Russian War Against Ukraine: Energy Dimension (daily updating DiXi Group alert) 

February 24

Summary of the week

— Russia continues to deliberately destroy critical infrastructure facilities. During the war, 255 strikes (which reached targets) on 112 energy facilities were carried out, 77% in the period from October to February – so the Prosecutor General Andrii Kostin. The largest number of attacks was recorded in Kyiv (22), Dnipropetrovsk (22), Donetsk (20), Kharkiv (20) and Zaporizhia (16) regions. In total, 4,040 infrastructure networks were damaged or destroyed – gas pipelines, water pipelines, and power grids.

— During the last few days, energy facilities and infrastructure in the Kherson and Kharkiv regions have been targeted by the enemy. On February 21, the Russian military attacked the city of Kherson, and the buildings of local DSO and district heating company were damaged. On February 23, the Russian military shelled the Kherson CHP, damaging important equipment and the main pipeline, which provides district heating to more than 40,000 residents. On February 22, impact was recorded in the city of Kharkiv, infrastructure facilities were targeted.

— Almost 1.9 trillion hryvnias of damage has been caused to the environment of Ukraine – the Minister of Environmental Protection and Natural Resources Ruslan Strilets. 132 deposits of mineral resources are occupied, and the losses of the industry reach 7.76 trillion UAH. The drop in the Kakhovka Reservoir water level can leave more than 1 million Ukrainians without access to drinking water. The decline below 12 m (with a standard of 16 m) will lead to environmental disaster and failure of the Zaporizhzhia NPP cooling systems.

— Russia continues blocking the rotation of IAEA experts at the Zaporizhzhia NPP, which has been delayed for more than two weeks. The Ministry of Foreign Affairs of Ukraine issued a statement calling for the immediate unblocking of the rotation and ensuring the immediate safe movement of the IAEA experts through the temporarily occupied territories of Ukraine to the ZNPP. The IAEA Director General Rafael Grossi called for constructive efforts by all parties involved.

— Despite global efforts, the occupiers continue to militarize the ZNPP. Energoatom reported that the occupiers placed more than 600 military in the bomb shelter of the Zaporizhzhia NPP, set up a machine-gun position on the roof of the ZNPP unit 5, placed roadblocks, and continue building fortifications around the plant’s units and the dry spent nuclear fuel storage facility. Ukrainian personnel and representatives of the IAEA were denied access to the facility.

— There has been no capacity deficit in the power system for 13 days in a row and it is currently not forecasted – Ukrenergo. All types of power plants are in operation, the imports of electricity continue to decrease. Ukraine may soon face the issue of resuming electricity exports during the day while preserving the imports in the evening peak – so the Chair of the Verkhovna Rada Committee on Energy Andrii Gerus. On February 21, due to bad weather conditions, 137 settlements in the Kyiv, Zhytomyr, Volyn, Chernivtsi, Khmelnytskyi and Ternopil regions were left offline. On February 24, due to damage to the distribution systems as a result of shelling, electricity supply was disrupted in some areas of the Dnipropetrovsk, Kharkiv, Kherson, Sumy and Chernihiv regions. Network restrictions still apply in Odesa due to significant damage to the energy infrastructure.

— Ukraine once again calls for the strengthening of international sanctions on Russia. The President Volodymyr Zelenskyi emphasized the time has long come for “full sanctions” against the Russian missile industry, including the IT sector, sanctions on the Russian nuclear sector, Russian propagandists, including legal entities and all affiliates. Also, it is necessary to further reduce the price caps on Russian oil and oil products. The Prime Minister Denys Shmyhal stressed the importance of sanctions on individuals, who directly influence the course of full-scale aggression, including the management of Rosatom and all enterprises of the Russian nuclear industry. The Minister of Finance Serhii Marchenko once again emphasized the need to remove Russia from the FATF and include it to the “black list” (High-Risk Jurisdictions subject to a Call for Action). At the special session of the UN General Assembly, a majority of votes supported the resolution on the principles of a just and durable peace in Ukraine.

— The Verkhovna Rada approved the resolution on sectoral special economic sanctions to financial institutions of the Russian Federation, introduced by the President Volodymyr Zelenskyi. At the same time, as Trap Aggressor (a StateWatch project) analysts noted, for more than six months, the Verkhovna Rada has not put to a plenary vote the draft resolution on sectoral economic sanctions on Russia.

— The Ministry of Foreign Affairs reacted to Russia’s decision to suspend its participation in the new Strategic Arms Reduction Treaty. The Ministry noted Russia continues to deliberately destroy the existing nuclear disarmament and non-proliferation architecture, and called on the international community to take urgent joint measures to prevent and counteract any form of nuclear blackmail by the terrorist state.

