Ukraine and Energy Community: Still Does Not

Ukraine and Energy Community: Still Does Not Fit This study was implemented by NGO “DiXi Group” with financial support of the International Renaissance Foundation within the project “Monitoring of the Implementation of Ukraine’s Commitments under the Energy Community after Three Years of Its Membership”. TABLE OF CONTENTS

General Comments 4

Key Findings 6 DiXi Group is a Ukrainian think-tank carrying out research and consultation on issues of information policy, energy, security and investment. Its members are working as experts in numerous political and energy Recommendations projects in conjunction with government agencies, donor organizations and foreign investors. 8 DiXi Group activity has several directions, including organization of events and information campaigns, promotion of transparent and effective governance, and advocacy for European reforms in the energy The Implementation Process sector. “Ukrainian Energy” (www.ua-energy.org) is a unique platform created by DiXi Group. 10 Gas12 Dixi Group holds no political opinion; accordingly, any and all views expressed in this publication are exclusively those of the authors. Electricity24 For copies of this study and additional information, please contact: Renewables 40 P.O. Box 68, 24 Sribnokilska St., Environment 02095, Kyiv, 52 [email protected] Energy Efficiency 60 Oil 74 Statistics 76 Social Issues 80 Reference to Laws and Regulations 84

©Dixi Group NGO, 2014 Design & Layout by Taras Mosiyenko Printed by SiLa LLC On 1 February 2014, Ukraine celebrated the third anniversary of its membership in the Energy Community.

The Energy Community is the key to en- Having acceded to the Energy Communi- Having become the fully-fledged Energy This study is intended for the wide au- ergy security in all Europe; its particular ty, Ukraine actually joined the European Community member, Ukraine committed dience comprising government repre- importance, however, is in it being the only energy market. Membership in the Com- to implement a whole range of European sentatives (first of all, in the part that con- treaty that links the EU and Ukraine as of munity opens possibilities of introducing directives and regulations which would cerns recommendations on accelerating today. stronger competition, higher technical harmonise its legislation in the energy the process of acquis implementation in Jerzy Buzek, MEP, 10.02.2014 standards and regulations and better in- sector with European legal and regula- Ukraine), think tanks and wider audience vestment climate on the domestic mar- tory framework. Changes should have in Ukraine interested in activity of the ket. This also entails deeper integration of been introduced in natural gas, electric- current government, specifically in the the Ukrainian energy sector with markets ity, environment, renewables sectors etc. energy sector. ЕThe Energy Community is a regional of the EU Member States and strengthen- Assessment of the dynamics of these union of the South-Eastern European ing of country’s own energy security. An- changes makes the subject of this study. countries formed to secure social and other advantage of membership in this economic stability and security of sup- organisation involves additional possi- The study covers the monitoring of ply among its Contracting Parties. It was bilities for member states to attract inter- Ukraine’s progress throughout 2013, established in 2006 for a ten-year period national loans and technical assistance. evaluations from previous years can be term; however, the European Parliament E. g., there are two Ukrainian projects (on found in two other studies by Dixi Group recommended in 2013 to extend the GTS modernization and on the Brody-Ad- published in 2012 and 2013. Treaty establishing Energy Community amowo oil pipeline construction) among after 2016. projects of the Energy Community interest. The Energy Community requires that the Contracting Parties harmonise their legislative and regulatory framework with the EU standards and aims at establishing in the mid-term of integrated energy markets across the region. The Commu- nity currently unites the regional market with 73 million people.

4 PAGE Ukraine and Energy Community: Still Does Not Fit Ukraine and Energy Community: Still Does Not Fit PAGE 5 GENERAL The monitoring of the Ukraine’s implementation of its commitments before the Energy Community COMMENTS was carried this year in complex conditions. It is hard to analyse European standards performance when struggle rages on the streets. Like any other Ukrainian who wants to see his country a European-type democracy with responsible gov- No progress: Directives ernment, we had put aside our computers and went to the Maidan. As our work on this study showed 2009/28/ЕС, 2009/119/ЕС, not so much progress as one would expect, we also had to postpone presentation of the study results to a later date. Nevertheless, we hope this monitoring is well-timed and useful for the new government 2010/31/EU, Third Energy as it will help understand the ‘starting point’ of further reforms in the energy sector. Package, status The past year witnessed an unprecedented occlusion of public information from the public. As of the regulator, in previous years, DiXi Group, pursuant to the Law on Access to Public Information, sent information inquiries to key ministries and agencies with requests for information about the status of respective social issues directives’ implementation. With some exceptions (specifically, the NERC, the Ministry of Economic De- velopment, and the State Agency for Energy Efficiency and Energy Saving), the institutions would only provide general information. The Ministry of Energy and Coal Industry (which is responsible for the Being implemented: implementation of commitments in the Energy Community) turned out to be the most closed one as it took three requests to receive an informative reply. Directives 79/409/ЕЕС,

85/337/ЕЕС, 1999/32/ЕС, Monitoring and analysis of the legislation and the regulatory framework publicly available on official websites in 2013 was another method of gathering information for the study. These included orders and 2001/77/ЕЕС, 2001/80/ЕС, resolutions of the Cabinet of Ministers, ministerial orders, resolutions of the National Energy Regulatory 2003/30/ЕС, 2003/54/ЕС, Commission (NERC), and progress reports of institutions on their performance in 2012 and 2013. It is worth noting that the practice of refraining from publication of important documents, whether 2003/55/ЕС, 2004/67/ЕС, in draft form or already adopted, persists in Ukraine. The information on adoption in July 2013 of an updated version of the Energy Strategy of Ukraine by 2030 was withheld for six months. Despite the 2005/89/ЕС, 2006/32/ЕС, Ministry of Energy order to transfer the authority of the GTS operator ’s to Ukrtransgaz was released in December 2013, the absence of information on the document registration by the Ministry of Justice 2008/92/ЕС, 2010/30/EU, made its enforcement impossible. Regulation 1228/2003, Security of Supply Given the lack of a single source of integrated information on the acquis implementation status and the fact that ministries and institutions would often provide incomplete information and some documents Statement might be inaccessible, DiXi Group is unable to affirm the list of documents mentioned in the study to be an exhaustive one; at the same time, the list represents the most complete collection of decisions made by the government authorities in respect of the commitments made by Ukraine in the Energy Community.

DiXi Group experts also assessed key developments and decisions in the energy sector of Ukraine dur- Close to ing the previous year in terms of their compliance with European norms and principles. implementation: Regulations 1715/2005, 1099/2008

6 PAGE Ukraine and Energy Community: Still Does Not Fit Ukraine and Energy Community: Still Does Not Fit PAGE 7 gas pipeline construction executed with transit of implementation of the Third Energy Package countries3. The Slovak party also agreed to enter which is mandatory. There is no decision on a spe- into agreement on reverse flows to Ukraine4. An cific schedule of implementation of either the LCP ongoing political dialogue and clearly formulated Directive or the Directive on Oil Stocks. It is neces- requests from the Ukrainian side can alter internal sary to decide on these issues as soon as possible political situation in the EU and reach mutually as they matter for setting up priorities in the na- KEY beneficial results. tional economy and should be taken into account while adopting legislation and regulatory acts. The Ukrainian party kept procrastinating with FINDINGS performing its commitments. Despite a more Some directives are already implemented with dynamic, compared with 2012, process of adopt- violations. The Law on the Principles of Electricity ing the necessary legal and regulatory frame- Market Operation adopted last October, despite work, the Ukrainian government showed no generally necessary for the country, did contain ‘breakthrough’ in practical reforms implementa- a range of provisions which deviated from Euro- tion. The energy companies do not disclose infor- pean principles and standards: specifically, it pre- mation about free network or storage capacities served cross-subsidising. Comments expressed although it is required by the NERC resolution on by the World Bank and the Energy Community access to GTS. The Law on Alternative Fuels, in the were not fully taken into account. The draft law on part on 5% bioethanol share in mixed petrols, is state regulation in the energy sector, which is un- still inoperative in spite of no action to postpone der consideration in the Parliament, in its current implementation of the requirements approved. version, actually makes the regulatory authority There is no proper monitoring and control of short of those powers that the EU requires. This quality of reforming at the implementation phase. leads to a situation when the Energy Commu- nity may be used for manipulations, and already One of the key reasons behind such procrasti- adopted documents should be sent for a second nation is weak communication both inside the round of revision. government and between the branches of government. The National Renewable Energy Action Plan and the National Energy Efficiency Action Plan, which have been developed by the State Ukraine’s membership in the Energy Commu- bers and the EU Member States (in particular, Agency for Energy Efficiency and Energy Saving nity was in jeopardy in 2013. Parallel to imple- by Bulgaria, Serbia, Hungary, Greece, Slovenia, of Ukraine and then submitted for consideration mentation by the Ukrainian government of the Croatia and Austria) of the South Stream gas pipe- of the government, have not been approved by commitments in the Energy Community, a number line construction agreements with Russia, which the latter since October 2013. The Parliament has of politicians expressed their disgruntlement with were a direct threat to interests of Ukraine, be- yet to approve draft laws important for European Ukraine’s membership in it. Statements to this ef- came V.Yanukovych’s reasoning about viability integration– on energy efficiency principles and fect could be heard at various official levels from of Ukraine leaving the Community. The Deputy on state regulation in the energy sector, – and the Deputy Prime Minister Y.Boyko1 in April 2013 to Prime Minister Y.Boyko explained his criticism of the draft law on energy performance of buildings President V.Yanukovych2 in November 2013. These the Ukraine’s membership in the Community failed to pass the second hearing. A closer com- ‘fluctuations’ precluded the country from dynami- with impossibility of achieving reverse gas sup- munication between all the stakeholders already cally moving ahead with its reforms and creating a plies from the EU to Ukraine if too high gas prices at the stage of developing legislation and regula- stable investment climate. would be imposed by Russia. The rules that had tion may substantially facilitate the whole process The Russian factor became the key ‘stumbling been long-working in the EU were put on hold of its subsequent adoption and implementation. rock’ between Ukraine and the Energy Com- whenever Ukraine asked for their application. munity. The signing by the Community mem- The government postpones strategic decisions At the same time, by late 2013 the EU did com- for a long time. Ukraine is yet to decide terms 1 Boyko, Ukraine Did Not Receive Proper Support from European ply with all obligations which the Ukrainian Energy Community, Ukrinform, 29.04.2013. – http://www.ukrinform. 3 EU Threatens to Cut Russia’s South Stream, BBC Ukraine, 07.12.2013. ua/ukr/news/ukraiina_ne_otrimala_nalegnoii_pidtrimki_vid_e_ party requested. In December 2013, the Minis- – http://www.bbc.co.uk/ukrainian/business/2013/12/131206_south_ vropeyskogo_energetichnogo_spivtovaristva___boyko_1822868 try of Energy of Russia received an official letter stream_eu_russia_ag.shtml 2 Yanukovych Mulls Ukraine’s Exit from Energy Community, from the European Commission on the necessity 4 Slovak Republic Agrees to Reverse Gas Supply Ukraine, Espreso Ekonomichna Pravda, 27.11.2013. – http://www.epravda.com.ua/ TV, 04.03.2014. – http://tvi.ua/new/2014/03/04/slovachchyna_ news/2013/11/27/405519/ of renegotiating agreements on the South Stream pohodylasya_na_revers_hazu_v_ukrayinu

8 PAGE Ukraine and Energy Community: Still Does Not Fit Ukraine and Energy Community: Still Does Not Fit PAGE 9 RECOMMENDATIONS

DiXi Group emphasises the need for a more Implementation of the European legislation tively approved by the Energy Community Sec- ural monopolies (natural gas, electricity, heat- efficient communication between all the needs to be carried out with more proactive retariat, so needs to be enacted. These are the ing). Without doubt, decisions on their increase stakeholders for the purpose of the acquis involvement of the Energy Community ex- ‘debts’ inherited in 2014 from previous years; should also be made following proper analysis implementation. Ministries and agencies perts. In February 2014, Ukraine and the Energy they must be satisfied in the nearest time. and an ‘audit’ of the current tariff components. should viably develop and publish both plans Community signed the Memorandum of Under- In line with the European legislation require- for legal and regulatory acts development and standing that has now to translate into specific The government has to make key decisions ments, it would be necessary to review the lo- reports on their adoption, which is currently dialogue mechanisms. As Ukraine presides in the to identify the strategy of energy sector cal content requirement as a precondition for done on a rather selective basis. There should be Community this year, it makes a good opportuni- development. This concerns, first of all, terms receiving the feed-in tariff (it stands at 50% this a single coordinator capable of setting up quick ty for Ukraine to propose new bright initiatives to and conditions of adoption of the Third En- year). The NERC should have the possibility to communication with government institutions. the Community members and to represent itself ergy Package, clarity with plans on the NJSC implement the already developed mechanism In order to prevent manipulations or ‘masking’ as an example of how the new cooperation tools “Naftogaz of Ukraine” reform, and terms and of incentive-based pricing that could be al- of the documents, they have to be subject to may yield high-quality results. conditions of implementing the LCP Directive ready used by nearly a dozen of Ukrainian en- public assessment and expert evaluation. There and the Directive on Oil Stocks. These are the ergy companies. should be a single information resource to pro- The action plan on implementation of the EU decisions expected by both the public and the vide everyone with an opportunity to indepen- legislation needs to be updated and improved. business community to lay long-term plans of dently assess the progress of European reforms In order to ‘compare notes’ and avoid potential cooperation with Ukraine. implementation in the energy sector. Working misunderstandings with the Energy Community groups that are being currently created in the on the timeframe of acquis implementation, the Together with adoption of legislation, government and the parliament should avoid Cabinet of Ministers should publish a new Order timeframes for related regulation devel- parallel activities and duplication. with new deadlines for each of the EU directives. opment should be envisioned. It is neces- It would be also worth to develop schedules for sary to prevent a situation when the adopted For that purpose, a multi-stakeholder working implementation of each of the acquis and agree legislation is impossible to implement for the group should be established to unite responsible these with the Energy Community Secretariat as lack of timely drafted regulations (the way it agencies, interested civil society organizations well as to identify so-called ‘milestones’, interim happened with the Law on Alternative Fuels). and businesses. Such group could assist in prepar- targets and performance criteria, for each imple- For this purpose, the practice of developing ing and implementing reforms in the energy sec- mentation phase. schedules for secondary law already at the tor in accordance with the EU requirements. The stage of the primary law adoption should be mechanism of considering legal and regulatory The parliament and the government need to made permanent. acts at the initial stage will substantially defuse adopt the already planned legislative acts re- tensions and mistrust of market players and im- quired by the Energy Community. Specifically, The government needs to cancel ‘hand- prove quality of such acts; public involvement in legislation to regulate particular features of elec- made’ decisions in the energy sector and the process of drafting these acts will raise public tricity debts payment and to improve the mecha- refrain from such practices in the future. The awareness and level of reform acceptance. Con- nism of power supply reserve funding had to be Cabinet of Ministers has to repeal the Memo- sequently, the whole process of sectoral reforms developed and adopted under the Ministry of En- randum signed with ferroalloy plants which will become more professional and consensual ergy and Coal Industry’s Action Plan for 2013; fur- allows them to pay for electricity at reduced among all the parties concerned. thermore, the National Energy Efficiency Action tariffs. It is also necessary to cancel the morato- Plan has been already developed and even posi- rium on the increase of prices and tariffs of nat-

10 PAGE Ukraine and Energy Community: Still Does Not Fit Ukraine and Energy Community: Still Does Not Fit PAGE 11 THE 2013 IMPLEMENTATION PROCESS 25 March – loading the Draft Law on Amendments 30 August – to Certain Laws draft laws No. 3145 of Ukraine on 19 July – and 3146 to specify the Implementation the Ministry of timeframe of bioethanol of Provisions of Environment adding and to repeal the the Convention on 26 July – 14 March – compelled by the Law on Production and Environmental Impact the Memorandum of 12 February – the Procedure court to execute Understanding signed Use of Petrols Containing the Methodology of Assessment in a Trans- 17 January – for Feed-In Tariff 26 June – the National Plan between Ukraine and Biological Components Calculation of Payments boundary Context the Rules of Electrical Setting, Review and a concept of energy of Kyoto Protocol INOGATE to approve registered for Electrical Plants submitted Plants Connection to Termination amended hub establishment Implementation the Energy Statistics Electrical Networks Connection to Electrical by the NERC 24 July – 19 June – commissioned by the Action Plan approved by the NERC Networks approved by the 24 July – the Procedure for the Action Plan for Cabinet of Ministers 28 August – NERC an updated version Issuing, Usage and Directive 2001/77/ the list of 11 September – of the Energy Termination of ЕС and Directive 27 June – environmentally the Draft Law No 3230 to 15 February – 21 March – Strategy of Ukraine the Guarantee of 2003/30/ЕС the Procedure 16 August – extra-hazardous specify economic agents the agreement on the the Draft Law on by 2030 approved Electricity Origin from 11 February – Implementation of local content the Draft Law No. 3095 activities and on which the norm on reform programme Biological Fuels by Cabinet of Alternative Sources the Draft Law No. 2273 approved by the determination on State Regulation facilities approved by mandatory bioethanol development signed Manufacturing and Ministers Resolution approved by the on Labelling of Biofuel Cabinet Order No. approved by the in the Energy Sector Cabinet of Ministers addition to petrols applies between Naftogaz and Consumption rejected No. 1071 Cabinet of Ministers and Mixed Petrols 429-r NERC registered Resolution No. 808 registered registered Ernst&Young

20 September – 9 October – 23 October – 24 October – 24 October – 7 November – 28-29 November – 18 December – 20 December – 30 December the Methodology to the Acquis the list of Ukraine’s the decision on the decision on draft National the Association Memorandum of the State Agency for – the Cabinet of Identify Available or Implementation Report commitments flexible instruments the observer status Renewable Energy Agreement between the Cooperation between Energy Efficiency Ministers resolution Non-Available Transfer for 2013 published by updated by the for Directive of Ukrtransgaz Action Plan by 2020 EU and Ukraine not signed the government and and Energy ‘recommends’ Capacity of the United the Energy Community Cabinet of Ministers 2001/80/ЕС and made by the presented at the Eastern Partnership ferroalloy plants in Saving’s scope of reducing maximum Gas Transportation Secretariat Order No. 833-r “On implementation of European Network Summit in Vilnius, contrary respect of electricity authority reduced gas prices for System of Ukraine Amendments to some requirements of Transmission 8 November – to the expectations tariffs reduction by Decree of the state-financed approved by the 10 October – the Action Plan on of Directive 2010/75/ System Operators draft National Energy extended by the President of Ukraine organisations, Ministry of Energy and the Draft Law on Implementation of ЕС approved by the for Gas, ENTSOG Efficiency Action Plan 2 December – Cabinet of Ministers No. 699/2013 industry and Coal Industry Order Energy Performance of Commitments under Ministerial Council by 2020 presented Ukrtransgaz assigned heating companies. No. 682 Residential and Public the Treaty establishing of the Energy 7 November – functions of the United 19 December – Buildings rejected by Energy Community” Community the Procedure of 21 November – Gas Transportation System implementation of the Verkhovna Rada Holding Auctions the Procedure for of Ukraine operator the incentive-based 24 October – 24 October – on Access to Funding Services pricing in Ukraine 15 October – the Law on the modernisation Transmission on Electrical Plants effectively frozen by hearings on the Principles of Electricity of the Urengoy- Capacities of Connection to the NERC progress of Ukraine’s Market Operation in romary-Uzhgorod International Power Electrical Grids commitments held in Ukraine adopted gas pipeline and Grids of Ukraine approved by the NERC the Verkhovna Rada construction of the for Electricity Committee for Fuel Brody-Adamowo oil Transportation and Energy Complex, pipeline included Purposes amended Nuclear Policy and to the projects of by the NERC Nuclear Safety Energy Community interest. 44%

12 PAGE Ukraine and Energy Community: Still Does Not Fit Ukraine and Energy2014 Community: Still Does Not Fit PAGE 13 DIRECTIVE 2003/55/EC

DIRECTIVE 2003/55/EC CONCERNING COMMON RULES FOR THE INTERNAL MARKET IN NATURAL GAS

The Directive specifies the key principles of market liberalization: • Independent Regulator. As the regulators are responsible for upholding the principles of non- discrimination, transparency and competition in the gas market, estimation and setting of the tariff and are authorized to settle disputes, their proceedings shall be independent of the market participants and the government authorities.

