The adoption of the law on electricity market of Ukraine in the second reading is a huge step forward, but only the beginning of long-term transformation. “This is the first very important step. Market cannot be created overnight, week or even a year, but it is the basis on which we can shape market relations in the electricity sector,” stated Natalia Boiko, Deputy Minister of Energy and Coal Industry of Ukraine for European integration issues, during a press briefing held at Ukraine Crisis Media Center. The law will provide for a transition to better market relations among consumers, producers and suppliers. It adapts the rules in the energy sector to European standards, which are Ukraine’s commitments under the Third Energy Package. The law has already received approval from the European partners.
The law should be treated with cautious optimism, because there is still a lot of work to do. “The outcome will depend on the ministries’, regulator’s and experts’ willingness to continue working efficiently, adopt and implement appropriate tools and the right decisions. […] Now more than ever, it is vital to consolidate efforts and have a clear idea of the market and how to build it,” emphasized Natalia Boiko.
To organize the new market conditions, the Cabinet of Ministers has to adopt about 70 resolutions. Some secondary legislation has been prepared and will be elaborated further according to the adopted law. Ideally, the electricity market will be launched in 2019 for industrial businesses, and in 2020 for domestic consumers. But, when we remember the fate of the previous law and the law on the gas market, its actual implementation may “freeze”. “One of the biggest problems of our country is that laws are passed but not implemented. In order for the law to come into force in 2019, the schedule of implementation of legal provisions should be clearly controlled,” stressed Ivan Plachkov, chairman of the Ukrainian Energy Assembly.
Challenges and risks
Ivan Plachkov said that to start moving forward it is necessary to solve a series of systemic problems: find a solution to the debt in the electric power industry, eliminate cross-subsidization to streamline the tariff policy, monetize subsidies, solve a problem of connecting to the network and increasing capacities, because now a two-rate tariff formula creates huge problems for consumers due to its incorrect implementation. The energy balance of the country should also be calculated. “Now no one knows how much primary and secondary energy resources – gas, coal, electricity, heat – Ukraine consumes in each locality, and the amount of these resources. Therefore, it is necessary to calculate this balance as soon as possible: how much we have, a deficit. Then we should implement the electric power development strategy on this basis. This strategy is almost finalized,” emphasized Ivan Plachkov.
Ivan Plachkov criticizes the fact that the “absolutely anti-market” rates have been retained for companies with special use conditions, which are managed by NKREKP by a special algorithm. According to Oleksandr Kharchenko, Director of the “Energy Research Center,” the biggest problem is the fact that because of the huge number of amendments to the law introduced by “packages” MPs themselves are not 100% sure of what they have voted for.
Nobody has seen the final version. “Though the roles of the regulator and government are considerable in implementing the law on the energy market, they have not been detailed and remain unclear. That is why nobody knows how this issue will be regulated,” he concluded. Andrii Herus, expert on energy market, former NKREKP member, stressed that the law will lead to positive changes only if the market is competitive during these two years. “Unfortunately, in view of the structure of spheres of influence on political and financial decisions and a weak implementation of law we have a tendency to distort many good things, and they may have specific consequences,” he said.
It is obvious that the existing model must be changed, but changed so that it should be beneficial not only to those deprived of the state regulation, but also to consumers. “Consumers benefit when there is competition,” noted Andrii Herus. Competition may be created by importing electricity, privatizing such enterprises as Centrenergo, Ukrhydroenergo and corporatizing Energoatom to save them from political influences.
According to Oleksandr Kharchenko, corruption and lack of professionals pose the biggest threats to the law implementation. “The best ideas and the best laws may be ruined, if we do not solve these two problems,” emphasized Oleksandr Kharchenko. “Today, energy is hugely politically charged. To implement some advanced models, it is necessary to depoliticize energy and return energy specialists to the energy sector,” added Ivan Plachkov.