Kyiv
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Ukraine’s progress in reforming the energy sector: expert analysis

Kyiv, April 21, 2017.

Over three years of reforms related to the implementation of the Association Agreement with the EU, Ukraine has made some progress in the energy sector, but there are a number of difficulties. Experts from various NGOs have produced annual monitoring report on achievements and challenges in each energy sector. The report was presented at a press briefing held at Ukraine Crisis Media Center.

Gas

Positive trends in the gas sector are: the arrival of European traders, indicating liquidity in the market; rather safe and reliable supply, despite the fact that Ukraine does not buy gas from Russia. The first problem is strengthening monopoly on the gas market for household consumers. “We have a fixed Naftogaz monopoly on the wholesale market for households and regional gas companies’ monopoly for households at the retail level, but this monopoly is fixed by the government’s resolution,” noted Roman Nitsovych, head of projects and programs of DiXi Group.

The second problem is that Naftogaz is too politicized and dependent, despite the fact that it controls three-quarters of imports and wholesale market. This requires more progress in developing the necessary legislation, said Mr. Nitsovych. This is a task of the Ministry of Economy and Energy Ministry.

NKREKP’s decision on introducing monthly payments for gas, separating payments for gas as goods and payments for the transportation and distribution is a necessary market condition, but it should have been done more transparently, openly, gradually and after a discussion, stressed the expert.

Electrical energy industry and nuclear safety

There are some developments in green energy. Last year almost 100,000 Ukrainian households installed solar panels, whereas the year before – only 200. The greatest achievement in the industry is that the law on the electricity market was adopted in first reading. Svitlana Holikova, independent expert, head of “TransEnerhoKonsaltynh”, reminded that the electrical energy reform is Ukraine’s commitment under the Third Energy Package.

Another major problem is that the industry lacks energy strategy. Other unresolved issues are that businesses complain about difficulties of cross-border trade and joining the network.

Energy efficiency and social issues

According to Tetiana Boiko, coordinator of utility and energy programs of the Civil Network “OPORA,” though there are some improvements in energy efficiency, they are not systematic. There are successful cases, for example, when condominiums have taken “warm loans” and reduced consumption two or three times, or when some household consumers have implemented energy efficiency measures through “warm loans” and local programs. The main problem is that the demand for these loans is greater than the funds allocated for them, and without this support people cannot implement thermomodernization. UAH 400 million budgeted for loans to individuals in 2017 have already run out. “One of our commitments to the EU is to create effective state financial tools that would help people reduce power consumption. The focus is on people, because it is in housing that 70% of energy resources are lost,” emphasized Tetiana Boiko.

Business climate

Although the business climate has not improved significantly, there are some positive steps, informed Valentyna Beliakova, Director of the European-Ukrainian Energy Agency. In particular, the enactment of the law on NKREKP under which the regulator has become devoid of President’s influence and financial dependence and business entities have received an independent arbitrator. However, the rotation of NKREKP members has been suspended, although we have only 18 months for this transitional period.

Our decisive victory is adoption of the strategy of public procurement based on “ProZorro” system. “We expect that this year the strategy will resolve the issue of subthreshold procurement, will help to standardize contracts for state enterprises and open access to contracts with state companies in the gas and energy sector,” noted the expert. Among the victories is also the launch of a “single window” at customs, which accelerated the process.

Connection to electrical power networks, in particular, the new rules of connection remain a big problem for business.

Oil

Up to now, there has been no strategic oil reserve, though the delay increases the project cost. There is no authority in Ukraine that would be responsible for monitoring the quality of fuel. Numerous errors in the official translation of the Directive on the control of emissions of hydrocarbons from petroleum reservoirs resulted in drafting a completely wrong implementation plan.

Environment and Renewable Energy

Environment de facto remains at the bottom of the list of priorities, informed Natalia Andrusevych, CEO of Resource and Analysis Center “Society and Environment.” We have not managed to implement the strategic environmental assessment procedure, because the President has returned the law for revision to the Verkhovna Rada. Ukraine lags behind the plan of implementation of Directive 2010/75/EU on industrial emissions. We should develop and adopt a national plan to reduce emissions from large combustion plants. Introduction of new requirements for the sulfur content in fuels in accordance with Directive 1999/32/EU is deferred. Impairment of this obligation by Ukraine has already resulted in the proceeding by the Energy Community Secretariat. Implementation of the directive on the protection of wild birds and systematic reforming the waste management system are also deferred.

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