• Equal Access. The Directive specifies the right of non-discriminatory access of third parties to gas transportation and distribution systems and LNG terminals on transparent commercial terms and under control of the regulator. Therefore, consumers are free to select their suppliers, wherever the gas is produced. Access to gas storage capacities is governed by the special terms, which guarantee access on a contractual basis or the relevant legislative regulation.

• Independence of System Operators. The operator companies of gas transmission, storage, and sale systems and LNG terminals are responsible for management, maintenance and development of such systems. They shall undertake to guarantee safety, reliability, efficiency and interconnection of the capacities and non-discriminatory access for all users.

• split of Vertically Integrated Companies. In order to avoid any discrimination and enable free access, transportation and distribution operations of such companies shall be legally and function- ally separated from other business areas (production and supply). The said separation shall also apply to the decision making and accounting procedures save for ownership rights.

• protection of Consumers. The Directive specifies the common list of standards of ensuring high level protection of consumers, in particular, the right to change the supplier, transparent contractual terms, general information, methods for resolution of disputes or the like and shall set the proper level of protection for very vulnerable consumers (e.g., in order to avoid cut-off).

• Information Exchange. The system operators shall undertake to furnish other operators information required for safe and efficient functioning of the related transportation/sale systems.

Рік GASв Енергетичному

14 PAGE Ukraine and Energy Community: Still Does Not Fit Ukraine and Energy Community: Still Does Not Fit PAGE 15 According to the Protocol on the Accession of The scope of authority of Naftogaz has been (UGSF) and granted it ‘the right to withdraw such terprises on the basis of which joint-stock com- Ukraine to the Treaty establishing Energy Com- limited with a view of company’s repeated gas from UGSF for subsequent distribution to con- panies were to be established.12 According to munity, the Directive had to be implemented by 1 abuse of its dominant position on the market. sumers throughout the heating period’6. Still, the the sovereign bond issue prospectus prepared January 2012 and the market will have been fully According to government’s best-case scenario respective document was not officially published by the Ministry of Finance, Ukraine should have liberalised starting from 1 January 2015. estimates, the adopted legislation allows for the or registered in the Ministry of Justice7, and, fol- finished Naftogaz restructuring by the end of carrying out of gas market transactions in accord- lowing numerous protests from private extracting 201413. However, little was done for that in prac- The regulatory framework for gas market enti- ance with competition principles, provides for companies, was ultimately rejected8. tical terms: It was only in late 2013 when the ties operation on European terms has already free access to the gas transportation system and Ministry of Energy and Coal Industry accepted been developed. The reforms started with adop- eliminates Naftogaz’s monopoly in gas imports Still, no noticeable progress has been reached orders that related to individual structures; spe- tion in 2010 of the Law on Principles of Natural and exports3. In particular, the Cabinet of Minis- on issues of legal and functional unbundling cifically, the SE “Budivelnyk” was reorganized via Gas Market Operation that considerably approxi- ters Resolution of 24 July 2013, No. 510, lays Naf- of Naftogaz operations. The Ministry of Energy affiliation with SE “Naftogazobslugovuvannya”, mated Ukraine to the core principles of Directive togaz as a guaranteed supplier under obligation and Coal Industry Order No. 205, of 23.04.2013, re- and SE “Naftogazbezpeka” was wound up. The 2003/55/ЕС.1 Among the documents worth not- of getting the license on gas supply under regu- flected expectations of NJSC reform programme working group established by Ministry of Energy ing are Cabinet of Ministers Resolution of 25 July lated tariff. The mentioned positions are shared approved and started before 10 October; how- and Coal Industry Order of 07.09.2012, No. 690, 2012, No. 705, on the Procedure for Establishing by the Energy Community that outlined demo- ever, the Cabinet failed to comply with respective adopted a series of decisions on property aliena- Guaranteed Natural Gas Suppliers (which remains nopolisation of imports in its Acquis Implementa- reform programme provisions by the year-end so tion (vehicles, furniture, computing equipment, the target for criticism for its territory-based prin- tion Report for 2013. the performance deadlines had to be moved to office equipment etc.) ciple of supplier operation2) and the NERC Resolu- 2014. tion of 29 March 2012, No. 305, on Determination The Order of the Ministry of Energy and Coal As the Eight EU-Ukraine Joint Report on Execu- of Qualification Levels of Natural Gas Consumers. Industry of 2 December 2013, No. 882, that as- On 15 February 2013, Naftogaz entered into tion of the Memorandum on Cooperation in the signs functional responsibilities of the United agreement on reform programme development Energy Sector mentions, the Ministry of Energy The regulatory authority remains the body of Gas Transportation System of Ukraine operator with Ernst&Young9. The Ministry of Energy and and Coal Industry, to continue cooperation with key importance for new gas market develop- to Ukrtransgaz, is also of importance. Naftogaz Coal Industry planned to receive preliminary Ernst&Young, issued an Order of 13 June 2013, ment. E.g., in pursuance of the Law on Amend- was known for its frequent abuse of the status: proposals by late April 201310, though the future No. 368 to establish a Working Group on Naftogaz ments to Certain Laws of Ukraine in respect of e.g., Sumygaz fell victim of an untimely ap- of these is yet to be known. A report fragment11 restructuring that involved representatives of the Payment for the Connection to Networks of Natu- proved gas distribution volumes (the so-called suggests: 1) full disposal of state equity interest Ministry, Naftogaz, three international financial in- ral Monopoly Entities, the NERC developed and ‘limits’) when in March 2013 it had to supply in Ukrnafta; 2) partial sale of the minority share stitutions (EIB, EBRD and the World Bank) and the adopted seven its resolutions on gas supplying gas to industrial consumers under the regu- in Ukrtransgaz; 3) pooling of extraction interests EU Delegation. entities connection to networks whereby ‘stand- lated tariff.4 Abuse practice of another kind was (Ukrgazvydobuvannya, Chornomornaftogaz) and ard’ and ‘non-standard’ connection models have related to the usage by extracting companies sales of a fractional share (via IPO) following the At the same time, the range of controversial been established and duration of, and payment of the gas they had pumped into underground completion of restructuring process. According steps taken by both the current Cabinet and for, such services identified. storage facilities.5 to the consultants, the above steps will maximize its predecessor witness the lack of a strategic financial receipts of Naftogaz and reduce compa- vision of Naftogaz reforms. In April 2013, the First steps have been made to introduce incentive- The Cabinet of Ministers Resolution of 19 June ny’s shortage of funds. Cabinet of Ministers motioned to the Verkhovna based regulatory treatment in the gas distribution 2013 made another controversial story; the act Rada a draft law No. 2937 that envisaged a pos- segment; specifically, two resolutions on tariff- commissioned Naftogaz with pumping at least On 25 January 2013, the President V.Yanukovych sibility for the government to make decisions on setting procedure and regulatory framework de- 50% gas extracted by private companies in announced Naftogaz separation into several en- Naftogaz and gas transportation system privatisa-

termination have been adopted by the NERC. To Ukraine into underground gas storage facilities 6 Cabinet Commissions NaftoGaz with Injecting 50% Privately Produced tion. The Explanatory Note mentioned the Energy this very end, the State Property Fund approved Gas, Ekonomichna Pravda, 20.06.2013. – http://www.epravda.com.ua/ Community requirements, and the then Energy news/2013/06/20/381348/ on 28 August 2013 changes to the Methodology 3 Transcript of Committee hearings on the topic of Status of Execution Minister E.Stavytskyi announced the aim of liberal 7 Ibid. of Evaluation of Assets of Natural Monopoly Enti- of Commitments Ukraine Has Undertaken for Under the Protocol of 14 Accession of Ukraine to the Energy Community Ratified by the Law 8 Cabinet Cancels Requirement on Mandatory 50% Private Gaz Injection gas market establishment. Meanwhile, the cur- ties, Economic Agents on Adjacent Markets in the of Ukraine of 15 December 2010, No. 2787-VI. Verkhovna Rada of in UGSF, The Ukrainian Energy Sector, 13.11.2013. – http://ua-energy. rent minister Y.Prodan stated privatisation was Field of Heat and Power Cogeneration. Ukraine’s Committee on Fuel and Energy Complex, Nuclear Policy and org/post/38842 Nuclear Safety, 30.10.2013 – http://kompek.rada.gov.ua/kompek/con- 9 Ernst & Young Will Undertake for NaftoGaz Reform, Ekonom- 12 Yanukovych Made Up His Mind to Separate NaftoGaz, VKurse, 1 For detailed assessment please refer to DiXi Group publications: Gas trol/uk/publish/article?art_id=47328&cat_id=47139 ichna Pravda, 25.02.2013. – http://www.epravda.com.ua/rus/ 25.01.2013. – http://vkurse.ua/ua/business/nadumal-razdelit-nafto- Market Law in Ukraine: Does it Comply with European Rules? (http:// 4 V. Pryadko, How They Trade in Gas in Ukraine, Dzerkalo Tyzhnia, news/2013/02/25/363050/ gaz.html ua-energy.org/post/1662); and also the executive summary on status Ukraine, 6.03.2013. – http://gazeta.dt.ua/energy_market/yak-v-ukray- 10 Ukraine Plans to Complete NaftoGaz Reform, YkrNews, 26.04.2013. – 13 Government Plans to Reform NaftoGaz by the End of 2014, Eko- of the law implementation (http://ua-energy.org/post/25120). ini-gazom-torguyut-_.html http://ykrnews.com/yekonomika/ukra-na-rlanu-zavershiti-reformu- nomichna Pravda, 26.04.2013. – http://www.epravda.com.ua/ 2 2013 Annual Report on the Implementation of the Acquis under the 5 Titenko, 12 Companies Address NERC December 2012 to Notify Is- vannja-naftogazu.html news/2013/04/26/373075/ Treaty Establishing the Energy Community, 9.10.2013 // Energy Com- sues with Extracted Fuel Withdrawal, RBK Ukraine, 4.03.2013. – http:// 11 Ernst&Young and Rothschild Group Submit NaftoGaz Reform Propos- 14 А. Zanuda, Government Wants the Right to Privatise NaftoGaz for munity, 19.02.2014. – http://www.energy-community.org/pls/portal/ www.rbc.ua/ukr/newsline/show/v-nkre-v-dekabre-2012-g-obratilis- als to Government, The Ukrainian Energy Sector, 14.02.2014. – http:// Itself, Ukrainska Pravda, 13.05.2013. – http://www.pravda.com.ua/ docs/2304177.PDF 12-kompaniy-soobshchivshie-04032013085700 ua-energy.org/post/41440 inozmi/bbc/2013/05/13/6989727/view_print/

16 PAGE Ukraine and Energy Community: Still Does Not Fit Ukraine and Energy Community: Still Does Not Fit PAGE 17 not in the agenda of negotiations with the En- try and the State Property Fund of 9 November decision was made on the backdrop of a deep Conclusion ergy Community.15 As of February 2014, the draft 2012, No. 882/3812. As of early 2013, respective political crisis and hence, can be deemed a was still under consideration and no hearings on contracts were executed with the majority of populist one. While the framework legislation on gas market is it were held. oblgases. Simultaneously with that, preparations practically ready in Ukraine, the market itself re- for incentive-based regulation implementation mains segmented both from the supply and the In December 2013, the Ministry of Energy and are being carried out (see above). demand sides. Regular procrastinations with verti- Coal Industry published its Order No. 936 on cally integrated companies’ unbundling combined measures for Naftogaz financial discipline en- Chaotic tariff policy dictated by populist con- with continued existence of ‘micromanagement’ hancement which called on Naftogaz to pre- siderations harmed not just the gas market but practices limit competition. Government initiatives agree any financial and economic transactions in the economy in general. According to estimates offer no strategic determination of a sectoral devel- excess of 8 mln. UAH with the Ministry. in the Energy Community’s Acquis Implementa- opment model as yet. tion Report for 2013, low-level tariffs adversely af- A draft law No. 2437 on the Procedure of Natu- fects financial viability of Naftogaz and it subsidi- ral Gas Supply to Residents of Ukraine was also ary companies: specifically, the companies’ deficit registered last year. The document suggested the made 1.5% GDP in 2011 and amounted up to 2%, establishing of a national gas supplier that would in 2012. be authorised to buy up gas ‘at fair prices’ from private extracting business to meet demands of Still, the actions of the government that actually the citizens. In early 2014, the Ministry of Finance ‘micromanaged’ the regulatory authority looked proposed to develop and adopt a draft Cabinet far from logical. On 26 June 2013, the NERC in- resolution to restore Naftogaz in its status of sin- creased Ukrtransgaz gas transmission tariffs17 and gle gas supplier.16 The new cabinet was of idea it (for the first time since June 2006) introduced a would increase corporate revenues from gas sales 4.4 time increase of tariffs for gas injection into, to consumers (first of all, industrial ones) and trim and withdrawal from, UGSF.18 Nevertheless, the budget expenditures on corporate deficiency tariff rates were returned to their previous levels payments. already in September.19 Such manipulations happened without properly informing market partici- Lack of certainty around big market players pants. puts on hold processes of gas transportation and distribution enterprises (oblgases). The Moreover, the Cabinet of Ministers in its Resolu- regulatory authority in its letter of 4 December tion of 30 December 2013, No. 951, on Reduc- 2013, No. 8721/16/47-13, notified regional gas ing the Prices for Natural Gas, ‘advised’ the NERC distribution companies of the need for strict new marginal prices for state-funded organisa- compliance with legislative requirements at tions, industrial consumers and municipal heat natural gas distribution and supply functions and power enterprises, and granted Naftogaz unbundling. However, as of February 2014, the the right of correcting marginal prices in the outcomes of NERC’s monitoring were yet to be event of weighted average price for imported published. gas change. The changes were due to agreements between Naftogaz and Gazprom that en- According to the National Reform Action Plan visioned a considerable reduction of imported for 2013, oblgases were to receive by 25 March gas price.20 It is worth noting though that the gas distribution networks for their use pursuant to terms and conditions approved by Joint 17 Ukraine Imposes Fourfold Increase of Gas Transmission Tariff, LIGABi- znesInfom, 27.06.2013. – http://biz.liga.net/all/tek/novosti/2531830- Order of the Ministry of Energy and Coal Indus- ukraina-v-4-raza-rovysila-tarif-na-transportirovku-gaza.htm 18 NERC Orders Manyfold Increase of Tariffs on Gas Injection and With- 15 Ex Minister: GTS Privatisation, a Cabinet’s Choice, Ekonom- drawal from USGF, The Ukrainian Energy Sector, 26.06.2013. – http:// ichna Pravda, 29.05.2013. – http://www.epravda.com.ua/ ua-energy.org/post/33694 news/2013/05/29/377292/ 19 Ukrtransgaz Tariffs on Gas Injection and Withdrawal from USGF Re- 16 ‘Shock Therapy’ from Yatseniuk’s Cabinet, Ekonomichna stored to 2006 Level, The Ukrainian Energy Sector, 5.09.2013. – http:// Natural Gas for Consumers in Ukraine, Ministry of Energy and Coal Pravda, 11.03.2014. – http://www.epravda.com.ua/publica- ua-energy.org/post/35872 Industry, 26.12.2013. – http://mpe.kmu.gov.ua/minugol/control/uk/ tions/2014/03/11/426491/ 20 Draft Cabinet of Ministers of Ukraine Resolution to Reduce Prices for publish/article?art_id=244905931&cat_id=35082

18 PAGE Ukraine and Energy Community: Still Does Not Fit Ukraine and Energy Community: Still Does Not Fit PAGE 19 REGULATION 1775/2005

According to the Protocol, the Regulation was to the lack of clearly defined principles of pipeline be implemented before 1 January 2012. transmission capacity distribution, overload man- REGULATION 1775/2005 ON CONDITIONS FOR ACCESS TO THE NATURAL GAS TRANS- agement and rules of trade on the secondary MISSION NETWORKS On 19 April 2012, NERC adopted its Resolu- market. Ukrtransgaz operations ultimately remain tion No. 420 to Approve the Procedure of Ac- non-transparent given the lack of freely accessible The Regulation sets forth more detailed rules of access to natural gas transmission networks — the tar- cess to the United Gas Transportation System of information about free capacities and absence of iff principles, third party access services, transparency requirements, rules of balancing and imbalance Ukraine (UGTSU) that generally complied with an electronic platform for such capacities reserva- charges, principles of throughput capacity allotment and congestion management (including, but not EU legislative requirements.1 NERC Resolution tion for various terms. limited to secondary market of capacity trading). The mentioned document was included in the list of of 31.01.2013, No. 75, approved changes to the binding acquis communautaire within the framework of the Energy Community by the Decision of the Procedure that accounted for proposals by the The situation can be changed by changing the Ministerial Council 2007/06/MC-EnC dd. 18 December 2007. Energy Community Secretariat as well as for rec- company status. In addition to receiving the ommendations of the Cabinet of Ministers and UGTSU operator status (see above), on 24 Octo- • Transparent Market Tariff. The tariff or methods underlying their setting, shall be used by the the Coordination Centre for Economic Reforms ber 2013 Ukrtransgaz became an observer at the transportation system operators on a non-discriminatory basis, shall be approved by the regula- Implementation under the President of Ukraine: European Network of Transmission System Opera- tors, shall be transparent and include actually incurred costs. The tariffs and access to networks e. g., the requirement on binding preliminary in- tors for Gas (ENTSOG). The steps will allow the com- shall provide incentives for efficient trading (including, but not limited to cross-border trading) and clusion into the list of UGTSU agents and facilities pany implementing standardised EU procedures competition and shall not limit the market liquidity. was scrapped. and improving cooperation with other operators. • free Access to Third Party Networks. The transportation system operators shall ensure that the Liberalisation of exports may become another step access services are provided on a non-discriminatory basis to all users (including, but not limited to Further changes to the document, specifically as forward; a draft law to abolish export tax on energy a third party) under equivalent contractual terms. Access can be granted against guarantees from regards a clearer delimitation of external and in- product supplies to Energy Community member network users in relation to their creditworthiness, but they shall not pose any inadequate barriers ternal supply, were approved by NERC Resolution states was passed in a first reading in early Novem- and shall be proportionate. of 26.12.2013, No. 1722. The regulatory authority ber 2013. also regulated some key aspects related to UGT- • fair Capacity Allocation. The maximum capacity at any required points shall be available for mar- SU components at gas supply and distribution; ket participants provided that the system is kept integral and efficient. Consumers shall be entitled specifically, it approved standard contracts on Conclusion to resell or let on lease their unused capacity in the secondary market. Non-discriminatory, trans- economic management, usage and operation of parent capacity management mechanisms shall be provided in the event of contractual or physical network facilities. With a view of numerous changes to the Procedure congestion. of Access to the UGTSU, the document can be said as It was envisaged in 2013 to approve a technique progressively assuming the form of a partially exe- • Transparency. The transportation system operators shall undertake to publish: detailed informa- to determine (un)availability of free transmission cuted one. In the same time, the work on enhancing tion on the services and relevant terms of their provision as required for the network users to have capacity at the UGTSU. The Ministry of Energy the independent status of Ukrtransgaz as a system the access; sufficiently detailed information on tariffs, methods for their charging and structure; and Coal Industry addressed the EU Delegation operator allows an optimistic view of its implemen- information on technical, contracted and idle capacity at all relevant points (In particular, entry and requesting consultations, and the draft regulation tation. exit points) on an ongoing basis. The data shall be made available in standardized and convenient was placed on its web site already in July 2013. form. The technique was finally approved by Order No. 682 of 20.09.2013. • stabilization of Operation. The rules of balancing shall be based on actual transportation system requirements. If an imbalance charge is set, it shall be based on the pricing situation and provide While the Ministry of Energy and Coal Industry incentives for network users to balance offtake and supply of gas. Such charges, which shall be deems the terms and conditions of accession to proportionate, shall prevent cross-subsidies between customers and shall not prevent new play- the UGTSU transparent ones2, the Energy Com- ers from entering the market. To this end, the transportation system operators shall undertake to munity Acquis Implementation Report for 2013 provide timely and reliable information online on the user balancing status. does highlight shortcomings like non-regulated access to process gas, ancillary services and up- stream networks and criticises the document for

