European Reforms in Energy Sector: what to start 2017 with?

At the briefing that took place on December 23, 2016, experts listed the major “achievements” and “failures” of the Ukrainian implementation of European reforms in the energy sector and environmental issues as of the end of the year and outlined the priority tasks for the sector for 2017.

The event was held within the framework of the project “Enhancing impact of civil society in monitoring and policy dialog on energy and related sectors’ reforms in line with the Association Agreement”, with the support from the European Union.

Organizers: DiXiGroup Think Tank, the Civic Network OPORA, All-Ukrainian NGO “Energy Association of Ukraine”, Resource & Analysis Center “Society and Environment”, and Association “European-Ukrainian Energy Agency”.

Participants:

Svitlana Holikova, an independent expert, Director of TransEnergoConsulting

Roman Nitsovych, DiXiGroup Project and Program Manager

Hennadii Riabtsev, manager of special projects at the Scientific and Technical Center “Psiheya”

Natalia Andrusevych, Сhairperson of the Board of Directors of the Resource & Analysis Center “Society and Environment”

Yulia Cheberiak, an expert of the Civic Network OPORA

Andrii Bilous, DiXi Group analyst

GAS

The formation of favorable conditions for wholesale trade has become a success of the year in reforming the gas market. In particular, a zero gas reserve stock has been set forth (provided no emergencies occur), a law on enhancing the regulator’s independence has been passed, and European suppliers have started entering the market.

Unfortunately, Ukraine will start the new year 2017 with old gas rent rates. Proposal for their decrease to 12% for new wells was not supported in the Parliament. This will complicate the achievement of the objectives for increasing gas production declared by the government.

Implementation of the Restructuring Plan of NJSC Naftogaz of Ukraine, as well as issues related to the opening of the gas market for households and public heating utilities, which will take place after April 1, 2017, will become a real challenge next year. Ukraine should obtain an independent GTS operator, and the specified consumers – the right to free choice of suppliers.

OIL

Despite clear goals, developed plans, and support from European partners, the international obligations of Ukraine in the oil sector are low positions on the list of priorities. Due to the lack of severity and poor discipline, the tasks for 2016 will most likely fail to be executed within the prescribed terms.

This refers to the adoption of regulations to create minimum oil reserves; establishment of harmonized requirements for storing and transporting motor fuel; ensuring equal conditions for granting and using authorizations for the exploration and development of hydrocarbons; creation of the system for monitoring oil products quality.

In addition to a negative message to the international partners, this means that in future Ukrainian government should fulfill a larger volume of commitments, while the resources won’t be allocated therefor.

BUSINESS CLIMATE

The entry into force of the law on an independent regulator is one of the greatest achievements of this year. Whereas that body is responsible for regulating energy markets, establishment of its financial and political independence has a decisive influence on the formation of Ukrainian market attractiveness.

It is difficult to avoid the topic of privatization of state-owned enterprises. It was planned to sell the Odesa Portside Plant and 6 regional power companies during 2016 and thus earn UAH17 billion. However, neither the Odesa Portside Plant nor the regional power companies have been privatized. The State Property Fund will start its work in early 2017 with the same tasks as in early 2016.

The Law “On Public Aid to Business Entities” will enter into force in the summer of 2017. By that time, a responsible task of the Antimonopoly Committee of Ukraine will be to create a registry of admissible public state aid which does not distort competition in the energy markets. In addition, it is required to develop mechanisms for returning illegal state aid and the criteria under which it will be provided to companies.

ENERGY EFFICIENCY

Regarding the implementation of European standards for energy efficiency, there is a delay in decision-making. In particular, the draft law on the energy efficiency of buildings has not been adopted by the Verkhovna Rada of Ukraine in its first reading, and the draft law on the Energy Efficiency Fund has not been submitted to the Parliament yet. Besides, for a year already, there has been no progress in adopting several technical regulations on energy labeling.

Given certain social tension, the Government pays much attention to the social sector, including appropriation of extremely large funds for social support, but such actions are neither systematic nor effective enough.

This is primarily due to the inability of the responsible ministries to optimize the system of subsidies by verifying recipients and monetizing at least balances which were not used to pay utility bills.

ENVIRONMENT

At the legislative level, the only innovative reform in the sphere of environment protection in 2016 was the adoption of the law on the introduction of integrated approaches to watershed management. Another positive fact is that in 2016, particularly with the advent of the new government, we observed the intensification of political activity in the field of environment protection.

Unfortunately, as to the directives in the field of environment protection, the deadlines established by the Association Agreement have not been met, and we are again, like a year ago, talking about the process rather than the result of implementing the Agreement in the field of environment. The biggest failures definitely included the notorious draft laws on environmental impact assessment (EIA) and on strategic environmental assessment (SEA), which, after lengthy considerations, were voted by the Verkhovna Rada of Ukraine on October 4, 2016, but vetoed by the President of Ukraine.

In 2017, we would like to observe a public dialog on the initiatives to be implemented, the restart of the process for implementing EIA and SEA, the update of the measures to implement the Agreement and the specific plans for implementing guidelines, as well as the completion of the reforms initiated or announced in 2016.

Material of “Ukrainian Energy”