— Ukraine is accumulating strong international support for its reconstruction. The G7 countries have increased their financial support commitments to Ukraine to 39 billion USD. On the day of U.S. President Joe Biden’s visit to Kyiv, the U.S. Secretary of State Anthony Blinken authorized an additional 10 million USD as emergency assistance to keep Ukraine’s energy infrastructure up and running. Also, by December 2023, 7 million EUR will be transferred under the EU’s PHOENIX initiative for green urban renewal of Ukraine.

— The Prime Minister Denys Shmyhal said about 150 billion UAH had been raised for the rapid recovery, including 17 billion UAH confiscated from Russian banks, 35.5 billion UAH from the National Bank, 1.5 billion USD from the United States and 1 billion EUR from the European Commission. In the energy sector, Shmyhal reminded that the U.S. allocated an additional 0.8 billion USD, and in this regard, the Ministry of Energy and Ukrenergo are developing a strategy.

— The government announced a partial return to transparency standards in public procurement. The Prime Minister Denys Shmyhal announced expanding the scope of disclosure of public procurement data during martial law.

— Preparations are underway for the privatization of large state-owned assets. At the February 21 meeting, the Cabinet of Ministers approved the procedure for holding electronic auctions for the sale of assets subject to ‘large privatization’. The Verkhovna Rada adopted in the first reading a draft law that provides for changes in the management structure of the State Property Fund. The government also adopted a draft law on state reserves, which provides for the possibility of storing fuel in European countries.

— Ukraine has taken the first step toward resolving the issue of compensation for damaged housing. The Verkhovna Rada adopted the law on compensation for damage and destruction of property as a result of Russian aggression. The government also approved draft laws that provide for easier loan repayment conditions for citizens who live in or have left the territories of hostilities or the temporarily occupied territories.

— The Regulator continues to inspect DSOs for compliance with outage schedules. Following unscheduled on-site inspections, the NEURC imposed a 85,000 UAH fine on Poltavaoblenergo for violations in the preparation and application of power outage schedules, while Volynoblenergo received a warning. At the same time, the NEURC removed from the agenda the issue of revising the price caps on the day-ahead market, the intraday market and the balancing market in electricity.

— The Cabinet of Ministers agreed to transfer the seized shares of several gas DSOs to the management of Chornomornaftogaz. According to the media referring to the court register, they include 61% in Ternopilgaz, 81.36% in Korostyshivgaz, 32.9% in Kirovohradgaz, 14.68% in Khmelnytskgaz, 65.77% in Melitopolgaz, as well as one share each in some other DSOs.

— Naftogaz has assessed losses from the war and outlined plans for production and acquisition of new assets. The CEO of Naftogaz Oleksii Chernyshov expects natural gas production in Ukraine to reach 19 bcm in 2023. Chernyshov estimated the loss of assets due to the war at 1 billion USD, the most significant loss being the Shebelynka gas processing plant and its tank farm. Regarding the transfer to the group’s management of 26 DSOs, he expects the assets to be integrated into Naftogaz this year.

— Chernyshov also believes it is realistic to refuse gas imports in 2023 due to increased domestic production. Assuming no territorial losses and attacks on upstream infrastructure, this plan requires Naftogaz to increase production by 8% and private companies – by 16% this year.

— The new management of Ukrnafta and Ukrtatnafta has revealed debts and signs of abuse. The companies’ CEO Serhii Koretskyi said that Ukrtatnafta has already fully repaid 566 million UAH of excise tax debt and still owes 2 billion UAH in delayed VAT. As of December, Ukrnafta’s total tax debt amounted to 4.58 billion UAH, of which 1.53 billion UAH has already been settled. At the same time, since previous periods, a significant shortage of oil and oil products (hundreds of thousands of tons) has been reported. 20 billion UAH in uncollectible receivables for oil products were also discovered. Koretskyi noted that the audit of both companies is still ongoing.

— Koretskyi also reported on Ukrnafta’s key financial and production indicators. In 2022, the company’s oil production decreased by 8.6% (to about 1.37 million tons). This year, Ukrnafta plans to drill 3 wells in 2023 and prepare for drilling another 8 wells next year. Financially, the company is expected to be unprofitable in 2022. Among the initiatives to remedy the situation is a new approach to calculating and paying royalties for subsoil use (similar to the applicable conditions for natural gas production). In addition, the company is negotiating the exports of oil or its supply under the tolling scheme. In particular, for supplies, technical issues related to transportation of crude blended with the transited Russian oil should be resolved.