1 For detailed assessment of document’s compliance with Regulation 1775/2005 norms please refer to DiXi Group’s Executive Summary on the Procedure of Access to the GTS of Ukraine, The Ukrainian Energy Sector, 12.07.2012. – http://ua-energy.org/post/22179 2 Ministry of Energy and Coal Industry Order No. 277, of 16.05.2013, on Results of Ministry of Energy and Coal Industry Board Session of 25 April 2013, LIGA ZAKON, 19.02.2014 – http://search.ligazakon. ua/l_doc2.nsf/link1/FIN89888.html

20 PAGE Ukraine and Energy Community: Still Does Not Fit Ukraine and Energy Community: Still Does Not Fit PAGE 21 DIRECTIVE 2004/67/EC

According to the Protocol, the Directive should the EIB3. At the same time, the Ukrainian GTS as- have been implemented before 1 January 2012. set base valuation figures calculated by Baker DIRECTIVE 2004/67/EC CONCERNING MEASURES TO SAFEGUARD SECURITY OF NAT- Tilly Ukraine in 2012 were not mentioned.4 The URAL GAS SUPPLY According to the Action Plan on Implementation modernising effort is actually carried out from of Commitments under the Treaty establishing the budget of the Ukrtransgaz for which reason it The Directive was also included in the list of binding acquis communautaire within the framework of Energy Community, the NERC, the Ministry of En- may not be either massive or perceivable, though the Energy Community by the Ministerial Council Decision 2007/06/MC-EnC dd. 18 December 2007. ergy and Coal Industry, and Naftogaz had to de- remain in the focus of attention of investors. In The document sets forth the measures for provision of the proper level of security of supply, with a par- vise measures for assuring security of natural gas May 2013, a high-level roundtable discussion was ticular emphasis on the Community mechanism. The directive requires that common, transparent and supplies. At the same time, the response of the organised in Brussels; it resulted in the establish- non-discriminatory policy be determined for security of supply compatible with the competitive mar- Coordination Centre for Economic Reforms Im- ment of a consulting committee which will prepare ket requirements and that the roles and duties of the market participants to carry out the required pro- plementation to the DiXi Group inquiry makes it recommendations for the EU Commissioner for En- cedures be specified. clear the government has no intentions to practi- ergy and the Ministry of Energy and Coal Industry. cally implement the mentioned measures. Besides that, it might be worth noting the place of Domestic Security Standards. The nation shall specify roles and duties of various gas market par- • the Ukrainian GTS in the list of projects of the EU in- ticipants and set the minimum security standards of gas supply, which market players shall comply Specifically, the Ministry of Energy and Coal In- terest and the relevant Energy Community projects with. The said standards shall be published and implemented in non-discriminatory and transpar- dustry has notified the Cabinet of Ministers of (PECIs)5, which increases chances of receiving re- ent manner. impracticability of changes to the gas market act spective funding facilities. as it deems the gas supply security provisions suf- • Two-level Response System. At the first level, the country shall draft and update as needed an ficiently factored in the body of law. The Ministry The Energy Community Secretariat notes the emergency action plan at the national level. The Directive contains the minimum list of gas supply notified its position to the Energy Community broadening of agreements on reverse gas sup- security instruments, including, but not limited to the use of storage facilities, connecting pipe- Secretariat via the Ministry of Foreign Affairs as ply from the EU in 2013. In addition to imports lines, market mechanisms or the like. If the measures taken at the national level are insufficient in early as in 2012. It is pointed out that the legal from Poland under contracts with RWE Supply order to overcome the consequences of a supply disruption, assistance shall be given by the Euro- regulations currently in force determine the gas and Trading GmbH, Germany, that started in No- pean Commission, which can provide recommendations in relation to further measures or present supply reliability monitoring system as well as vember 2012, on 28 March 2013 gas imports also their propositions in relation to further actions of the EU Council. conditions of development of gas balances, the started from Hungary under contract with FGSZ. • Control System. The EU member countries shall report on their measures in compliance with the reporting and accounting of volumes of extracted Unfortunately, the supply was scrapped in the Directive, existing storage capacities, incentives for investment in exploration and production, and sold gas, and gas safety stocks formation and end of 2013 because of purchase price reduction storage, transportation of gas and construction of LNG terminals. The European Commission is usage. In early 2013, a separate order was made agreements between Naftogaz and Gazprom engaged in monitoring of long-term contracts with third countries, gas consumption and offtake to enact a new Procedure for Developing and Ap- (see above). Ukraine is currently in the process levels, interconnection of the national gas systems, balance between the forthcoming gas supply proving the Forecasted Natural Gas Income and of active negotiations with Slovak Eustream held 1 and its forecasted demand. Supply Balance . with direct involvement of the European Com- mission. • Institutionalization. For the purpose of facilitating coordination in relation to security of sup- In September 2013, Ukraine took part in a session ply, a Gas Coordination Group should be established, which shall consist of representatives of the of the EU Gas Coordination Group where it pre- Ukraine has managed to present a range of bright European Commission, the EU member states, representative authorities of the relevant industry sented its strategy of gas supply diversification. The initiatives that need further refining. E. g., a tri- and consumers, other interested parties. The Group shall consider the situation and, if and when European party suggested that Ukraine consider partite declaration between the governments of required, facilitate coordination of national measures. a possibility of joining the ENTSOG transparency Ukraine, Croatia and Hungary on Adriatic gas programme and, in particular, to the Aggregate Gas corridor project implementation was signed on • protection of Vulnerable Consumers. The country shall provide the proper level of protection for Stock Inventory (AGSI)2. 25 October 2013. The last public mention of the gas supply for households, at least in the event of low temperature and high demand for gas. This Sadly, the year 2013 showed no practical progress corridor related to the intentions of signing a circle can be expanded to small and medium businesses or other consumers, which cannot make in matters of GTS or accompanying infrastructural memorandum in November 2013.6 The project a transition from gas to other sources of energy. projects development. The Ukrainian party once supported by the European Commission envis- again expressed its hopes for signing GTS mod- 3 Yanukovych Counts on EU Involvement in GTS Modernisation, ernisation facility agreements with the EBRD and The Ukrainian Energy Sector, 29.11.2014. – http://ua-energy.org/ post/39421 1 Ministry of Energy and Coal Industry Order No. 920, of 26.11.2012, 4 to Approve the Procedure to Develop and Agree Upon the Annual Baker Tilly Ukraine to Valuate Ukrainian GTS, BBC Ukraine, 28.03.2012. Natural Gas Delivery and Distribution Balance Forecast for Ukraine, – http://www.bbc.co.uk/ukrainian/business/2012/03/120328_pipe- the Planned (Calculated) Natural Gas Delivery and Distribution Bal- line_gas_ukraine_baker_ek.shtml ance as well as to Form and Approve Planned Distribution of Natural 5 Energy Community Supports Two Ukrainian Projects, The Ukrainian Gas Supply Distribution Among Consumers, Legislation of Ukraine, Energy Sector, 24.10.2013. – http://ua-energy.org/post/38072 19.02.2014. – http://zakon4.rada.gov.ua/laws/show/z0196-13 6 Memorandum on Adriatic Gas Corridor to Be Inked in a Week, 2 AGSI, Gas Infrastructure Europe, 19.02.2014. – http://transparency.gie. The Ukrainian Energy Sector, 28.10.2013. – http://ua-energy.org/ eu.com/ post/38160

22 PAGE Ukraine and Energy Community: Still Does Not Fit Ukraine and Energy Community: Still Does Not Fit PAGE 23 ages gas supply from LNG terminal that Croatia On 26 June 2013, then Prime Minister M.Azarov Conclusion plans to build. commissioned his Deputy Y.Boyko to prepare a concept of energy hub development for the EU- The government saw no expediency in adopting The formation of an East European gas hub in Ukraine Summit in Vilnius12. The Ministry of En- documents in furtherance of Directive 2004/67/EC Ukraine on the basis of underground gas stor- ergy also expected to start hub negotiations al- requirements. Still, when it comes about energy se- age facilities looks a more promising project7. The ready in autumn 2013 in order to switch to some curity considerations, the ‘sufficiency of regulation’ European Commissioner for Energy G.Oettinger real organisational phase in the next year13. The may not serve a justification of one’s passive stance mentioned it in March 2013 and called promis- fiasco at the Vilnius Summit and further develop- – still more than the unique nature of Ukraine’s GTS ing the idea of regional gas hub set up though ments in Ukraine have put this far-reaching pro- allows for not just joint infrastructural projects, but showed scepticism about prospects of its quick ject on a long hold. also deeper forms of integration with the EU like re- implementation.8 The Ukrainian party is set to get gional trading facilities beside a complicated com- a possibility of spot gas purchases and GTS capac- plex of gas ‘streams’ and storage facilities. ity increase from 32 to 55 bcm9. The then minister E.Stavytskyi mentioned Poland, Hungary, Italy and Germany among those willing to use the UGSF10. Then-rresident V.Yanukovych underscored a possibility for Ukraine, following its GTS modernisation, to propose its storage facilities as the basis for a new gas-exchange market11.

7 Stavytskyi: Ukraine May Become A Central European Gas Hub, RBK Ukraine, 3.05.2013. – http://www.rbc.ua/ukr/top/show/ukraina-moz- het-stat-tsentralno-evropeyskim-gazovym-habom--03052013161000 8 EU: It’s Not Realistic to See Regional Gas Hub in the Coming Years in Ukraine, RBK Ukraine, 4.03.2013. – http://www.rbc.ua/rus/ top/show/sozdanie-regionalnogo-gazovogo-haba-v-ukraine-v- blizhayshie-04032013105500 9 Ukraine to Bring Its Underground Gas Storage Facilities’ Capacities by 43 Billion m3, UNIAN, 25.06.2013. – http://economics.unian.net/ rus/news/171347-ukraina-uvelichit-moschnosti-rodzemnyih-hrani- lisch-gaza-na-43-mlrd-kubometrov.html 12 Azarov Commissions Boyko with Energy Hub Concept Preparation, 10 European Nations Interested in Gas Storage Facilities of Ukraine, UNIAN, 26.06.2013. – http://www.unian.ua/news/579796-azarov- Holos Stolytsi, 17.04.2013. – http://newsradio.com.ua/2013_04_17/ doruchiv-boyku-ridgotuvati-kontseptsiyu-energetichnogo-habu. vropejsk-kra-ni-zac-kavlen-v-gazovih-shovishhah-Ukra-ni/ html 11 Stavytskyi: European and Ukrainian Companies Will Talk About Gas 13 Why Does Ukraine Need to Become a Gas Hub, Delo.ua, 5.07.2013. and Energy Hub Creation in September, Interfax Ukraine, 26.06.2013. – http://delo.ua/business/zachem-ukraine-stanovitsja-gazovym- – http://ua.interfax.com.ua/news/political/158504.html habom-208876/

24 PAGE Ukraine and Energy Community: Still Does Not Fit Ukraine and Energy Community: Still Does Not Fit PAGE 25 DIRECTIVE 2003/54/EC

DIRECTIVE 2003/54/EC CONCERNING COMMON RULES FOR THE INTERNAL MARKET ELECTRICITY IN ELECTRICITY The Directive requires special attention of the government in three areas: free access to networks, fair tarification and open market.

• Independent Regulator. The regulator shall be independent from other market participants, its operation shall not be controlled by ministries, authorities and companies in the industry.

• Equal and Guaranteed Access to Networks. One and the same company may not control generation and transportation of electricity at the same time. The process of access to the network shall be evaluated transparently and impartially. The tariff for access to networks shall be transparent and applicable to all users of the system on a non-discriminatory basis.

• Competition in Electricity Supply. Competition shall exist in electricity supply to end consumers, artificial overregulation of supply shall be avoided.

• monitoring rather than Manual Control. The Government shall be focused more on observation: monitoring and reporting rather than use of manual control; control of balance between demand/ supply and uninterrupted electricity supply shall be provided.

• Understandable and transparent of tariff setting. Consumers shall be able to receive information on tariffs, which shall be published before their taking effect. The Government shall guarantee electricity supply at acceptable, easily and clearly comparable, transparent prices.

• Information on sources of electricity produced by the supplier. The electricity suppliers shall furnish consumers information in their invoices and advertisements on the share of every source of energy in the total fuel used by the supplier for the previous year and reference to the source, where the information is placed on the environmental impact of the electricity production.

• security of Supply. The Government may assign to companies operating in electricity Industry obligations to provide security-related services. Such obligations shall be clearly specified and easily verifiable. The environmental protection in every region shall be provided by the operator of the electricity distribution system.

• public Reporting. Electricity companies of any legal form and ownership form shall publish their annual reports or keep their copies in their main offices opened for the public.

• protection of Consumers. Consumers shall be entitled to make an electricity service agreement with the company. The agreement shall specify names and addresses of suppliers, services being provided, types of maintenance services, methods for receiving of new information on all tariffs and maintenance service fee, contract validity term, terms of compensation, if the quality level of the services fails to comply with the contract, method for settlement of disputes.

26 PAGE Ukraine and Energy Community: Still Does Not Fit Ukraine and Energy Community: Still Does Not Fit PAGE 27 According to the Protocol on the Accession, the tion for the implementation of the market rules the electric distribution enterprise, independent lation connection to electric networks (Resolution implementation of the Directive should have in practice. from other activities, in composition of a verti- No.1467 of 21.11.2013)6. taken place before the 1st of January, 2012. The cally integrated company: the officials who man- responsible parties for its implementation are According to the National Action Plan for 2013, age the electric distribution enterprise should The realization of another element of the Na- the Ministry of Energy and Coal Industry and during a month after the official publication of not take part in that VIC structures, responsible tional Action Plan, – issuing of the legal acts that NERC. the law the government has to issue an act on es- for the operational activities on production or would unite all kinds of various state inspections tablishment of the Coordination Centre for intro- supply of electricity. Moreover, the legal and or- of electrical installations of electricity consumers The basic law was adopted for the introduc- duction of new electricity market model. As of the ganizational separation of activities on transmis- and producers, - would be crucially important for tion of a new market model but the begin- beginning of 2014 such document has not been sion or distribution of electricity is not obligatory the electricity market. However, we could not find ning of its implementation appeared to be found in publicly available sources. According to for those electric distribution enterprises, whose those legal acts in publicly available sources. very non-transparent media, that time Acting Minister E. Stavytskyi had number of the connected consumers does not to make a report on this issue at the meeting of exceed one hundred thousand. The incentive tariff setting is “frozen”, in- The main demand for implementation of the Di- the Cabinet of Ministers on 19 February2. In ac- stead the policy of preferential tariffs provi- rective 2003/54/ЕС was the adoption of the Law cordance with the action plan of the Ministry of Also according to the National Action Plan for sion for certain consumer groups is contin- “On Principles of the Electricity Market Opera- Energy and Coal Industry for 2013, the Depart- 2013, the NERC had to start the monitoring of ued tion in Ukraine”. Such a draft under No.0916 was ment on Electricity is in charge for the establish- how the action plans are prepared and fulfilled submitted in December, 2012, however, it was ment of this Centre. It is worth also to remind that concerning separation and independent activi- As for the pricing system improvement, and the originated not by the Cabinet of Ministers, but by at the meeting of the government on 15 January ties on electricity transmission by the local elec- introduction of the incentive tariff setting, the two People’s Deputies – Igor Gluschenko (Party the then Prime Minister М.Аzarov stated that new tric networks, and also concerning the electricity State Property Fund had to approve the Methods of Regions) and Mykola Martynenko (bloc “Our rules of market operation would lead to increase supply at regulated tariff. However, according to for asset valuation of natural monopoly entities, Ukraine – People’s Self-Defence”). of the electricity prices on the domestic market3. the regulator’s comment, it will become possible economic entities on adjacent markets in the field after the adoption of a separate draft law, which of combined electric and heat power production. During 2013 the draft law has been actively dis- Unbundling of electricity supply and trans- will regulate the peculiarities of legal and organ- Such methods were approved by the Fund’s Order cussed by the Ukrainian and foreign experts. In mission requires the adoption of a new law izational separation of different kinds of activi- No. 293 of 12.03.2013 as amended in September, July, 2013 the Verkhovna Rada Committee on ties. The Cabinet of Ministers has to develop and 20137. Also the NERC in 2013 developed a whole Fuel and Energy Complex, Nuclear Policy and In the framework of fulfilment of the National present such a draft law during six months from range of Resolutions for introduction of the incen- Nuclear Safety addressed the Energy Commu- Action Plan for 2013 on implementation of the the enforcement date of the Law “On Principles tive tariff setting (No.No.898, 899, 900, 1009, 1029, nity Secretariat, European Business Association, Programme of Economic Reforms for 2010-2014, of the Electricity Market Operation in Ukraine “. 1030, 1031, 1032, 1110, - the details can be found International Bank for Reconstruction and De- the NERC had to issue methodological recom- During the same period the Cabinet of Ministers at the end of the document). According to the velopment, American Chamber of Commerce in mendations for preparation of action plan on has to submit to the Verkhovna Rada the draft media, 9 energy supply companies declared their Ukraine with request to provide their comments separation and independent activities on elec- law, which will regulate the peculiarities of debt intent to transfer to a new tariff setting system8. on the draft law. tricity transmission by the local networks. In July repayment for electricity accumulated in the of 2013 the NERC adopted the Resolution No.884 market. According to the action plan of the Min- In December, 2013 at the meeting of the NERC it On 15 October, 2013 the relevant Committee ap- “On approval of methodological recommenda- istry of Energy and Coal Industry for 2013, the was decided to suspend the introduction of this proved the draft law, although a large part of rec- tions concerning preparation of the action plan Department of Economy and Finance is respon- innovation9. In the opinion of the media, this was ommendations was not taken into account. Tak- on ensuring of separation and independency of sible for it. based on the protocol resolution of the Cabi- ing into consideration large number of amend- activities on electricity transmission by the lo- net of Ministers of 23 November, which obliged ments proposed, the decision was also made cal electric networks and on electricity supply The development of the regulatory legal to “freeze” the increase of prices and tariffs for to establish the Working Group responsible for at regulated tariff”4. In these recommendations acts is continually in progress natural monopolies the following year, and the the further improvement of the document. On it is proposed to take into account operation of 24 October the parliament approved the respec- In the framework of the electricity sector reform- 6 NERC Resolution No. 1467 of 21.11.2013 «On approval of the Pro- tive Law “On Principles of the Electricity Market 2 The Cabinet of Ministers plans to establish a centre responsible for ing, the National Action Plan for 2013 provided cedure for funding of services on electrical installation connection to electric networks» // NERC, 19.02.2014 – http://www.nerc.gov. 1 introduction of a new electricity market model // Realna Ekonomika Operation in Ukraine “ , it was supported by 305 [Real Economy], 18.02.2014. – http://real-economy.com.ua/news/infor the approval of the Methods for calculation of ua/?id=8803 deputies. It is planned that the Law will come dex.php4/61413.html payment for electrical installation connection to 7 Repost of the State Property Fund of Ukraine on fulfillment of the Na- into effect gradually – since 2016 the market 3 Аzarov wants to liberalize the electricity market and to preserve low electric networks. Such methods were developed tional Action Plan for 2013 // State Property Fund of Ukraine, 19.02.2014 prices // Fraza, 15.01.2014 – http://fraza.ua/print/15.01.14/185561/ – http://www.spfu.gov.ua/spfu.admin.com.ua/Documents/prog_ek_ should operate in a pilot mode, since 2017 – in azarov_hochet_i_rynok_elektroenergii_liberalizovat_i_tseny_os- and approved by the NERC Resolution No.115 of ref_27122013.pdf full. At the same time, the politicians and experts tavit_nizkie.html 12.02.20135. Also the NERC has approved the Pro- 8 The electricity market awaits for changes: Tariffs and reforms // Inpress, acknowledge that a lot should be done in addi- 4 NERC Resolution No. 884 of 08.07.2013 «On approval of methodologi- cedure for funding of services on electrical instal- 4.12.2013 – http://inpress.ua/ru/economics/21292-rynok-elektroener- cal recommendations concerning preparation of the action plan on gii-zhdut-reremeny-tarify-i-reformy ensuring of separation and independency of activities on electricity 5 NERC Resolution No. 115 of 12.02.2013 «On approval of the Methods 9 The Minutes of the round table: “Introduction of the incentive tariff 1 Law of Ukraine « On Principles of the Electricity Market Operation in transmission by the local electric networks and on electricity sup- for calculation of payment for electrical installation connection to setting in order to enhance the efficiency and updating of fixed assets Ukraine « No. 663-VII of 24.10.2013 // NERC, 19.02.2014 – http://za- ply at regulated tariff» // NERC, 19.02.2014 – http://www.nerc.gov. electric networks» // Legislation of Ukraine, 19.02.2014 – http://za- of the electricity enterprises” // NERC, 19.02.2014 – http://www.nerc. kon4.rada.gov.ua/laws/show/663-18/page6 ua/?id=7280 kon4.rada.gov.ua/laws/show/z0339-13 gov.ua/?id=8753

