of Ukraine with respect to the development of the GTS development and modernization plan, and with respect to the review of the regulated gas price.

Despite the award of the Stockholm Court of Arbitration generally in favor of Naftogaz, no final settlement of the dispute under the gas supply contract with Gazprom has been reached. Arbitration award under the transit contract is forecasted for autumn, tentatively for the end of November. Actually, it has to open a way to the "unbundling" - segregation of the gas transportation and storage functions, creation of an independent GTS operator.

"Split-up of Naftogaz should become a key issue for the government by the end of the year. This process may not be further dragged out, noted Roman Nitsovych, Expert of DiXi Group. "In parallel, appointments to the supervisory board of Naftogaz will take place, as well as discussions of the new strategy of NJSC Naftogaz of Ukraine Group, which will be presented in the next few weeks".

In the expert's opinion, the proceedings instituted by the Secretariat of the Energy Community against Ukraine in August was an unsetting news. This is in reference to the non-compliance with the EU directives of the regulation on vesting special duties in the gas market participants, which regulates prices for population, religious organizations and heat suppliers.

"The Secretariat and the World Bank proposed an alternative resolution to the government, providing for steps to opening the retail market to competition, and we expect that it will be considered by the Cabinet of Ministers by the end of the year", said Roman Nitsovych.



The Law of Ukraine "On the Electricity Market" came into force on June 11, determining the new energy market model according to the Third Energy Package and the procedure for transition to such model. Successful implementation of the new market model will require implementing a series of organizational, technical and legal measures.

According to the expert Svitlana Holikova, implementation of the provisions of the Law will require development and approval of more than 100 regulatory legal acts, of which 86 - before June 2018. Most of these acts are within the scope of the NCREPU. Therefore, in August, the Regulator adopted the acceptance schedule and starting publication of the first projects.

"On September 9, by the Government resolution, a Coordination Center for Ensuring Implementation of the New Electricity Market was created. It is headed by the Vice Prime Minister of Ukraine Volodymyr Kistion who is in charge of energy issues in the Government. One of the first organizational measures should include corporatization of NEC Ukrenergo and certification of the operator of the electricity transmission system", explained Svitlana Holikova.

A significant event was signing an Agreement on June 28 between ENTSO-E and SE NEC Ukrenergo on the conditions of the future interconnection of the energy systems of Ukraine and Moldova with the energy system of the mainland Europe.

The NCREPU has passed a series of resolutions to complete the formation of the legal framework for transition to the incentive regulation in the electricity transmission and distribution. While supporting in general the transition to the incentive regulation of natural monopoly entities, the expert environment critically assesses the size of the rate of return to the asset base.

In the opinion of experts from the coalition "Energy Reforms", in the coal sector, there was an acute issue of shortage of coal, because it was necessary to accumulate coal both for dealing with the summer peak and for preparing for the heating season. There were attempts to deal with the shortage of the anthracite group coal through import, in particular supplies from South Africa and signing the agreement between PJSC Centrenergo and XCoal for supply of approximately 700 thousand tonnes of anthracite coal from the USA by the end of 2017. The dependence on the anthracite group coal was also reduced through switching over the fourth power unit of Trypillia NPP and the second power unit of Zmiiv NPP to the utilization of the gas group coal. After the accident at the Stepova mine of SE Lvivvuhillia, the issue of safety of mines became very acute, so on June 21 the Cabinet of Ministers approved changes to the state budget for 2017 by allocating additional UAH 100 million for measures aimed at improving the safety of employees in the coal production industry. There was a long legality check with respect to the approval of the formula "Rotterdam +".

As noted by the expert Oksana Shumilo, there has been positive changes in the nuclear safety area towards radioactive waste handling, in particular, some Laws have been adopted aimed at restoration of the mechanisms of management of the State Fund for Radioactive Waste Management: Law "On Amending Article 4 of the Law of Ukraine "On Radioactive Waste Management" with Respect to the Improvement of the Mechanism of Financing Radioactive Waste Management" and the Law of Ukraine "On Amending the Budgetary Code of Ukraine with Respect to the Improvement of the Mechanism of Financial Support of Radioactive Waste Management". Within the scope of improvement of safety and reliability of NPP, measures were implemented within the Complex (Consolidated) Safety Upgrade Program for Power Units of Ukrainian NPPs (CCSP) for power units No. 3 RNPP and No. 3 SUNPP, and the Life Extension Program for power unit No. 3 RNPP. The work was also in progress in the area of construction of the Centralized Spent Nuclear Fuel Storage Facility (CSFSF), in particular the Cabinet of Ministers passed Ordinance No. 380-p "On Approving the Project "Construction of a Centralized Spent Nuclear Fuel Storage Facility for VVER Type Reactors of the Domestic Nuclear Power Plants", and a license was issued to NNEGC Energoatom for construction and commissioning of the CSFSF.



During the summer, positive changes have occurred in the system of public procurements ProZorro in the technical aspect: the system was integrated with the Uniform State Register of Legal Entities, Private Entrepreneurs and Public Formations, and a risk management system was introduced. According to the DiXi expert Andriy Bilous, the first event enabled companies to accelerate the process of data verification and registration, and the customers to verify data of bidders more quickly. The second event enabled considerable acceleration of the search for tenders that are held with violations or may contain a corruption component.