28 PAGE Ukraine and Energy Community: Still Does Not Fit Ukraine and Energy Community: Still Does Not Fit PAGE 29 Memorandum between the government and One more positive innovation is the introduction for Strategic Policy and Energy&Nuclear Complex Conclusion mining and metallurgical enterprises of 14 June, of call centres at each electricity supplier oper- had to update the document by 10 March, 2013. 2013, which fixed the electricity tariff increase re- ating at regulated tariff. This requirement was In July the unofficial information appeared about In spite of the fact that the main requirement with straint10. Despite the plans not to increase the tar- included into the National Action Plan for 2013, the adoption of the Energy Strategy at the meet- regard to the Directive 2003/54/EC - the adoption iffs for electricity, in 2013 in May the maximum for and NERC by its Resolution No.980 of 18.07.2013 ing of the Cabinet of Ministers, and the official of the law on electricity market – was fulfilled, a the whole country’s independent history level of made the respective amendments into the Terms confirmation of it was published by the govern- lot of questions concerning its implementation still payment default for electricity was documented and Rules for performance of entrepreneurial ac- ment only in February, 2014. remain open and unsolved. The government goes – over USD 400 mn11. tivities on electricity supply at regulated tariff15. behind the timeframes set for the law adoption, On 18 December, 2013 the Cabinet of Ministers The adopted Energy Strategy provides for the the development by the Ministry of Energy of the also extended the Memorandum on interaction “Great privatization” is postponed till 2014 increase of electricity consumption in the aver- secondary legislation is also carried out too slowly. between the government and ferroalloy plants age by 2% a year. It is expected that the industry The freezing of the incentive tariff setting policy, with regard to electricity tariff reduction until In the area of privatization in 2013 the Action will remain the largest consumer, however, in this and the continuation of metallurgy subsidizing, 31 December, 2014. The document provides for Plan for implementation of the Programme of sector the system-based measures on energy sav- that does not comply with the European rules, have the preserving of preferential terms for electric- Economic Reforms for 2010-2014 required the ing and energy efficiency enhancing should be become the serious “blows” to the process of the ity purchase by electrometallurgical enterprises submission for the Verkhovna Rada’s considera- taken. The authors of the strategy think that the Ukrainian electricity market approximation to the and also the accession to Memorandum of two tion of a draft law on corporatisation of the state main factor for increase of household energy con- European one. The official approval of the Energy additional players – Nikopol Ferroalloy Plant and enterprise “NЕC “Ukrenergo”. This document was sumption is the raising of the population’s well- Strategy which could become a real advance for the Pobuzkyi Ferronickel Works12. In spite of such a registered in the parliament under No.3287 on being. The costs for transmission and distribution approaching of the Ukrainian energy sector to the policy that is pursued for several successive years, 18 September, 201316, however, it still had not of electricity should be reduced from 13% tо 9%. European one, has only demonstrated the necessity the downward dynamics of ferroalloy produc- been considered. Regarding the privatization to start the consultations and update the strategic tion in Ukraine remains unchanged – according of the other important electricity enterprises in document again. to media, in 2013 the production output reduced 2013, we can mention the transfer of 75% share more than by 14% and the exports – by 12%13. of property to “Volynoblenergo” in favour of OJSC “Ukristgaz”, which paid 462 mln. UAH for shares17. Some innovations will increase the service Also the controlling interest (60,8%) of the “Don- standards for the electricity consumers basenergo” shares was sold to the firm “Energoin- vest Holding” for 718.920 mln UAH.18 At the same In accordance with the requirements of the Na- time, the State Property Fund plans for 2014 a tional Action Plan for 2013, the energy supply rather large-scale privatization of energy enter- companies should have started to provide con- prises, namely, the equity stakes of seven gener- sumers with the information on share of each en- ating companies, twenty oblast power distribu- ergy source in the total structure of electricity vol- tion companies19. ume. The relevant NERC Resolution No.642 was adopted on 30 May, 201314. A part of the regional Updated Energy Strategy until 2030 pro- energy supply enterprises (oblast power distribu- vides for the structural changes in consum- tion companies) already publishes such informa- er segments tion in their websites. According to the action plan of the Ministry of En- 10 NERC refused from the incentive regulation of oblast power distribu- ergy and Coal Industry for 2013, the Department tion companies since the 1st of January because of the tariff restraint 15 NERC Resolution No. 15/1 of 13.06.1996 «On approval of Terms and // Interfax-Ukrainа, 19.12.2013 – http://ua.interfax.com.ua/news/ Rules for performance of entrepreneurial activities on electricity sup- general/182970.html ply at regulated tariff « // Legislation of Ukraine, 19.02.2014 – http:// 11 The payment defaults for electricity in Ukraine reached the historical zakon2.rada.gov.ua/laws/show/z0433-96 peak // RBК-Ukrainа, 22.05.2013 – http://www.rbc.ua/rus/top/eco- 16 Draft law of Ukraine No. 3287 of 18.09.2013 «On Peculiarities of Cor- nomic/neplatezhi-za-elektroenergiyu-v-ukraine-dostigli-istoriches- poratisation of the State Enterprise «National Energy Company «Ukr- kogo-22052013190100 energo» // Verkhovna Rada of Ukraine, 19.02.2014 http://w1.c1.rada. 12 The effect of Memorandum on tariff reduction for ferroalloy plants gov.ua/pls/zweb2/webproc4_1?pf3511=48341 was extended for 2014 // UNIAN, 18.12.2013 – http://economics.uni- 17 «Volynoblenergo» was auctioned off for UAH 462 mn // Fixygen, an.net/industry/865064-deystvie-memoranduma-o-snijenii-tarifov- 25.12.2013 – http://www.fixygen.ua/news/20131225/volynoblen- dlya-ferrosplavnyih-rredpriyatiy-rrodleno-na-2014-god.html ergo.html 13 The loading was beyond help // Коmmersant-Ukraina No. 13 (1932), 18 “Donbasenergo” was sold to the firm established two months ago 29.01.2014 – http://www.kommersant.ua/doc/2394514 // Levyi Bereg [Left Bank], 21.08.2013 – http://economics.lb.ua/busi- 14 NERC Resolution No. 642 of 30.05.2013 «On increase of service stand- ness/2013/08/21/221194_donbassenergo_prodali_firme.html ards for electricity consumers” // NERC, 19.02.2014 – http://www. 19 Let them get the current // Коmmersant, 22.01.2014 – http://kom- nerc.gov.ua/?id=7112 mersant.ua/doc/2389231

30 PAGE Ukraine and Energy Community: Still Does Not Fit Ukraine and Energy Community: Still Does Not Fit PAGE 31 The NERC approved the Resolution No. 1410 of 7 Conclusion REGULATION 1228/2003 November, 20131, by which it amended the Pro- cedure for Auctioning to Get Access to Transmis- The interdepartmental dialogue and cooperation sion Capacities of the Interstate Electric Networks for the implementation of the Regulation 1228/2003 of Ukraine for Electricity Export. According to the has not gone beyond the governmental circles – the NERC report, the mentioned Resolution took into required draft law never got into the parliament. In REGULATION 1228/2003 ON THE CONDITIONS OF ACCESS TO THE NETWORK FOR account a range of proposals of the Energy Com- spite of the regulator’s efforts to make the rules of CROSS-BORDER EXCHANGES IN ELECTRICITY AND COMMISSION DECISION 2006/770/ munity Secretariat. At the same time, the holding auctioning on electricity export more transparent EC AMENDING THE ANNEX TO THE REGULATION of auction in December, 2013 confirmed again and approximated to the European ones, the result the monopoly position of one player for electric- of the auction in 2013 has shown again its ineffi- ity export – DTEK company remained to be the ciency under then existing conditions. • Compensation of Losses. The operators of electricity transmission systems shall be compensated exclusive seller of electricity to Slovakia, Hungary, for their expenses incurred resulting from cross-border flows of electricity in their networks. Romania, Poland and Belarus. The other winner was the company “Donbasenergo”, which bought • Transparent Tariff. The tariff for access to the networks shall be non-discriminatory and trans- 100 MW of cross-border capacity for electricity parent taking into account the payments and losses from compensation paid to the operators of supplies to Moldova2. electricity transmission systems.

• fair Decisions. In the event of network overload, distribution cross-border capacity shall be based on non-discriminatory and market solutions.

• Unification of Standards. The safety, operation and planning standards used by national transmission system operators, shall be consistent.

• Publications. Publication of the most recent data on market participants is required in order to avoid asymmetry in dissemination of information.

• system of Penalties. The national governments shall draft the rules on penalties applicable in the event of breach in regulation.

According to the Protocol on the Accession, the According to the Eighth Joint EU-Ukraine Report Regulation had to be implemented by 1 January, on implementation of the EU-Ukraine Memoran- 2012. For this the amendments had to be made in dum of Understanding on Energy Cooperation to the Law “On Electricity “, namely, into the Article during 2013, on 7 October, 2013, the contract on 30, which regulates the peculiarities of electricity conduction of the economic feasibility evaluation export. The responsible agency for the develop- of the simultaneous connection of the Ukrainian ment of document was assigned the Ministry of and Moldavian energy transmission systems to Energy and Coal Industry. the Continental European Transmission System ENTSO-E in the framework of the “Joint Opera- According to the action plan of the Ministry of En- tional Programme Romania-Ukraine-Republic of ergy and Coal Industry for 2013, such a draft law Moldova for 2007-2013” was signed between the should have been developed by the Department governments of Ukraine, Moldova and Romania. on Electricity by 10 April, 2013. Such draft law was Within 22 months it is planned to analyze all the developed and passed through the agreeing pro- obstacles that are in the way of connection of 1NERC Resolution No. 1410 of 7.11.2013 «On approval of Amendments to the Procedure for Auctioning to Get Access to Transmission Capaci- cedure in various institutions in summer of 2013. Ukraine and Moldova to ENTSO-E and to develop ties of the Interstate Electric Networks of Ukraine for Electricity Export However, there is no such a document in the the action plan and schedule to remove these « – http://www.nerc.gov.ua/?id=8613 list of draft laws registered in parliament, which hindrances. 2 DTEK will be the main exporter of electricity in 2014 again // Fixygen, 12.12.2013 – http://www.fixygen.ua/news/20131212/dtek-ostanet- would amend the Law “On Electricity”. sya.html

32 PAGE Ukraine and Energy Community: Still Does Not Fit Ukraine and Energy Community: Still Does Not Fit PAGE 33 DIRECTIVE 2005/89/EC

DIRECTIVE 2005/89/EC CONCERNING THE MEASURES FOR SECURITY OF ELECTRICITY THIRD ENERGY PACKAGE SUPPLY AND INFRASTRUCTURE INVESTMENT

• Publicity. The Government shall publish information on measures being taken to maintain of balance between demand and propositions in the area of production of electricity.

• Attracting Investment. The Government shall provide incentives for investment climate, clearly specify the roles and responsibilities of the competent authorities and publish information on any and all interested market participants.

• Fairness. All the measures of the Government oriented towards uninterrupted supply shall be non-discriminatory and shall take into account their possible impact on electricity price for end consumers.

• Rules of Network Operation. The Government shall ensure that transmission system operators In March 2011, the Third Energy Package – intended to provide conditions for higher transpar- set minimum rules of operation and duties in relation to reliability of the network operation; in ad- • ency of the energy market, fair for all consumers, and more secure, competitive and stable sup- dition, the Government shall require that transmission system operators maintain the proper level ply of energy resources to the EU – officially took effect. of operation of the networks. The Package components include Directive 2009/72/EC and Regulation 714/2009 that lay • Reporting Transparency. A report on operation of the networks shall contain the following pa- • more ambitious goals of electricity market liberalisation as well as Directive 2009/73/ЕС and rameters: operational reliability of the network, forecast balance of demand and supply for the Regulation 715/2009 which concern the gas market. Regulation 713/2009 establishing the following 5 years, prospects of uninterrupted electricity supply for the period of 5-15 years, invest- Agency for the Cooperation of Energy Regulators (ACER) became a new component of the ment intents within the coming 5 years. Package.

• On 6 October 2011, at the meeting in Chisinau (Moldova), the Ministerial Council of the Energy In accordance with the Action Plan for Imple- were developed in 2013. Therefore, on November Community made Decision 2011/02/MC-EnC, which legally bound the Contracting Parties to mentation of the Program on Harmonization 1, 2013 the Ministry published for public discus- incorporate in the legislation most provisions of the Third Energy Package by 1 January 2015. of Ukraine’s Legislation with the EU Legislation, sions and further approval the draft Order on a new the requirements of the Directive along with the version of the Rules of relationship between NАЕC Regulation 1228/2003 should have been taken “Ukrenergo” and electricity entities (facilities) under into account in amendments to the Law «On conditions of parallel operation in UPS of Ukraine. Electricity». Also in the framework of Project on Electricity The respective amendments were adopted in Transmission, implemented in Ukraine with the fi- July, 2012 (Law No.5066-VI). In particular, it pro- nancial assistance of the World Bank, on 5 August, vides for the introduction of the operational safe- 2013 in the city of Bar (Vinnytska oblast) a new ty standards for operation of the United Power power transmission line was put into operation. System of Ukraine and indicators of the electricity The implementation of the project has improved supply services quality. Such standards should be the electricity transmission system between the approved by the Ministry of Energy and Coal In- Dnistrovska hydroelectricity plant and house- dustry upon the agreeing with NERC. Also the op- holds in the South-West Ukraine. erator of the UPS of Ukraine should develop the operational safety standards for operation of the power system, harmonize these standards with Conclusion the power systems of other states in the process of the systems integration, etc. The amendments Actually in Ukraine a wide range of projects on qual- into the Law also included a short description of ity improvement of electric networks and electricity the power supply scheme under conditions of a transmission is implemented. The Ministry of Energy state of emergency. continues to develop the mechanisms of interaction between the market players. We can conclude that According to the Ministry of Energy and Coal In- the Directive 2005/89/ЕС is being implemented in dustry, the new Operational Safety Standards for Ukraine. operation of the United Power System of Ukraine

34 PAGE Ukraine and Energy Community: Still Does Not Fit Ukraine and Energy Community: Still Does Not Fit PAGE 35 The Protocol on Ukraine’s Accession to the Treaty EU directives in the area of environmental protec- 5 Directive 2009/72/EC provides consumers with the possibility of freely choosing and changing electricity Establishing the Energy Community contains no tion, energy efficiency, market opening etc.” suppliers, requires enhanced control over supply security, demands that network owners are also their clear requirements to implement the Third En- operators, and takes operators away from the control of generating enterprises and suppliers. Great ergy Package by 1 January 2015. However, article The Energy Community Secretariat keeps empha- attention is paid to the independence and powers of power transmission network operators as well as 1 stipulates that Ukraine „ fulfils all commitments sising that the Third Energy Package is a part of regulatory authorities. It also improves regulation of cross-border connections for the sake of a more imposed on the Contracting Parties by the Treaty the commitments of Ukraine but recognises the 6 efficient power exchange. and all Resolutions and Procedural acts adopted domestic nature of internal decisions . Among during the implementation of the Treaty since its the matters of principle mentioned by the Sec- enactment”. retariat are unbundling of vertically integrated companies, increased independence of the NERC In June 2011, Ukraine generally supported the ac- and consumer protection7. cession to the Third Energy Package but requested Regulation 714/2009 is meant to establish non-discriminating conditions of access to networks and extra time to clearly identify key implementation strengthen integration of electricity markets. The Regulation initiates establishment of the European terms. Later on, the Ukrainian party set forth addi- Conclusion Network of Transmission System Operators for Electricity (ENTSO-E) and sets out the core principles to be tional conditions to its implementation, namely in applied at tariff-setting and transfer capacity distribution. The EU Member States must establish rules of respect of performance of all requisite domestic Implementation of the Third Energy Package in sanctions applicable for cases of Regulation provisions violation. procedures1 and transition periods and financial Ukraine has long been a matter of political choice assistance to be granted by the EU2. In 2013, 11th by the nation’s leadership. While using the topic as a Ministerial Council stressed on the importance of ‘card’ in international negotiations, the government the Third Energy Package implementation, also in has never formulated any clear position regarding the context of guaranteeing security of supplies terms and conditions of the Third Energy Package Directive 2009/73/ЕС is aimed at establishing of a fully operational internal gas market in the EU. It and creating beneficial terms and conditions for implementation. At the same time, the requirement envisions separation of vertically integrated companies by ownership rights (ownership unbundling). The investing3. remains a commitment of Ukraine and the Euro- national government shall independently determine model of market development aimed at either further pean party expects finalisation of position from the liberalisation (establishment of an independent system operator, or ISO) or stronger regulation (the owner On 15 October 2013, the Verkhovna Rada Com- new cabinet. company is different from the company that is the gas transmission system operator, or ITO). Nonetheless mittee on Fuel and Energy Complex, Nuclear Poli- important changes concern further increase of national regulators’ independence, broader exchange of cy and Nuclear Safety held hearings dedicated to market information and establishment of the retail market. the progress of Ukraine implementing commitments in the Energy Community. The participants acknowledged the absence of a clear-cut position regarding the Third Energy Package implementation and suggested that the Cabinet of Ministers prepare proposals to the Energy Community on Regulation 715/2009 establishes common mechanisms of rules of access to gas transmission networks, implementation of respective provisions4. As of LNG terminals and storage facilities taking into account special features of the national and regional markets. January 2014, the official position of the Govern- The document spells out the procedure of transmission system operator certification as well as the one on ment of Ukraine remained indeterminate. development, agreement and implementation of network codes (with involvement of the ENTSOG). The issue is also among the priorities of Ukraine’s presidency in the Energy Community that com- menced on 1 January 2014. According to the Min- istry of Foreign Affairs, the scope of tasks includes Regulation 713/2009 assigns an important role to mutual coordination of actions of regulatory authorities, the one of providing for implementation of Minis- specifically through the ACER that acts as an advisory body. The association carries out the monitoring terial Council decisions on implementation of “the of markets and plans of network development in the part that concerns the scope of responsibilities of Third Energy Package and a whole range of other

regulatory authorities; it also presents its positions and recommendations to both regulatory bodies and 1 Ukraine Asked to Wait with Accession to Third Energy Package, UNN, market participants (system operators) and EU bodies. The ACER, inter alia, plays the key role in the work on 6.10.2011 – http://www.unn.com.ua/uk/news/489846-ukrayinu- 5 Ukraine Presides in European Energy Community in 2014, Inter- network codes development. roprosili-rochekati-iz-rriednannyam-do-3-go-energetichnogo-raketu fax Ukraine, 14.01.2014 – http://ua.interfax.com.ua/news/gener- 2 Ukraine Ready to Join EU’s Third Energy Package, UNIAN, 8.09.2011 al/185727.html –http://economics.unian.net/ukr/detail/101532 6 Janez Kopac: Third Energy Package Is Component of International 3 11th Energy Community Ministerial Council. Meeting Conclusions Commitments of Ukraine, Dzerkalo Tyzhnia, Ukraine, 11.10.2013 – (Belgrade, 24th October 2013) // Energy Community, 19.02.2014 – http://gazeta.dt.ua/energy_market/yanez-kopach-tretiy-energetich- http://www.energy-community.org/pls/portal/docs/2388178.PDF niy-raket-ye-chastinoyu-mizhnarodnih-zobov-yazan-ukrayini-_.html 4 Recommendations on Committee Hearings on Status of Performance 7 Verbatim Report on Committee Hearings on Status of Performance of of the Commitments Taken by Ukraine Under the Protocol on Ac- the Commitments Taken by Ukraine Under the Protocol on Accession cession of Ukraine to the Energy Community Ratified by the Law of of Ukraine to the Energy Community Ratified by the Law of Ukraine Ukraine of 15 December 2010, No. 2787-VI, Committee of the Verk- of 15 December 2010, No. 2787-VI, Committee of the Verkhovna Rada hovna Rada of Ukraine on Fuel and Energy Complex, Nuclear Policy of Ukraine on Fuel and Energy Complex, Nuclear Policy and Nuclear and Nuclear Safety, 7.11.2013 – http://kompek.rada.gov.ua/kompek/ Safety, 30.10.2013 – http://kompek.rada.gov.ua/kompek/control/uk/ control/uk/publish/article?art_id=47360&cat_id=47140 publish/article?art_id=47328&cat_id=47139

36 PAGE Україна і Енергетичне Співтовариство: два роки в очікуванні Україна і Енергетичне Співтовариство: два роки в очікуванні PAGE 37 INDEPENDENT REGULATOR

Among the tasks set to Ukraine, a special role is devoted to regulator independence. Regulators’ capacity to independently and impartially coordinate the operations of the energy market par- STATUS OF REGULATOR ACCORDING TO THE THIRD ticipants permeates the key Directives of the EU. The achievements of Ukraine in this area need ENERGY PACKAGE individual attention.

The powers of national regulators are specified in Directives 2003/54/EC and 2003/55/EC in relation to electricity and gas markets and the relevant Regulations 1228/2003 and 1775/2005. While the EU member countries independently specify the functions, competencies and admin- • The Third Energy Package specifies strengthening of regulators’ independence, in particular, by istrative powers of regulators, Art. 23 of Directive 2003/54/EC and Art. 25 of Directive 2003/55/ granting them individual legal status, assurance of functional independence from any public or EC define the set of minimum competencies for national regulators, which shall be taken into ac- private company, individual allocation of budget resources and their standalone use in order to count at the national level. perform their duties.

• The Directives also specify that individuals responsible for management of regulatory bodies, shall act independently of any commercial interests and shall not request or make direct instructions from the Government or other public or private entities. The members or chairman of the regulator shall be elected for a clear term of powers from 5 to 7 years with only single continuation allowed. STATUS OF REGULATOR ACCORDING TO SECOND ENERGY Members regulatory bodies can be dismissed only in the event that they are found guilty of viola- PACKAGE tion of the national legislation or failure to comply with the terms and conditions specified in Art. 39 of Directive 2009/73/ EC and Art. 35 of Directive 2009/72/EC.

• Higher role is assigned to regulators in formation of tariff for use of electricity and gas networks and LNG terminals. Just as in the previous Directives, according to the new rules the regulator sets • According to Art. 23 of Directive 2003/54/EC and Art. 25 of Directive 2003/55/EC, national regula- forth or approves the tariff for use of transportation and distribution networks or at least the meth- tors «shall be completely independent from the interests» of electricity and gas industry. odology of such tariff estimation based on transparency. However, the regulator shall not approve them with the relevant government authorities. • At the same time, the documents provide for obtaining by the regulators of the official approval of individual decisions by the government. In particular, they provide for approval of the tariffs or at • The Third Energy Package strengthens control of the regulator for the network operators by imple- least their methodology with the responsible body. mentation of certification, a new procedure that shall guarantee independence of the transportation system operators. Upon certification, the responsibility of the regulator is to monitor compli- • The regulators shall not be controlled ex ante by specialized ministries. ance of transportation network operator companies with the selected model.

• Among other things, regulatory authorities may be assigned the following duties: management • The regulators have new powers and expanded old powers in the area of gathering of information and placement of connection capacity; mechanisms handling congestions; repair to be performed and monitoring of markets, where they cooperate with the antimonopoly agencies and regulators by the network operators; publication of information; efficient distribution of invoices in order to of financial market. The regulators may request from companies any information required in order avoid cross-subsidies; connection of new producers; access to storage, capacity of pipelines and to perform their tasks. The regulators may also set charges in the event of failure to comply with other auxiliary services; compliance with the level of transparency and competition; compliance the mandatory rules set by them or ACER. with the requirements laid down in Directive by the transportation and distribution system operators.

• In compliance with Directive, the regulators shall undertake to: make or set the estimation methodology or the due dates and terms of connection and access to national networks; make or set the estimation methodology or set the due dates and terms of provision of the balancing servic- Ukrainian legislation is partially compliant with tariffs. NERC shall operated based on the principle es; have powers to require that transportation and distribution system operators modify the due the requirements of the Second Energy Package. of independence from government authorities, dates and terms, tariff, rules, mechanisms and methodology of connection and access to national The Law of Ukraine “On the Principles of the Natu- local government and other officials (Art. 4); the networks and balancing services for any business areas, which shall be subject to monitoring by ral Gas Market Operation” No. 2467-VI adopted list powers of NERC is rather broad and non-com- the regulator in compliance with the Directive; to acts as an arbitrator in the event of complaints on 8 July 2010 specifies that NERC “shall provide pliance is penalized with a charge in the amount on transportation and distribution system operators. government regulation of the operations of natu- from 8.5 to 850 thousand UAH (Art. 23). ral gas market entities, natural monopolies and business entities operating in related markets” On 7 July 2011, the Law No. 3610-VI was adopted; and shall ensure government supervision in the it clearly determined the regulatory authority’s area of the natural gas market operation, in par- status of an entity controlled by the President ticular, by observance of the license terms and in line with provisions of Decrees No. 1057 and

38 PAGE Ukraine and Energy Community: Still Does Not Fit Ukraine and Energy Community: Still Does Not Fit PAGE 39 SECURITY OF SUPPLY

No. 1059 of 23 November 2011. According to the Conclusion Art. 29 of the Treaty Establishing the Energy Com- ure of a major infrastructure facility or failure of last mentioned documents, the NERC is a ‘national munity specifies that the Supply Security State- supplies from a major source). As a special study2 collegial body that is subordinate to the President Despite NERC’s efforts on bringing its status in ment shall be approved within one year upon the published in September 2013 shows, Ukraine and of Ukraine and reports to the Verkhovna Rada of compliance with European standards, the execu- date of its entry into force for the country. Know- Moldova are the only countries in the region the Ukraine’. tive bodies have yet to demonstrate their sufficient ingly, the report shall be issues every two years infrastructure of which satisfies this N-1 criterion. political will to make such decision. Refining and and describe, in particular, diversification of sup- There was a Draft Law on State Regulation of En- approving the draft law could create a substantial ply, process security, and geographic origin of im- ergy Sector under consideration in the Parliament impulse to strengthening of the NERC role of a real ported energy resources. registered under No. 3095, of 16 August 20131. and not perfunctory regulatory body. Conclusion The document was developed by the Govern- In compliance with the Action Plan on implemen- ment with immediate involvement of the NERC. tation of the commitments within the framework The publication of the first Security of Supply State- Meanwhile, in the opinion of the Main Research of the Treaty Establishing the Energy Community, ment was behind time but in line with Energy Com- and Expertize Administration of the Verkhovna the drafting of the Security of Supply Statement munity requirements; it marked a step towards stra- Rada of Ukraine, there is a whole list of comments was assigned to the Ministry of Energy and Coal tegic planning of the national gas supply security to the draft law2. Specifically, the analysts have Industry, NERC, NaftoGaz of Ukraine NJSC, SE policies. At the same time, the following statement taken up the position that the document fails to NPC Ukrenergo, and Energy Company of Ukraine must become a step forward compared to the cur- resolve issues of clear structuring of powers of NJSC. rent one and will have to account for the experience the regulatory authority; moreover, rather than of its practical implementation. adopting the draft law, they suggest certain clari- The document was published on the Energy Com- fying amendments to laws in force. As of January munity’s website on 31 January 20121, although 2014, the draft was recommended by the core the Report of the Energy Community on the Im- committee but has not been considered by the plementation of the Acquis in 2012 mentions that Verkhovna Rada. Ukraine had sent in on 17 April 2012.

This 44-rage document contains information on the state, key parameters of functioning and development plans for the gas, crude oil and petroleum products markets in 2012-2013. The authors note that the report was elaborated based guide- lines of the Energy Community Secretariat for assistance in preparing updated reports on security of supplies, approved during the 19th meeting of the High Level Group on 23 March 2011.

Taking into account that the Security of Supply Statement has to be updated once every two years, a new version of the document should have been published before 31 January 2014. As of early February however, the statement’s publication did not happen.

The Secretariat of the Energy Community has been recently investigating the possibility of ex- tending obligations to Regulation 994/2010 on security of natural gas supply. The document 1 Draft Law on State Regulation of Energy Sector (Reg. No. 3095, of introduces N-1 criterion to describe gas infra- 16.08.2013), Verkhovna Rada of Ukraine, 19.02.2014 –http://w1.c1. rada.gov.ua/pls/zweb2/webproc4_1?id=&pf3511=48044 structure’s capacity of satisfying the maximum 2 Opinion of the Main Scientific and Expert Department of Ukraine demand for gas in major crisis situations (like fail- 2 about the draft law “On State Regulation of the Energy Sector” (Reg. Energy Institute Hrvoje Požar, ILF. Study on the Implementation of the No. 3095 of 16.08.2013) // Verkhovna Rada Ukrainy, 19.02.2014 – Regulation (EU) 994/2010 concerning measures to safeguard security 1 http://w1.c1.rada.gov.ua/pls/zweb2/webproc34?id=&pf3511=48044 Security of Supply Statement of Ukraine, Ministry of Energy and Coal of gas supply in the Energy Community (September 2013) // Energy &pf35401=274658 Industry, 31 January 2012, (http://www.energy-community.org/pls/ Community, 19.02.2014 – http://www.energy-community.org/pls/ portal/docs/1676177.PDF). portal/docs/2514180.PDF

40 PAGE Ukraine and Energy Community: Still Does Not Fit Ukraine and Energy Community: Still Does Not Fit PAGE 41 DIRECTIVE 2009/28/EC

DIRECTIVE 2009/28/EC ON THE PROMOTION OF THE USE OF ENERGY FROM RENEWA- RENEWABLESРік в Енергетичному BLE SOURCES AND AMENDING AND SUBSEQUENTLY REPEALING DIRECTIVES 2001/77/ EC AND 2003/30/EC

• The Directive’s implementation provides for setting of national indicative targets for renewable energy generation based on adequate evaluation of the country’s starting opportunities and its potential.

• The national targets shall ensure 20% share of energy from renewable sources in the total energy consumption of the Community by 2020, as well as reaching 10% share of this type of energy in the transportation sector for each member state.

• These benchmarks shall be stipulated in the national action plan for renewables, along with the description of actions for cooperation between local, regional and national authorities, statistics transfers or joint projects, national strategies aimed at the development of biomass resources etc.

• The Directive also provides for the reduction of administrative and regulatory barriers in the renewable energy generation sector. The governments shall watch over the objectiveness, transparency, non-discrimination and proportionality of the rules and authorization procedures, certification and licensing, which are applied to the respective objects.

On October 18, 2012, the Ministerial Council of the implementation of Directive No. 2009/28/EC” the Energy Community prolonged and expanded by November 2013. the acquis in the area of renewable energy generation through adoption of Directive 2009/28/ ЕС, which amends and substitutes Directives Pursuant to the order of the Cabinet of Ministers 2001/77/ЕС and 2003/30/ЕС. The deadline of the No. 833-r of October 23, 2013, the development implementation for Ukraine is January 1, 2014. of the action plan for the implementation of the directive was postponed to December 1, 2013, The implementation has not been start- and the responsibility for the implementation ed, the government is working over the ap- was also imposed on the Ministry of Energy and proval of the action plan towards the imple- Coal Industry, NERC and the Ministry of Justice. mentation of the Directive As of the end of January 2014, the government According to the government Action Plan for the had not published any regulatory act towards the implementation of the “National program of ad- implementation of the above-mentioned require- aptation of legislation of Ukraine to the legisla- ments. According to the response of the Ministry tion of European Union” 1 in 2013, the Ministry of of Economic Development to the information in- Economic Development, State Agency on Energy quiry, the draft resolution of the Cabinet of Minis- Efficiency and Energy Saving and other central ters providing for the approval of the action plan authorities were entrusted with the obligation to for the implementation of the Directive has been draft the order “On approval of the action plan for drawn up and is currently being processed by the central executive authorities involved. 1 Order of the Cabinet of Ministers of March 15, 2013, No. 157-r «On approval of the action plan for the implementation of the National The Ministerial Council’s Decision 2012/03/MC- program of adaptation of legislation of Ukraine to the legislation of the European Union // Legislation of Ukraine, 19.02.2014 – http://za- EnC also stipulates Ukraine’s obligation to submit kon4.rada.gov.ua/laws/show/157-2013-r

42 PAGE Ukraine and Energy Community: Still Does Not Fit Україна і Енергетичне Співтовариство: два роки в очікуванні PAGE 43 the National Action Plan on renewable energy bodies involved, including in terms of its compli- The document provides for reaching 12.2% share or 50% of the “local component” in the object of generation to the Secretariat of the Energy Com- ance with the basic provisions of acquis commu- of “green” energy in the area of heating-cooling power industry will be calculated through sum- munity by June 30, 2013. nautaire. or thermal energy, owing to the use of biological marizing the fixed parts of local component ele- solids, as well as 10% share in the transport sector ments of the Ukrainian origin, which were used The document was drafted and it has been According to the 10th Ministerial Council’s Deci- through wide use of bioethanol. during construction. presented with a certain delay; however, sion, Ukraine has binding national objective to government approval is not available yet reach 11% share of renewable sources in the final In the area of electricity generation, the forecast energy consumption until 2020, as well as reach provided in the document states that wind en- Conclusion According to the Order of the Cabinet of 10% share of this type of energy in the transpor- ergy capacities will double as of 2020 compared Ministers No.73-r of February 13, 2013, tation sector. Such indicators have to be used as to 2015; the growth of solar energy to be weaker, Ukraine has rather passive approach to the imple- “On approval of Top Priority Measures for Euro- the foundation of the National Action Plan. while bioelectric energy generation, as well as mentation of Directive 2009/28/ЕС for now, focus- pean Integration of Ukraine”, the National action the capacities of geothermal power plants, will ing its attention on the substituted directives. There- plan regarding renewable energy generation was The presented document stipulates the in- increase threefold. At the same time, the draft fore, instead of ongoing attempts to catch up, it is to be drafted by June 2013 under the responsi- dicators obligatory for Ukraine, however, plan does not contain a description of the actions important to act proactively and approve a series of bility of the Ministry of Economic Development, does not contain a description of the action for cooperation between local, regional and na- regulatory acts for the practical implementation of the State Agency on Energy Efficiency and Energy plan for cooperation and other relevant de- tionwide authorities, statistics transfers or joint the National Action Plan for Renewable Energy. This 5 Saving and other central authorities. tails. projects . need is emphasized by some gaps in the document, as well as its expectedly delayed approval. The document was finally drafted by the State The draft National Action Plan for Renewable En- According to 2009/28/ЕС Directive, Ukraine has Agency on Energy Efficiency and Energy Saving, ergy until 2020 presented by the State Agency on to reduce administrative and regulatory barri- with the participation of UNIDO/GEF project ex- Energy Efficiency and Energy Saving is aimed at ers in the area of renewable energy, in particular, perts, Institute for Renewable Energy under the reaching the indicated targets. However, as of the regarding the rules and procedures of authoriza- National Academy of Science of Ukraine, BAU moment of the document presentation the indic- tion, certification and licensing for “green” energy and UWEA. The plan received positive recall, and ative objective regarding the share of renewable generation plants. a number of recommendations on improvement energy at 11% did not coincide with the indica- from the Secretariat of the Energy Community at tor in the updated project of Energy Strategy of Administrative barriers in the form of “lo- the meeting of J.Kopac with the head of the State Ukraine, which was developed by the Ministry of cal component” still exist, and the regula- Agency on Energy Efficiency and Energy Saving Energy and Coal Industry. The latter provided for tor approved the procedure of the identifi- on September 19, 20132. 10% share of energy from alternative sources and cation thereof. renewables in the structure of available capacities The presentation of the National plan on renew- by 2030. According to Law No. 10183 “On Amendment of able energy for the period until 2020 took place in the Law of Ukraine “On Electricity” (on stimulation November 20133. According to Mykola Pashkevy- The situation improved at the end of January of Electricity generation from alternative energy ch, as of the moment of its presentation the draft 2014, when the Ministry of Energy and Coal In- sources), the share of “local component” for solar, was under consideration of the central authori- dustry published the text of the updated Energy wind power stations and biofuel plants, which ties 4 and had not been approved by the Cabinet Strategy of Ukraine until 2030, as approved by started to be constructed after 2011 and com- of Ministers. the Cabinet of Ministers back on July 24, 2013. pleted in July 2013, was set at the level of 30%, The document provided for increase of the share and at 50% for those to be completed in July Based upon the response of the Ministry of Eco- of renewables in the total balance of installed ca- 2014. The share of “local component” for biogas nomic Development to the information inquiry, pacities up to 12.6%, which is about 8 GW accord- plants at commissioning in 2014 is 30%, and 50% the Ministry, together with the State Agency on ing to the baseline scenario. at startup from 2015. Energy Efficiency and Energy Saving drafted the respective government order. As of today, the In addition to the targets, the draft National Ac- On June 7, 2013, NERC adopted Resolution No. plan is being reviewed by the central executive tion Plan for Renewable Energy also indicated the 744 “On approval of the Procedure to determine ways of reaching the compulsory indicative tar- the share of local component for objects of power 2 Energy Community Secretariat meets with Chairman of Ukrainian gets; sector-specific indicative targets and the ba- industry”6. It stipulated that the compulsory 30% State Agency of Energy Efficiency and Energy Saving //Energy Com- munity, 20.09.2013 – http://www.energy-community.org/portal/ sic tasks for the implementation. sector-specific 5 Draft National Action Plan for Renewable Energy until 2020 // Ukrain- page/portal/ENC_HOME/NEWS/News_Details?p_new_id=7781 indicative targets and the basic tasks for the im- ian Energy Sector, 19.02.2014 – http://ua-energy.org/upload/files/ 3 National action plan for renewable energy presented with a fight // plementation. plan.doc Ukrainian Energy, 8.11.2013 – http://ua-energy.org/post/38686 6 NERC Resolution No. 744 of June 27, 2013 “On Approval of the Pro- plexes) of the Power Plants That Produce Electricity From Alternative 4 “Local component” to be shifted to “soft regime” – Pashkevich // cedure for Calculation of the Rate of Local Content for the Objects of Energy Sources (Save for the Blast Furnace and Coke Gases)”// Law of Ukrainian Energy, 6.11.2013 – http://ua-energy.org/post/38604 Power Industry, Including the Commissioned Stages (Start-up Com- Ukraine, 19.02.2014 – http://zakon4.rada.gov.ua/laws/show/z1179-13