The Antimonopoly Committee has come one step nearer in performing international commitments of Ukraine: the Law of Ukraine "On the Government Assistance to Business Entities" has come into effect. This means that from this point forward, the AMCU has to start collecting information on the existing and new mechanisms of government assistance, analyze them and make the relevant decisions on the allowability for competition. Execution of these tasks is aimed at future prevention of situations where some companies take priority over others due to the access to state resources, which in its turn is in contradiction with the world standards for ensuring robust competition. Notwithstanding that the function is new, the committee has started the work without problems, as well as a new Government Assistance Portal has been launched.

At the same time, Andriy Bilous stressed that the problem situation existing around the reform of the NCREPU remained unresolved. "Neither the Verkhovna Rada nor the Cabinet of Ministers nor the Presidential Administration have delegated their representatives to the Tender Commission which has to select new commission agents. Taking into account the procedures and time limits for selecting and approving new members of the NCREPU, as regulated by the Law of Ukraine "On the NCREPU", from November 26, after the retirement of the next two members, the regulator will most likely remain without quorum and the energy sector will remain without a governing body. The timeliness of publication of the adopted commission decisions and resolutions in Uriadovyi Kuryer also remains unaddressed, which has negative impact on the work of companies", the expert said.



Experts from the coalition "Energy Reforms" believe that the adoption of the laws from the "energy efficient package" (On the Energy Efficiency Fund, On Energy Efficiency of Buildings, On Commercial Metering of Heat Energy and Water Supply) has become one the positive changes in the compliance with the Ukraine's commitments for implementation of the Association Agreement.

At the same time, according to the expert from Social Network OPORA Yulia Cheberiak, there remains a rather important and long process for preparation and approval of subordinate regulatory legal acts aimed at the implementation of the laws.

"As of today, there are working groups already created in the relevant Ministry for developing these drafts, and for the Law on the Energy Efficiency Fund, the draft act has been already sent for approval to the central executive authorities - this is the CMU resolution on creating the Fund and approving its charter", said Yulia Cheberiak.



Signing by the President of Ukraine of the Law of Ukraine on environmental impact assessment and the Law of Ukraine on conservation of virgin forests can be considered as the top achievement in the environmental area during the summer period", believes Zoriana Kozak, Analyst from Resource and Analysis Center "Society and Environment".  "In case of adoption and effective practical application of the required subordinate acts, the Law on environmental impact assessment will have positive impact on the health and welfare of people, because EIA will enable to detect any harmful effect of the planned business activities and either prevent or minimize it, accordingly. In its turn, the Law on virgin forests is extremely long-awaited for nature protectors, because virgin forests (untouchable territories) have an important environmental, scientific, aesthetic value, and are the inhabitation of a great number of animals included in the Red Book", she said.

Moreover, in the opinion of the experts, information about the air emissions for 2016 published in summer by the State Statistics Service of Ukraine indicates the necessity of as quick as possible implementation of the European norms for atmospheric air quality. According to official data, the emission volume grew by 7.7% in 2016 as compared with 2015. Therefore, the proposed reform of the environmental supervision system in Ukraine, which is closely related to the implementation of a new monitoring system which also was being worked out in summer, should be closely related to the implementation of Directive 2008/50/EC on ambient air quality and cleaner air for Europe.



If the Energy Strategy had not been adopted, which strategy determined the development priorities and target state of the oil sector up to 2035, neither new Regulations for Development of Oil and Gas Fields, one might state that the government summer in the oil sector has passed without any quality changes, believes Hennadiy Riabtsev, Director for Special Projects of STC Psykheya.

"The deadlines for development of the new Subsoil Code of Ukraine have been postponed yet again. Implementation of Directive 98/70/EC relating to the quality of petrol and diesel fuels, and Directive 94/63/EC on the control of volatile organic compound (VOC) emissions resulting from the storage of petrol and its distribution from terminals to service stations, has been dragged out. Issuance of special permits for subsoil use have been terminated for unclear reasons, which has already impacted the production volumes. At the same time, local councils refuse to provide approvals for work performance to the holders of current permits on various excuses", the expert emphasized.

In the opinion of the oil expert group participants, the results achieved by the Government fewer and fewer correlate to those declared in plans. There have been more and more frequent notifications about adoption of the government decisions, however they are not further worked on. Published financial audit reports related to the activities of the enterprises engaged in the performance of the international commitments of Ukraine unexpectedly evidence the facts of terminated work on the previously noisily announced projects. The Ministry of Energy and Coal Industry, the Ministry of Ecology and Natural Resources, and the State Service for Geology and Subsoil of Ukraine consider completed a series of tasks in the oil sector, however the draft documents developed by them have been returned for reworking long ago through their non-compliance with the requirements of the regulations.

Considering this, on July 6, 2017, 22 independent experts signed an open appeal to the President, Prime Minister and the Chairman of the Verkhovna Rada of Ukraine, in which they, in particular, emphasized on the necessity of:

- adoption, as soon as possible, by the Verkhovna Rada of Ukraine of the draft laws "On Amending Some Legislative Acts of Ukraine Related to the Simplification of Some Aspects of the Oil and Gas Industry" (No. 3096-d) and "On Ensuring Transparency in Extractive Industries" (No. 6229);

- implementing a simplified real-time digital access to secondary geological information (by amending Resolution No. 423 of the Cabinet of Ministers of Ukraine dated June 13, 1995 "On Approving the Regulation on the Geological Information Management Procedure");

- conducting the relevant work with members of oblast councils in order to unblock provision of approvals for prospecting and development of hydrocarbons.

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