44 PAGE Ukraine and Energy Community: Still Does Not Fit Ukraine and Energy Community: Still Does Not Fit PAGE 45 DIRECTIVE 2001/77/EC

tion of the guarantee of origin of electricity for Evaluation of the authorization procedures business entities producing electricity from al- ignored DIRECTIVE 2001/77/EC ON CREATING OF FAVOURABLE CONDITIONS FOR ELECTRICI- ternative energy sources. The responsible parties TY PRODUCED FROM RENEWABLE SOURCES ON THE INTERNAL ELECTRICITY MARKET involved are the Ministry of Economic Develop- The “local component” rule continues to be in ef- ment, Ministry of Energy and Coal Industry, Min- fect in Ukraine, as formalized by numerous chang- • The national targets shall be set for consumption of electricity produced from renewable sources; istry of Justice etc. es to the Law of Ukraine “On Electricity” regarding that being the case, the targets shall take into account the obligations of the country within the the stimulation of Electricity production from re- framework of the Kyoto Protocol. Regulatory framework was created for newable sources. As evidenced by practice, such scheme of stimulating local production develop- The Government shall guarantee passing of energy produced from renewable sources and guaran- guaranteeing the origin of electricity • ment entails some risks for investors and threat- tee plans that shall not produce benefits from the national mechanisms of support. produced from renewable sources ens stable development of the market of renew- • The Government shall evaluate the legislative and regulatory framework in relation to administra- Resolution of the Cabinet of Ministers No. 771 able energy sources. tive procedures applicable to power stations producing electricity from renewable sources, with of July 24, 2013, approved the procedure for is- further simplification and improvement of interaction between administrative authorities and suance, use and termination of the guarantee of Continuing its efforts towards incentivizing local power stations. electricity origin for business entities producing production, on March 14, 2013, NERC approved electricity from alternative energy sources3. the Resolution On amendment of the Procedure • Capability of priority access to networks for electricity produced from renewable energy sources. for setting, reviewing and termination of the 4 That being the case, transmission and distribution system operators shall publish the rules of com- The guarantee of origin of electricity is an elec- “green tariff” for business entities” . In June of pensation of the costs of technical devices required for integration of the energy producers from tronic document issued on a gratuitous basis 2013 the regulator approved Resolution No. 744 renewable sources and the networks. upon request of electricity producer, which con- “On Approval of the Procedure for Calculation of firms that the share or the determined quantity of the Rate of Local Content for the Objects of Power electricity was produced in Ukraine from alterna- Industry”. tive energy sources. The State Agency on Energy Efficiency and Energy Saving issues this guaran- The government plan of implementation of the According to the Protocol, the Ukrainian gov- Efficiency and Energy Saving were appointed re- tee for the volume of electricity supplied in the Directive also provides for the drafting of a legal ernment had to approve the Action plan for the sponsible. operating period, for each plant and each type act to ensure transmission and distribution of en- implementation of the Directive by July 1, 2011. of alternative energy source separately, and con- ergy produced from renewable energy sources. However, the document was approved on June Indicative targets for future consumption of tains the data on the type of alternative energy The Ministry of Energy and Coal Industry, Min- 19, 2013, due to the initiative of the Ministry of electricity from renewable sources for the source, from which the electricity was produced, istry of Economic Development, the Ministry of Economic Development. subsequent 10 years have not been set. date of issuance, location of the generating plant Finance and other authorities are responsible for and the quantity of energy generated in the oper- the implementation. Considering the “achievements” of the previous The national tentative targets for consumption of ating period. year and Ukraine’s obligation to implement Di- electricity from renewable sources are set forth in A number of documents were approved to rective 2009/28/ЕС by January 1, 2014, where- the draft National Action Plan for Renewable En- Instead of the assessment of the existing authori- guarantee the transmission and distribution by directives 2001/77/ЕС and 2003/30/ЕС are ergy until 2020 and updated Energy Strategy until zation procedures in terms of ensuring transpar- of electricity from renewable sources. amended and replaced, the implementation of all 2 2030 . The first document provides for reaching ency and non-discriminatory rules, the govern- the provisions of Directive 2001/77/ЕС under the 11% share in the gross final volume of energy con- ment plan proposed just to issue a report on the On June 22, 2012, Verkhovna Rada approved the Order of the Cabinet of Ministers No. 429-r was sumption in less than ten years. The second docu- use of mechanism of state support of renewable Law “On amendment of some laws of Ukraine scheduled for 20131. ment concerns the increase of renewables’ share sources electricity producers. The respective obli- regarding connection to the networks of natural in the total balance of installed capacity up to gations were imposed on the State Agency of En- monopolies’ subjects”, which came into effect on The first item of the government action plan of 12.6% until 2030 (with an opportunity of upward ergy Efficiency and Energy Efficiency, Ministry of January 1, 2013. This document is aimed at pre- the Directive’s implementation is the develop- adjustment). So, none of the listed documents Income, Ministry of Economic Development and venting the abuse of monopoly by business en- ment of a draft regulation for the setting of na- contains an indicator showing the target share of other institutions. tities providing services related to connection of tional tentative targets for 10 years regarding “green” energy consumption in 2023, that is, in 10 power plants to electric grids and ensuring equal the consumption of electricity produced from years after the approval of the government plan. status of business entities, as well as legislative renewable energy sources. The Ministry of En- settlement of the issue of connection and the re- ergy and Coal Industry, Ministry of Economic The following intended action is the development spective payment. The Law changes the legal na- Development and the State Agency on Energy of a regulatory act for issuance, use and termina- 3 Resolution of the Cabinet of Ministers No. 771 of July 24, 2013 “On ap- 1 Order of the Cabinet of Ministers No. 429-r of June 19, 2013 «On approval of the procedure for issuance, use and termination of the guar- 4 NERC resolution No. 251 of 14.03.2013 On the amendment of the Pro- proval of action plans for the implementation of Directive 2001/77/ 2 Updated Energy Strategy of Ukraine till 2030 // Ministry of Energy and antee of electricity origin for business entities producing electricity cedure of setting, review and termination of “green tariff” for business ЕС and Directive 2003/30/ЕС»// Law of Ukraine, 19.02.2014 – http:// Coal Industry, 19.02.2014 – http://mpe.kmu.gov.ua/fuel/doccatalog/ from alternative energy sources” // Legislation of Ukraine, 19.02.2014 entities//Legislation of Ukraine, 19.02.2014 – http://zakon4.rada.gov. zakon4.rada.gov.ua/laws/show/429-2013-r document?id=260994 – http://zakon4.rada.gov.ua/laws/show/771-2013-п ua/laws/show/z0537-13

46 PAGE Ukraine and Energy Community: Still Does Not Fit Ukraine and Energy Community: Still Does Not Fit PAGE 47 DIRECTIVE 2003/30/EC

ture of connection, which now has the status of a Conclusion paid service. The key issue of the implementation is the lack of DIRECTIVE 2003/30/EC ON PROMOTION OF USE OF BIOFUELS AND OTHER RENEWA- For the purpose of implementation of the provi- officially determined mid-term target for electric- BLE FUELS FOR TRANSPORT sions of the said regulatory act NERC approved ity produced from renewable sources. Neverthe- the Payment Rates for standard connection to less, the supporting regulatory framework is being • Requires setting of national targets for biofuels consumption. By 2010 the share of biofuels in the electricity-generating plants (according to the developed now. At the same time, a number of ob- EU member countries had to reach 5.75% of the total consumption of fuel for transport purposes. resolution of December 25, 2012, No. 1695), Rules stacles remain for the implementation in the mar- for connecting electricity-generating plants to ket of “green” electricity, in particular, the effective • Binds the Government to monitor consequences of the use of biofuels also taking into account the electric networks (resolution of January 17, 2013, requirements regarding the “local component” and specific features of balance in relation to pollution of the environment. No. 32) and the Methodology for calculation of non-standard connection to electric networks. In payment for connection of electricity-generating addition, against the backdrop of market liberali- • Binds the Government to disseminate information on biofuels and other renewable fuels. plants to electric networks (resolution No. 115 of zation, which will start unfolding in the upcoming February 12, 2013). years, the government will have to take the decision to balance various types of generation by reducing According to the approved Rules for connec- the need in (cross) subsidies to cover the difference tion of electricity-generating plants to the net- in the tariffs and creating competitive environment. According to the Protocol, the Ukrainian govern- ritory should be as follows: the recommended works, the electricity transmission organization ment was to approve the Directive implementa- value from January 1, 2013, is not less than 5%; on a free-of-charge basis drafts an agreement tion plan by July 1, 2011, however, the actual ap- from January 1, 2014, at least 5% content is re- on connection, as well as technical specifications proval only occurred on June 19, 2013 (Order of quired; from January 1, 2016, at least 7% content for external electricity supply. At the same time, the Cabinet of Ministers No. 429-r) at the initiative is required. the construction and assembly, as well as startup of the Ministry of Economic Development. Ac- and setup work and commissioning of electricity- cording to the document, most provisions of the After the law came into effect, the bioethanol- rroducing units up to the customer’s connection Directive have to be implemented by the end of related innovations were sharply criticized by oil point is financed by the parties in equal propor- 2013. traders, experts and scientists. Negative opinions tions5. on the program of adding bioethanol to petrol The scheduled deadline for the drafting of a regu- were provided by the Ministry of Economic Devel- In November 2013 the Procedure for financing latory act regarding the determination of the na- opment, Ministry of Infrastructure, as well as the services related to connection of electricity-gen- tional indicative target is December 30, 2013. The institutes MASMA and “DERZHAVTOTRANSNDIP- eration plants to electric networks was approved State Agency on Energy Efficiency and Energy ROEKT”. The market players applied to the then by NERC resolution No. 1467. Saving, the Ministry of Energy and Coal Industry Vice-rrime Minister Y. Boyko requesting to post- and the Ministry of Economic Development are pone the implementation or cancel the norms, responsible. which were to come into effect on January 1, 2012. At the same time, the opinion of the Minis- The national indicative targets were set by try of Agrarian Policy was that the cancellation or the law, however, it was not put into effect; postponement of the bioethanol requirements is the Ministry of Energy and Coal Industry impermissible. initiates reduction of the share of production and use of biofuel and composite mo- Throughout 2013 four draft laws were registered tor fuel, which is stipulated by the respec- in the Verkhovna Rada with propositions on the tive regulation changes to the provisions or cancellation of law No. 4970-VI. The first document was registered Law No. 4970-VI “On amendment of some laws under No. №22731 on February 11 and initiated of Ukraine regarding production and use of mo- by Y. Voropaev, the Head of the Verkhovna Rada tor fuels containing biocomponents”, which was Committee for Industrial and Investment Policy. adopted in June 2012, continues to be in effect. The two subsequent drafts were submitted to the The document provides for step-by-step increase parliament on August 30, 2013, by the deputies of the share of production and use of biofuel and 5 Resolution of NERC «On approval of the Rules for connection of elec- 1 Draft Law on alternative types of fuel (on the marking of biofuel and tricity-generating plants to electric networks» No. 32 of 17.01.2013 // composite motor fuel. Bioethanol content in mo- composite petrols) (registry No. 2273 of 11.02.2013) // Verkhovna Ukrainian legislation, 19.02.2014 – http://zakon4.rada.gov.ua/laws/ tor petrol produced or sold in the country’s ter- Rada of Ukraine, 19.02.2014 – http://w1.c1.rada.gov.ua/pls/zweb2/ show/z0236-13 webproc4_1?pf3511=46491

48 PAGE Ukraine and Energy Community: Still Does Not Fit Ukraine and Energy Community: Still Does Not Fit PAGE 49 I.Yeremeev and S.Ivakhiv (the co-owners of WOG No. VR4-31-4429 of November 13, 2013). The min- Since bioethanol is a hydrophilic chemical, which to continue scientific and research work to study petrol station network) and registered under istry justified such opinion by insufficient produc- absorbs moisture (water) available in the reser- physical and chemical properties of alcohol-gaso- numbers 31452 and 31463, respectively. Draft law tion volumes for the adding of 5% to all types of voirs, cisterns and air, the developers deemed line blends, as well as started developing the reci- No. 32304 by O.Zarubinskyi, the deputy head of petrol (with only up to 56% of the necessary vol- it reasonable to add to the petrol not just pure pes of two blends of domestic composite stabiliz- the Committee for Fuel and Energy System, was ume currently produced), the possibility of a con- bioethanol, but bioethanol-based biocompo- ing additives for composite motor petrol and the received by Verkhovna Rada on September 11. siderable increase of fuel prices due to additional nent, containing stabilizing additives and rust in- technology for the production of additives and taxation: excise tax of 49.49 UAH/litre has to be hibitors. In addition to that, the draft law proposes composite motor petrol on its basis. The innovations offered by Y.Voropayev con- paid on imported raw, while domestic-rroduced to set the proportions for the content of bioetha- cerned the definitions and implementation of bioethanol is free from excise tax. nol and/or biocomponents based on bioethanol As stated in the explanatory note to the draft compulsory marking of biofuels and composite produced on Ukraine’s customs territory in motor law by Oleg Zarubinskyi, the calculations of the motor petrols with “Ек” label. The document also The draft law by O.Zarubinskyi is aimed at nar- petrol as follows: until July 1, 2014 – the recom- DP DerzhavtotransNDIproject evidence that two provided for the compulsory notification of end rowing down the circle of business entities, which mended content of not less than 5% vol.; from thirds of petrol cars, as well as all motor trans- consumers by the traders about the fact that the have to add bioethanol on an obligatory basis, to July 1, 2014 – the required content of not less than port – over 0.5 million pieces in Ukraine – are not fuel is of alternative type. It was recommended to domestic oil processing companies exclusively. 3% and not more than 5% vol.; from 2016 – the re- adapted to the use of Е10 (composite petrol with amend the document because of legal inaccura- Such step could provide sufficient workload for quired content of not less than 5% and not more the content of at least 5% of bioethanol). cies; however, the draft was revoked on Septem- prospective manufacturers of raw and fuels with- than 10% (vol.). ber 19, 2013 with no further explanations. out restricting oil traders dealing with imports. Experts’ community confirmed the conclusion As the author states in an explanatory note, the With a view to implement provisions of the Di- made by the scientists from state institutions. According to the propositions by I.Yeremeyev introduction of the obligatory adding of bioetha- rective, the Cabinet of Ministers planned to hold According to the data of Psikheya Research and (draft law No. 3145), law No. 4970-VI was to be nol to petrol is taking place is a hasty manner, experimental research on the impact of over 5% Development Centre, the use of Е5 and Е10 is cancelled in full, because the volume of bioetha- without taking into account potential risks, as of biofuel (biocomponent) in diesel fuel upon en- unacceptable for both car engines with injec- nol produced in Ukraine is not sufficient, and time well as the readiness of legislative, organizational, vironmental, energy indicators and fuel efficiency tion systems having narrow air mixture control is needed for the construction of new production manufacturing and technical environment. As a of vehicles by December 30. range, and for all carburettor engines. The use facilities. In addition, as stated in the explanatory consequence of that, throughout 2013 none of of mixed petrol for the vehicles not adapted to note, laboratories for quality control of composite the business entities was able to launch the pro- The monitoring of the consequences of bio- this type of fuel will result in the deterioration fuels are not available at oil refineries and petrole- duction and sales of composite petrol based on fuel’s use in the quantity of over 5% in mo- of their operation properties, reliability, as well um-storage depots, and the necessary regulatory bioethanol for objective reasons. tor compounds is ongoing, and the recipes as increase of pollutants’ emission with burnt documents were not developed. of two brands of domestic composite stabi- engine gases. According to the Verkhovna Rada’ regulation, the lizing additives are being developed. S.Ivakhiv, in his turn (in draft law No. 3146), sug- special purpose committee has to review the draft At the same time, the updated Energy Strategy, gested the Verkhovna Rada to postpone the law within one month of its submission. However, Throughout 2013 the scientists of the Ukrainian which was approved by the government on July introduction of the compulsory adding of 5% the heads of the parliamentary committees have Scientific and Research Institute of Oil Processing 24, 2013, states that the contemporary level of of bioethanol for 2016, and the requirement of not submitted the draft laws by Yeremeyev, Ivakh- Industry “MASMA” (UkrNDNIP “Masma”) and “DER- technology development enables virtually any 7% bioethanol content for 2018. The Ministry of iv and Zarubinskyi for consideration until now. ZHAVTOTRANSNDIPROEKT” carried out the re- engines to consume petrol with 10% ethanol con- Energy and Coal Industry supported the parlia- This is confirmed by the Verkhovna Rada’s official search of the specifics of domestic manufactured tent, as well as diesel fuel with 7% content of bio- mentarian’s idea in its letter to the parliamentary web site. bioethanol-containing composite petrols’ use, in diesel. So, shifting to the use of petrol with 10% Committee for Fuel and Energy Complex (letter the course of benchmark tests and driving tests ethanol content until 2020 and 15% until 2030 on a test group of Kyiv automobile companies’ 2 Draft Law of Ukraine On voiding the Law of Ukraine “On amendment Meanwhile, on January 16, 2014, the Ministry of will happen, and will require 6-8 bln. UAH of in- of some laws of Ukraine regarding the manufacture and use of motor Energy and Coal Industry published for discussion vehicles. vestments. fuels containing bio components « (registry No. 3145 of 30.08.2013) // Verkhovna Rada of Ukraine, 19.02.2014 – http://w1.c1.rada.gov.ua/ the text of the draft law of Ukraine “On amend- pls/zweb2/webproc4_1?pf3511=48096 ment of article 2 of the law of Ukraine “On alter- According to the expert opinion of UkrNDNIP The government plan for the implementation of 3 Draft Law On amendment of the Law of Ukraine «On alternative native types of fuel”5, whereby it is proposed to “Masma”6, the use of motor petrols with the con- the Directive 2003/30/EC also provided for pub- types of fuel» (regarding the clarification of the deadlines for adding bioethanol to motor petrols on a recommended and com- change the schedule for the implementation of tent of not less than 5 % without the respective lic hearings regarding the opportunities to use pulsory basis) (registration No. 3146 of 30.08.2013) // Verkhovna renewable fuels in the market, and an opportu- additives has corrosion impact on an engine’s biofuel, as well as other alternative types of fuel, Rada of Ukraine, 19.02.2014 – http://w1.c1.rada.gov.ua/pls/zweb2/ webproc4_1?pf3511=48098 nity to add not only bioethanol, but also biocom- metal parts, which may result in its failure. As of until December 30, 2013. The obligation was to be 4 Draft Law of Ukraine On amendment of the Law of Ukraine On Al- ponents is provided. today, the researchers of this institute decided fulfilled by the State Agency on Energy Efficiency ternative Types of Fuel (on clarification of business entities, to whom 5 and Energy Saving and the Ministry of Energy and the requirement as to the compulsory adding of bioethanol to motor The draft Law on amendment of article 2 of the Law of Ukraine 6 Reference of UkrNDINP Masma regarding compulsory introduction of petrols is applicable) (registration No. 3230 of 11.09.2013) // Verkhov- “On alternative types of fuel”//Ministry of Energy and Coal Indus- at least 5% vol. of bioethanol or bioethanol-based additives to motor Coal Industry. na Rada of Ukraine, 19.02.2014 – http://w1.c1.rada.gov.ua/pls/zweb2/ try, 16.01.2013 – http://mpe.kmu.gov.ua/fuel/control/uk/publish/ petrols // Ekonomichna Pravda, 19.02.2014 – http://eimg.pravda.com. webproc4_1?pf3511=48242 article?art_id=260422&cat_id=167475 ua/files/2/f/2fa3ecc-masma-bioetanol.pdf

50 PAGE Ukraine and Energy Community: Still Does Not Fit Ukraine and Energy Community: Still Does Not Fit PAGE 51 Deputies, experts and market players in- to amend draft law No. 3146. According to the Conclusion formed the public about the actions taken, ministry’s estimates, a time-out of two years with national resources and the share of biofu- bioethanol should be taken, so as to prepare the While setting an ambitious target, the government el in the total sales; public hearings did not respective regulatory framework in Ukraine. did not provide for the actions to incentivize the take place development of the industry, in particular, produc- Finally, in early 2014 the Ministry published the tion, keeping and sales of alternative types of fuel. It It was noted in the report of the Energy Commu- draft law On amendment of article 2 of the law is only now that the responsible authorities started nity on the implementation of acquis in 2013 that of Ukraine “On alternative types of fuel”, with a re- reacting to the concerns of the market stockholders special attention should be paid to the introduc- quest to the public to voice their comments and and the calls of the expert community, not to mention of the new stability requirements to biofuel, propositions. tion the parliamentarians’ initiative. For full-fledged considering weak understanding of the necessary implementation of Directive 2003/30/ЕС in the do- framework for correspondence with the criteria. mestic law comprehensive approach is needed, so as to solve the issues of bioethanol’s addition to Since law No. 4970-VI was adopted, the market petrol, which will involve tax and customs benefits, stakeholders and experts repeatedly raised the as well as other formats of market development. For issues related to the use of bioethanol at the in- example, considering physical implementation of dustry events. The properties of bioethanol were vehicles’ fleet, it would be reasonable to envisage discussed, as well as the necessity to develop the concurrent circulation of on-specification fuels (not standards and infrastructure for the develop- composite ones). ment of similar products etc. However, the Expert Analysis Group under the Ministry of Energy and Coal Industry decided to discuss bioethanol-related innovations only on August 29, 2013. Then it became known that the working group for the solving of problems and risks related to compulsory use of motor petrol with biocomponents in Ukraine discontinued its work and currently needs the renewal of its powers.

Starting from August 2013, the issues related to the implementation of law No. 4970-VI were mostly discussed in the Verkhovna Rada and via government correspondence. On October 18 the Ministry of Energy and Coal Industry wrote a letter to the parliament, which explained the reasons for the delays with innovations and proposed

52 PAGE Ukraine and Energy Community: Still Does Not Fit Ukraine and Energy Community: Still Does Not Fit PAGE 53 DIRECTIVE 2001/80/EC

DIRECTIVE 2001/80/EC ON THE LIMITATION OF EMISSIONS OF CERTAIN POLLUTANTS INTO THE AIR FROM LARGE COMBUSTION PLANTS1

• The member states shall draft the relevant programs for gradual reduction in total yearly emissions from plants for combustion of fuels, the rated efficient heat capacity of which is equal to or greater than 50 MW and comply with the emission limit values taking into consideration the relevant reduction in the percentages specified for each country.

• The government has to approve the National Plan for Reduction in Emissions, which would specify reduction in total yearly emissions of nitrogen oxide, sulphur dioxide and dust from the existing plants to the level that would be achieved by applying the said emission limit values to the existing plants operated in 2000.

• Compliance of all licenses for construction or operation of new plants with the due emission limit values shall be provided. The Government shall set penalties to those in breach of the relevant provisions.

• In addition, monitoring of emission from combustion plants recommended to perform at the expense of the operator shall be provided. In turn, operators shall inform the competent authorities on the relevant due dates on compliance with the requirements and changes made.

1 Pursuant to the decision of the Ministerial Council of the Energy Community D/2013/06/MC-EnC, Section ІІІ, Annex V and Articles 72(3)-(4) of Directive 2010/75/EC are also applied.

In accordance with the Protocol, the Directive In April 2012, the Ministry of Energy and Coal In- should be implemented by 1 January 2018. dustry submitted for consideration to the Cabinet of Ministers the draft Order “On approval of the In accordance with the Action Plan on Implemen- draft Concept of Special-rurpose State Program tation of the Commitments within the Framework for Limitation of the Emission of Certain Pollutants of the Treaty Establishing the Energy Community, into Air from Large Combustion Plants of Electric- measures and methodology to establish a thresh- ity Sector (thermal power plants, combined heat old level of emissions of certain pollutants into and power plants) of Ukraine”. The purpose of the the air from large combustion plants shall be de- program is a reduction of the emission of harmful veloped by 1 January 2018. The responsible enti- substances by the fuel and energy industry enter- ties are the Ministry of Energy and Coal Industry, prises to admissible limits accepted in the EU, as the Ministry of Ecology and Natural Resources, well as integration of the United Energy System of the Ministry of Economic Development, and NJSC Ukraine into the European Energy System. Energy Company of Ukraine. In spring 2012 the Ministry of Coal and Energy Enterprises shall have to carry out renovation or was accepting comments and proposals1 to this overhaul repairs till January 1, 2018, within the draft, however, the Order has not been approved Рік в Енергетичному terms stipulated by the Order of the Ministry of yet. Interestingly, the Cabinet of Ministers required Environment and Natural Resources of Ukraine the proposals on the implementation of Directive ENVIRONMENT “On Adoption of New Technological Standards for Permissible Emissions of Pollutants from 1 Message about the discussion of the draft ordinance of the Cabinet of Ministers “Special-rurpose State Program for Limitation of the Emission Thermal Power Plants, with the Nominal Ther- of Certain Pollutants into Air from Large Combustion Plants of Electric- mal Capacity over 50 MW” No. 541 of October ity Sector (thermal power plants, combined heat and power plants) of 22, 2008. Ukraine” // Ministry of Energy and Coal Industry, 28.03.2012 – http:// mpe.kmu.gov.ua/fuel/control/uk/publish/article?art_id=219389&cat_ id=200576

54 PAGE Ukraine and Energy Community: Still Does Not Fit Ukraine and Energy Community: Still Does Not Fit PAGE 55 DIRECTIVE 79/409/EЕC

2001/80/ЕС should be provided by February 2013, Finance pointed to the lost income of the state as a part of the implementation of the Action Plan budget amounting to 1.3 bln. UAH4. At the same on facilitating foreign investors’ activities2. time, the special-rurpose parliamentary com- DIRECTIVE 79/409/EЕC ON THE CONSERVATION OF WILD BIRDS mittee recommended to approve the draft law. According to the Strategy of the state environmen- Nevertheless, the document was rejected by the tal policy of Ukraine for the period until 2020, the Verkhovna Rada in the course of its consideration. • Only Article 4 (2) applies that requires taking the measures to preserve normal species of migratory strategic objectives in terms of limitation of emis- birds taking special attention to protection of water and marsh areas, including areas of interna- sions are as follows: setting the targets of danger- In October 2013, the Ministerial Council of the En- tional importance. ous substances’ content in the atmosphere and ergy Community adopted two important decisions optimization of the structure of energy sector aimed at further limitation of the emission from through increasing the volume of using energy large combustion plants. The first decision provides sources with low level of carbon dioxide emission for the opportunity to apply flexible instruments In accordance with the Protocol, the Directive Basic Approximation Plan in December 2012, the (by 10% until 2015 and by 20% until 2020). for the implementation of Directive 2001/80/EC should be implemented by 1 January 2015. Law On Wildlife shall have to be amended so as throughout the transition period, so as to facilitate to update the list of birds included into the En- The Order of the Cabinet of Ministers No. 603- the achievement of the document’s objectives with- In accordance with the Action Plan on Implemen- dangered Species List (“Red Book”) of Ukraine r “On approval of the Concept of Nationwide out reducing the ambitions. The second decision tation of the Commitments within the Framework and stipulate more accurate provisions regarding Special-rurpose Economic Program of Industry concerns the implementation of more ambitious of the Treaty Establishing the Energy Community, the principle of the protection of wild bird popu- Development for the period until 2020” of July goals towards the reduction of emissions into the the legal framework for the conservation of wild lation. 17, 2013, concerns the necessity to implement atmosphere by the large combustion plants (Direc- birds should be brought into compliance with environmentally effective method of production tive 2010/75/ЕС) starting from 2018. this Directive’s requirements by 1 January 2015. In March 2013 the draft law “On amendment of organization and to reduce the emission of dan- The authority in charge is the Ministry of Environ- some legal acts of Ukraine regarding the protec- gerous chemical substances. ment and Natural Resources. tion of flora and fauna” was submitted to the Verk- hovna Rada of Ukraine. The document provided In 2013 the Ministry of Energy and Coal Industry Conclusion In particular, actions shall have to be taken for the for the formation of clearer principles of regulat- initiated the development of the Special-rurpose preservation of migratory bird species, ensure ing the number of certain wild bird populations, Further delays with the approval of the respective state State Program of Consecutive Reduction of Con- their protection on the sea and on the land, on as well as the requirements regarding the inclu- program’s concept are not acceptable, as this would solidated Annual Volume of Pollutants’ Emission the breeding, moulting and wintering grounds, sion of rare species, which have not been entered pose the risk of further delays with its subsequent im- from Available Combustion Plants, in compliance as well as recreation areas along migration paths. in the Red Book of Ukraine, to the list of species plementation. In addition, Ukraine has to take a num- with the limits under the requirements of Direc- Special focus should be placed on the protection subject to special protection. However, this draft ber of steps to send a signal to the investors on the will- tive 2001/80/EC3. The document is under devel- of water-logged areas and wetlands of interna- law was withdrawn from consideration in May ingness of the state to undertake a part of aggregate opment, no drafts have been published yet. tional importance. 2013. financial load, which is estimated at USD 13-15 billion by the market players.5 The situation is further com- In January 2013 the Verkhovna Rada registered plicated by the fact that until now no thermal plant On October 24, 2012, 7 new territories were in- a draft law of changes to the Budget Code of in Ukraine has been equipped with an up-to-date cluded into the list of wetlands, based upon the Conclusion Ukraine in terms of transfer of environmental tax. flue gas desulphurization and de-nitrification system. Order of the Cabinet of Ministers No. 818-r “On The document provided for the change of envi- In addition, only one company in Ukraine currently approval of the status of wetlands of international Although the number of wetlands of internation- ronmental tax allocation to local budgets (from manufactures flue gas desulphurization facilities. It importance”, owing to which the total number of al importance was extended, which is good for 65% to 70%), thereby reducing the expenses for significantly slows down the process of equipment wetlands of international importance in Ukraine strengthening of wild birds’ protection, Ukraine maintaining special-rurpose projects of enterpris- of thermal power plants according to the Directive’s increased to 53. lacks clearly stipulated amendments to the laws. es’ environmental modernization at the expense requirements. In the existing situation an individual of the share of allocations to the special state action plan has to be developed jointly with the Secre- Pursuant to the resolution of the Cabinet of Min- budget fund. This draft law was largely criticized tariat of the Energy Community, with clear timeframes isters No. 541 of July 24, 2013 “On approval of the by the government, in particular, the Ministry of and indicators of the implementation. rates for calculating the amount of damage incurred through the breaches of the laws on natu- 2 Ordinance of the Cabinet of Ministers of December 19, 2012, No. 1074- 4 On amendment of the Budget Code of Ukraine on the transfer of envi- r, “On approval of action plans for facilitation of foreign investors’ ac- ronmental tax// Budget Committee of the Verkhovna Rada of Ukraine, ral reserves”, increased rates of compensation for tivities”// Legislation of Ukraine, 19.02.2014 – http://zakon2.rada.gov. 18.04.2013 – http://budget.rada.gov.ua/kombjudjet/control/uk/pub- illegal preying on or destruction of wildlife ob- ua/laws/show/1074-2012-%D1%80 lish/article;jsessionid=161435FB89A28B17BE08E95DDDDD5D41?a jects, damage or destruction of their habitats and 3 Information about the results of the 5th International Scientific and rt_id=49906&cat_id=44731 Practical Conference “Modern technologies to eliminate negative ef- 5 EU proposes to the Energy Community to strengthen the norms of breeding grounds were adopted. fects of coal thermal power plants on the environment, in accordance emission by thermal power plants, however, extend the terms of their with the requirements of the European Union (15-18.04.2013, Lviv)”// implementation // Dzerkalo Tyzhnia. Ukraine, 16.09.2013 – http:// According to the actions approved by the Minis- Web site of the project “Demonstration, dissemination and deploy- dt.ua/ECONOMICS/yes-rroponuye-energospilnoti-rosiliti-normi- ment of CCT and CCS in Ukraine”, 19.02.2014 – http://cetiproject.com/ schodo-vikidiv-tes-ale-zbilshiti-termini-yihnogo-vprovadzhenn- try of Environment and Natural Resources in its ua/konferenciya_2013_roku__kviten_ ya-128505_.html

56 PAGE Ukraine and Energy Community: Still Does Not Fit Ukraine and Energy Community: Still Does Not Fit PAGE 57 DIRECTIVE 85/337/EEC

list of activities and objects, which pose increased Conclusion environmental danger”, the types of activities DIRECTIVE 85/337/EEC ON THE ASSESSMENT OF THE EFFECTS OF CERTAIN PUBLIC close to annexes I – III of the Directive were re- Ukraine is gradually getting back to the legislative AND PRIVATE PROJECTS ON THE ENVIRONMENT AS AMENDED BY THE DIRECTIVES ferred to such objects and types of activities. provisions of the environmental impact assessment, 97/11/EC, 2003/35/EC, 2009/31/EC which were cancelled in 2011. Moreover, precondi- In September 2013 the Verkhovna Rada adopted tions are being created at least for the approxima- the draft law “On amendment of some laws of tion of the legal framework to the Directive’s require- • Requires that the projects, which might have substantial environment impact, included issue of Ukraine regarding the implementation of the pro- ments, if not for full-fledged implementation. The approval for development and assessment of their environment impact. visions of the Convention on the environmental international conventions, whose binding nature impact assessment” in the first reading. This draft induces law makers to draft the documents pursu- • The environment impact assessment shall provide for detection, description and evaluation of di- law is aimed at creating the legal procedure of EIA. ant to the requirements of such conventions, are of rect and indirect impact of such projects on people, fauna and flora, soil, water, air, climate and Pursuant to the resolution of the Verkhovna Rada major importance. Such documents would make landscape, tangible assets and cultural heritage and take into account interaction between those No. 567-18 of September 17, 2013, the Committee Ukraine closer to the fulfilment of its obligations factors. for environmental policy, use of natural resources regarding EIA within the framework of the Energy and mitigation of the consequences of Cherno- Community. byl disaster has to improve the above-mentioned draft law and submit it for consideration by the In accordance with the Protocol, the Directive Ukraine from the implementation of the Euro- parliament in the second reading. should have been implemented by 1 January pean standards. 2013. In May 2013 Oleg Proskuryakov, the minister of In accordance with the Action Plan on Implemen- environment and natural resources, , stated that tation of the Commitments within the Framework Directive 85/337/ЕЕС and Directive 2003/35/EC1 of the Treaty Establishing the Energy Community, have to be adapted on the first priority basis in the legal framework for environmental impact as- the environmental sector. As part of adaptation sessment was to be brought into compliance with of the first directive mentioned above, amend- the requirements of this Directive by 1 January ments to the laws “On Environmental Protection” 2013. The authorities in charge are the Ministry of and “On regulating urban construction activities” Environment and Natural Resources and the Min- were to be made, regarding the procedure of en- istry of Energy and Coal Industry. vironmental impact assessment (EIA). It was also planned to adopt a regulatory legal act setting In June-December 2011, the Ministry of Environ- clear requirements to the EIA procedure, includ- ment and Natural Resources analyzed the results ing in cases of cross-border impact and consider- of the implementation of the Directive, according ing the requirements of Directive 85/337/ЕEC. to its obligation under the National Action Plan for 2011-2015. In April and October 2013, pursu- According to the action plan towards the imple- ant to the Cabinet of Ministers’ Orders, amend- mentation of the National program of adaptation ments were introduced to the Action Plan, which of legislation of Ukraine to the legislation of Euro- concerned primarily the scope of financing of the pean Union in 2013, the regulatory legal acts were respective actions provided for by the plan. to be drafted regarding the assessment of the impact of some plans and programs on the environ- On February 17, 2011, Law No. 3038-VI “On reg- ment. The Ministry of Environment and Natural ulating urban construction activities” came into Resources drafted the acts, however the deadline effect. In this connection, amendments were for the implementation is not specified in the plan. introduced to the laws “On environmental impact assessment” and “On environmental pro- According to the Cabinet of Ministers’ resolution tection”. This act effectively cancelled environ- No. 808-п of August 28, 2013, “On approval of the mental impact assessment as an institution. The 1Oleg Proskuryakov: You may be proud of what was done last year, latest version of this Law was issued in October but the current plans are impressive as well // Environmental Safety 2013, and the new one is scheduled for July 5, Bulletin No. 3 (2013) – http://www.menr.gov.ua/index.php/press- center/media/358-oleh-rroskuriakov-mozhna-ryshatysia-zroblenym- 2014. This law’s coming into effect distanced torik-ale-rotochplany-tezh-vrazhaiut

58 PAGE Ukraine and Energy Community: Still Does Not Fit Ukraine and Energy Community: Still Does Not Fit PAGE 59 DIRECTIVE 1999/32/ЕC

As it was noted in the Secretariat of the Energy Conclusion Community that as of October 2013 Ukraine did DIRECTIVE 1999/32/ЕC RELATING TO A REDUCTION IN THE SULPHUR CONTENT not satisfy the EU directives’ requirements re- In the process of this Directive’s implementation, Ukraine has not progressed further than law mak- OF CERTAIN LIQUID FUELS AND AMENDING DIRECTIVE 93/12/EC, AS AMENDED AND garding the content of sulphur in liquid fuel. The greatest obstacles on the way to their fulfilment ing. The approval of the new Technical Regulation SUPPLEMENTED BY REGULATION 1882/2003 AND DIRECTIVE 2005/33/EC are the restrictive laws implemented, in particu- can, undoubtedly, be considered a step forward; lar, regarding the selection and check of fuel in however, making the content of sulphur in fuel clos- the laboratories, which delays the flow of petro- er to the EU requirements, it does not explain the • With certain exceptions, the use of heavy fuel if its sulfur content exceeds 1% by weight is prohib- leum products across the Ukrainian border 1. ways of achieving its respective targets. Moreover, ited since 1 January 2003 and light diesel fuel may not be used if sulfur content in it exceeds 0.2% proper control over the compliance with the Techni- and 0.1% since 1 July 2000 and 1 January 2008 respectively. No quick progress was noted in the implemen- cal Regulation shall serve as an indicator of success. • All necessary measures must be taken to ensure that marine fuels are not used in areas of territorial tation of more environmentally clean fuel types. seas, exclusive economic zones and pollution control zones falling within the scope of sulfur emis- The Resolution of the Cabinet of Ministers No. sions control zones, if the sulfur content in those fuels exceeds 1.5% by weight. 927 of August 1, 2013, which was published in December 2013, whereby the Regulation on the • Sampling and analysis to verify compliance with these restrictions should be conducted in accord- requirements to car petrol, diesel, marine and ance with the established methods, and the European Commission should receive annual reports boiler fuel was approved, shall come into effect in containing results of analysis. July 20142. Based upon this document, the circulation of petrol and diesel fuel of environmental • The requirements of this directive do not apply to petrol, diesel fuel, as well as fuel used in off-road class Euro-3 was extended till December 31, 2015, vehicles and agricultural tractors. while circulation of Euro-4 class fuel is allowed till December 31, 2017, and the circulation of Euro-5 is not limited in time. Regarding the share of sulphur, this is expected to be reduced3, However, the regulation does not fully accommodate the In accordance with the Protocol, the Directive well as streamline oil processing companies. The requirements of Directive 1999/32/ЕС. should have been implemented by 1 January Ministry of Economic Development was to ensure 2012. the implementation at the Verkhovna Rada of the draft Law “On amendment of the Law of Ukraine In accordance with the Action Plan on Implemen- on licensing certain types of business activities tation of the Commitments within the Framework regarding the implementation of licensing of of the Treaty Establishing the Energy Community, petroleum product manufacturing” by January it was necessary to develop measures and meth- 31, 2012. Starting from January 2013 the govern- odology for reducing the sulfur content of cer- ment draft law has been processed by the Com- tain liquid fuels by 1 January 2012. Authorities in mittee for Entrepreneurship, Regulatory and An- charge were the Ministry of Economic Develop- timonopoly Policy. ment, the Ministry of Environment and Natural Resources and the Ministry of Energy and Coal According to the Basic plan for approximation of Industry. Ukrainian law to EU law, effective state standards of Ukraine have to be amended or new stand- The Order of the Cabinet of Ministers of Ukraine ards or technical regulations have to be adopted No. 525-r approved the action plan of August 1, regarding the content of sulphur in some types 2012, aimed at the reduction of sulphur content of liquid fuel. The responsible authorities are the 1 Janez Kopac: Third energy package is part of Ukraine’s international in some types of liquid fuel. The authorities re- Ministry of Economic Development, Ministry of obligations//Szerkalo Tyzhnia. Ukraine, 11.10.2013 – http://gazeta. sponsible for the implementation of the directive Environment and Natural Resources, Ministry of dt.ua/energy_market/yanez-kopach-tretiy-energetichniy-raket-ye- chastinoyu-mizhnarodnih-zobov-yazan-ukrayini-_.html were to develop and implement the state stand- Energy and Coal Industry. The implementation 2 The technical regulation, which extends the circulation of Evro-3 fuel, ards for some types of liquid fuel. The document deadline is 2 years after the Association Agree- shall come into effect in July // Ukrainian Energy Sector, 22.01.2014 – also provided for the reduction of manufacture ment between Ukraine and the EU comes into http://ua-energy.org/post/40720 of petroleum products with high content of sul- effect. 3 Resolution of the Cabinet of Ministers No. 927 of August 1 «On approval of the Regulation on the requirements to car petrol, diesel, phur, arranging effective control over them, as marine and boiler fuel” // Legislation of Ukraine, 19.02.2014 – http:// zakon3.rada.gov.ua/laws/show/927-2013-%D0%BF/page2

60 PAGE Ukraine and Energy Community: Still Does Not Fit Ukraine and Energy Community: Still Does Not Fit PAGE 61 DIRECTIVE 2006/32/EC

DIRECTIVE 2006/32/EC CONCERNING ENERGY END-USE EFFICIENCY AND ENERGY SERVICES

• Monitoring. The national energy saving indicator shall be specified and estimated (the target is proposed to set as achievement of 9% saved energy on the 9th year of the Directive’s application) and intermediate planned energy saving indicators. In addition, programs and measures shall be drafted for improvement of rational use of energy.

• Institutionalization. The Government shall assign one or more new or of the existing agencies or authorities to provide general control and bear administrative, managerial and executive responsibility for implementation of the requirements in relation to improvement of rational use of energy. The said authorities shall check the measures for improvement of rational use of energy, including the existing government programmes, and report on the results.

• Transparency and Availability of Information. The Government has to provide market players with information on mechanisms of rational use of energy, financial and legislative plans; facilitate rational use of energy by consumers and provide incentives for market operators to disseminate information on saving of energy sources.

• possible Technical Support. Qualification, accreditation and certification of energy/energy audit service providers and measures of energy efficiency may be performed at the discretion of the Government.

• financial Incentives. Financial instruments to maintain energy saving by government organizations or private companies, include virtually all mechanisms and instruments of governmental support, namely: formation of special funds; allocation of government subsidies; tax benefits; subsidized loan on engagement of external finance; use of energy service contracts; issue of government guarantees on implementation of contracts, which provide direct energy saving, energy audit and other contracts which are related to energy saving and are available on the market.

• Incentivising Tariff Setting. The Government provides for removal of such incentives in the tariff for transmission and distribution of energy, which unnecessarily increase the amount of energy being transmitted or distributed. That being the case, the government services are put under the obligations related to rational use of energy by companies, which operate in electricity and gas sectors.

• providing incentives, equal competition of market participants. The Government has to provide availability of efficient and high quality programs of energy audit for all end consumers, including households, commercial entities, and small to midsize industrial consumers. Market segments with higher operating costs and simple capacity can use such energy audit measures on a non-commercial basis as questionnaires and computer software provided to consumers via the Internet.

• metering System and Consumer Awareness. The Government shall provide consumers with individual meters of heat, hot and cold water at competitive prices. Consumer billing shall be provided by energy suppliers in clear and understandable form based on actual consumption of energy. Рік в Енергетичному • Control and Information Exchange System. The member countries shall report (provide the Energy Efficiency Action Plan – EEAP) to the European Commission on the measures taken and plans for improvement of rational use of energy. In turn, the European Commission shall evaluate progress achieved in relation to energy saving indicators at the national level, provide the relevant ENERGY EFFICIENCY propositions and recommendations, disseminate the best practices of energy saving.

62 PAGE Ukraine and Energy Community: Still Does Not Fit Ukraine and Energy Community: Still Does Not Fit PAGE 63 The deadline for the Directive implementation in ance to the main provisions of acquis communau- developed5. At the same time, there were some objections, in particular, regarding the threats accordance with the Cabinet of Ministers’ Order is taire. According to the information of the Ukrain- objections in the opinion of the Central Scientific for transparency and openness of the budgetary February 1, 2012, and according to the list of the ian part of the Committee on implementation of Experts Office of the Verkhovna Rada, including funds use, complication of the procedure of state Energy Community acquis for Ukraine – Decem- the EU-Ukraine Association Agenda at senior of- regarding the definitions, and it was proposed to control over procurements, etc. According to the ber 31, 2011. ficial level, in May, 2013 the Energy Community further improve the draft law. This draft law was draft Resolution on approving in principle of the Secretariat was sent the draft of the Cabinet of referred to at the Energy Community Secretariat draft law on efficient use of fuel and energy re- The governmental Order above has formalized Ministers’ Order “On the approval of the Action 2013 Implementation Report as designed for the sources (registration number 3071/П)9, registered the commitment to develop the National Energy Plan on implementation of certain EU Directives transposition of the Directive 2006/32/ЕС into by the People’s Deputy М.Маrtynenko (“Batkivs- Efficiency Action Plan. The State Agency on En- in the area of energy efficiency”, which was sup- national legislation, and its adoption was called chyna”) on 25 October, 2013, it was proposed to ergy Efficiency and Energy Saving in March, 2012 ported by the Secretariat3. Nevertheless, such an one of the main priorities. As of January, 2014 the take into account the provisions of the mentioned developed the draft of the document, in which Order was not yet found among those adopted draft law has not been proposed for the voting in above 2 draft laws when preparing the draft law it was pinpointed on “securing until 2020 of the by the Cabinet of Ministers, although in the En- the Verkhovna Rada. on efficient use of fuel and energy resources for planned energy saving in amount of 9% of the ergy Community 2013 Implementation Report the second reading. The Resolution has not been average end-use internal energy consumption”. it was referred that the relevant document had In the Energy Strategy of Ukraine for the period voted but only introduced for consideration. However, the Energy Community Secretariat been adopted by the government. It is interesting until 2030, approved by the Order of the Cabi- pointed out some non-conformance to require- against this background that in the same text of net of Ministers No. 1071-r of 24.07.2013, (but In the mentioned earlier National Action Plan for ments. the Directive it is mentioned that the EU member published only on 4 February, 20146), the devel- 2013 on implementation of the Programme of countries should submit to the European Com- opment and adoption of this Law was also men- Economic Reforms for 2010-2014 some tasks were During 2013 the State Agency on Energy Effi- mission already the third energy efficiency action tioned as necessary. In the document the matter included, referring to various aspects of the Di- ciency and Energy Saving has improved the draft plan not later than on 30 June, 20144. in question is that its implementation will allow to rective (introduction of the energy service agree- document and submitted it for consideration on achieve “the reduction of the intensity of energy ment system, promotion of the energy-efficient the 8th of November1, having reserved the final in- In 2012 according to the action plan on imple- resources use in economy by 30-35% until 2030”. conduct of the population, etc.). Although the dicator for saving and calculated the opportuni- mentation of the Nation-Wide Programme on term for these tasks fulfilment was determined ties for energy consumption reduction until 2015 adaptation of the Ukrainian legislation to the EU One more legislative initiative is the draft law on for December of 2013, as of January, 2014 there and estimated the funding needs by sectors. Ac- laws in 2012, and also according to the Plan of peculiarities of the energy services procurement was no information found about their fulfilment. cording to the State Agency on Energy Efficiency priority measures for the Ukrainian integration (registration number 2548а), originated by the and Energy Saving, the funding of the Action Plan into EU for 2012, it was determined “to develop People’s Deputy V.Оstapchuk (Party of Regions) is not provided from the State Budget. The Energy the draft law on efficient energy resources use” by on 5 July, 20137. In the explanatory note to the Already in 2010 the Cabinet of Ministers adopted Community Secretariat in its 2013 Annual Imple- May, 2012. The support of the draft law consid- draft law there is a reference to the National Ac- the Resolution No.243 “On approval of the State mentation Report on the of the Acquis under the eration in the Verkhovna Rada of Ukraine is also tion Plan for 2013 on implementation of the Pro- Target Economic Programme for Energy Effi- Treaty Establishing the Energy Community men- provided for by the updated Action Plan for 2013 gramme of Economic Reforms for 2010-2014 and ciency and Development of Energy Carrier Pro- tioned that the draft was “significantly improved”, approved by the Order of the Cabinet of Ministers to the Directive 2006/32/ЕС. The draft law above duction from Renewable Sources of Energy and noting that it “provides a comprehensive analysis No.157-r of 25 March, 2013. is also related to the draft law on amendments to Alternative Types of Fuel for 2010-2015”, which of the current situation, defines a national indica- certain legislative acts of Ukraine regarding legal was amended last on 24 July, 2013 (Resolution tive energy savings target of 9%, and proposes a The draft law on efficient use of fuel and energy foundations for fulfilment of energy service agree- No.687). The goals proclaimed in the programme set of energy efficiency improvement measures resources (registration No. 3071) was introduced ments (registration number 2550а), introduced partially concur with requirements of the Direc- in energy end-use sectors “2. into the parliament as advised by the Cabinet of the same day by the same People’s Deputy8. In tive. Ministers on 12 August, 2013. In the explanatory the conclusion of the Central Scientific Experts However, as of January, 2014 The National Energy note to the draft law there is a reference to the Office of the Verkhovna Rada there were some The Annex 2 to the Programme sets the detailed Efficiency Action Plan was not approved by the Directive 2006/32/ЕС, in particular, in the context tasks and measures, for example, 100% levels of Cabinet of Ministers of Ukraine, and according of energy service contracts and in general among 5 Draft law on efficient use of fuel and energy resources (reg. No. 3071 “equipment of the communal economic entities of 12.08.2013) // Verkhovna Rada of Ukraine, 19.02.2014 – http:// to the response of the Ministry of Economic De- the legal foundations on the basis of which it was w1.c1.rada.gov.ua/pls/zweb2/webproc4_1?pf3511=48018 in the filed of thermal energy production with the velopment to the request on public information, 6 Energy Strategy of Ukraine for the period until 2030 // Ministry of metering devices” and “equipment of the residen- “has being worked out by the involved central ex- 3 Іnformation on implementation of the EU-Ukraine Association Agen- Energy and Coal Industry, 7.02.2014 – http://mpe.kmu.gov.ua/fuel/ tial houses with the thermal energy accounting da in 2013 // Ukrainian part of the Committee on implementation of control/uk/doccatalog/list?currDir=50358 ecutive bodies”, including in a part of its compli- the EU-Ukraine Association Agenda at senior official level, 19.02.2014 7 Draft law on peculiarities of the energy services procurement (reg. meters”, granting loans to 61 070 households for – http://mfa.gov.ua/mediafiles/files/eu_integration/agreement_im- No. 2548а of 5.07.2013) // Verkhovna Rada of Ukraine, 19.02.2014 – introduction of the energy saving measures, the 1 In Kyiv the National Action Plan on Energy Efficiency until 2020 was plementation_2013.doc http://w1.c1.rada.gov.ua/pls/zweb2/webproc4_1?pf3511=47840 presented // Ukrainska energetyka [Ukrainian Energy], 8.11.2013 – 4 Directive 2006/32/EC of the European Parliament and of the Coun- 8 Draft law on amendments to certain legislative acts of Ukraine regard- 9 Draft Resolution on approving in principle of the draft law of Ukraine http://ua-energy.org/post/38696 cil of 5 April 2006 on energy end-use efficiency and energy services ing legal foundations for fulfillment of energy service agreements on efficient use of fuel and energy resources (reg. No. 3071/П of 2 Annual Implementation Report. Energy Community Secretariat. 1 and repealing Council Directive 93/76/EEC (Article 14) // Energy Com- (reg. No. 2550a of 5.07.2013) // Verkhovna Rada of Ukraine, 19.02.2014 25.10.2013) // Verkhovna Rada of Ukraine, 19.02.2014 – http://w1.c1. September 2013 // Energy Community, 19.02.2014 – http://www. munity, 19.02.2014 – http://www.energy-community.org/pls/portal/ – http://w1.c1.rada.gov.ua/pls/zweb2/webproc4_1?pf3511=47842 rada.gov.ua/pls/zweb2/webproc4_1?pf3511=48824 energy-community.org/pls/portal/docs/2304177.PDF docs/254191.PDF

64 PAGE Ukraine and Energy Community: Still Does Not Fit Ukraine and Energy Community: Still Does Not Fit PAGE 65 interest on which shall be reimbursed from the the detailed report on this plan fulfilment has not The draft envisages the compulsory commercial Ukraine No. 462/2011, which approves the Regu- state budget, etc. The State Agency on Energy Ef- been found in the publicly available sources. accounting of thermal energy for the legal entities lation on State Agency on Energy Efficiency and ficiency and Energy Saving reports on state of im- and individual entrepreneurs, who manage the Energy Saving, this institution is a central execu- plementation of this programme at its website10. The National Action Plan for 2012 on implemen- block of flats, since the 1st of January, 2018, and tive body responsible for the implementation of As of January, 2014 the report on fulfilment of the tation of the Programme of Economic Reforms for for the other consumers – since the 1st of January, the state policy in the fields of the efficient use of programme in 2013 is absent. In the report for 2010-2014 has set a goal to equip at least 40% of 2017. Furthermore, the compulsory commercial fuel and energy resources, energy saving, renewa- 2012 the fulfilment of the indicator “equipment residential houses with the water and heat con- accounting of water supply for legal entities is ble energy and alternative types of fuel. The State with the metering devices” is shown with a figure sumption metering devices (p. 166). The public proposed to introduce since the 1st of January, Agency on Energy Efficiency and Energy Saving “0” of the planned 100%. The estimated amounts report on fulfilment of this goal has not been 2017, and for other consumers a year earlier. The also ensures the operation of the energy audit sys- of the programme funding, set in its identifica- published. In the similar plan for 2013 the exact media, which analyzed the draft law published by tem and introduction of the energy management tion summary, are also interesting: totally during goals in percentage are not provided, instead the the Ministry of Regional Development, pointed system in Ukraine. The energy audit is carried out 2010-2015 it is planned to spend 346 bln. UAH, of support of the draft law in the Verkhovna Rada is out that its main innovation was in definition by the certified specialized organizations, which, which 7.7 bln. UAH are expected from the state set - regarding “the introduction of the compul- of commercial accounting as the accounting of according to the agency, as of January, 2014 budget, 15 bln. UAH – from the local budgets and sory commercial accounting of thermal energy, energy carrier or water at the entrance to the amounted to 123. By the Decree No. 699/2013 of the rest of 323.3 bln. UAH are expected from the water supply and sewage”, issuing of the second- block of flats, and not to the flat, that makes the 20 December, 2013, the President made amend- other sources. The State Agency on Energy Effi- ary regulatory acts, improvement of works on house dwellers, and not the heating or water ments into the Regulation on the State Agency ciency and Energy Saving declared that in 2014 calibration and servicing of the metering devices, suppliers, to be responsible for the losses of heat for Energy Efficiency and Energy Saving, having 500 mln. UAH are provided for the implementa- etc. (p.161). and water inside the house15. reduced its authorities17. In particular, the exercise tion of the programme, and these funds were al- of the state control in the field of efficient use of located to Ukraine by the European Union11. The Ministry of Regional Development, Construc- fuel and energy resources, rendering of manda- tion, Housing and Utility Services developed on In the explanatory note to the draft law the au- tory rulings to the enterprises based on the in- By the Order of the Cabinet of Ministers No.588- 14 August, 2012 the draft law “On amendments thors refer to the data of the Council of Ministers spection results for the purpose of remedying the r of 30 July, 2012 the Action Plan on regulatory to certain Laws of Ukraine on compulsory com- of the Autonomous Republic of Crimea, oblast, legal requirement violations regarding efficient and legal support of the energy efficiency policy mercial accounting and improvement of relations Kyiv and Sevastopol municipal state administra- use of fuel and energy resources were withdrawn. implementation in heat consumption and mod- in the filed of housing and utility services”13. How- tions, according to which as of 1 January, 2013 47 The State Agency on Energy Efficiency and Energy ernization of the heat supplying was approved. ever, this draft law was rejected by the Verkhovna 757 houses (or 24% of estimated) are equipped Saving was divested of the authorities to control The tasks established in it are as follows: introduc- Rada on 17 September, 2013. with the house cold water meters, 8 575 houses the fulfilment of those rulings, the right to impose tion of thermal energy production accounting by (or 19% of estimated) – with hot water meters, economic sanctions and to draw up protocols on 100% (by October, 2012), adjustment of the instal- In September of 2013 the institution has prepared and 31.6% o houses – with thermal energy meters administrative offences. At the same time the doc- lation standards, development of the standard the draft law “On commercial accounting of the and temperature regulators. The total amount of ument does not contain the information to which technical solutions for establishment and adop- thermal energy, water supply and water sewage funds required for installation of the metering de- public body those authorities will be transferred. tion of the regulatory acts on financial assistance in the field of utility services”14. Meanwhile on 21 vices for hot, cold water and thermal energy is es- during installation of the individual heat supply October, 2013 another draft law under the same timated by the draft law authors in approximately When speaking about raising due awareness in units in residential houses and public institutions, name and in the similar wording was registered in 3.8 bln. UAH. According to the National Commis- the field of energy efficiency, we should note the some measures on formation of the energy-effi- the parliament by the group of People’s Deputies sion responsible for the public regulation in the launching at the end of 2013 of a new website of cient conduct of population and enterprises, etc. (all from the Party of Regions). As of 24 January, 2014 field of utilities (the National Commission for the State Agency on Energy Efficiency and Energy As of 5 July, 2013 the level of equipment of the the draft law has not been considered by the Verkhovna Rada. State Regulation of Utility Services), as of 10 Oc- Saving. Being duly supported and filled with due thermal energy production enterprises with the tober, 2013 the equipment of the housing stock content it could play a role of the central state in- 13 Draft Law on amendments to certain Laws of Ukraine on compulsory technological accounting tools in 100% was not commercial accounting and improvement of relations in the filed of with the devices for the commercial accounting formation resource on policy in the field of energy achieved12. Although the deadlines established in housing and utility services // Verkhovna Rada of Ukraine, 19.02.2014 of thermal energy amounted to 34.27%. Mean- efficiency. The State Agency for Energy Efficiency – http://w1.c1.rada.gov.ua/pls/zweb2/webproc4_2?id=&pf3516=20 the document are of by 2012, as of January, 2014 52&skl=8 while the equipment of enterprises amounts to and Energy Saving has also held during the year a 16 14 93.84%. 10 Plans and reports // State Agency on Energy Efficiency and Energy Announcement on publication of the draft Law of Ukraine «On range of events on energy efficiency promotion, Saving, 19.02.2014 – http://saee.gov.ua/uk/activity/plany-ta-zvity commercial accounting of the thermal energy, water supply for example, the round table for teachers “The and water sewage in the field of utility services « // Ministry of 11 In 2014 Ukraine is going to invest UAH 500 mn into energy efficiency Regional Development, 3.09.2013 – http://minregion.gov.ua/ According to the Decree of the President of Young and Energy-Saving” in the framework of // Ukrainska energetyka [Ukrainian Energy], 31.01.2014 – http://ua- regulatory/povidomlennja-rro-opryljudnennja-rroektiv-regul- the nation-wide Energy Efficiency Week18, etc. At energy.org/post/41035 jatornyh-aktiv/povidomlennya--rro-oprilyudnennya-rroektu-za- 15 12 Information about the visiting board session «On energy efficiency konu-ukrayini--rro-komerciyniy-oblik-teplovoyi-energiyi-vodi-ta- All the houses will be “turned on the meter” // Dzerkalo tyzhnia 17 in the housing and utility sector» (27.06.2013, Lviv) // Ministry of vodovidvedennya-u-sferi-komunalnih-roslug/, http://minregion.gov. [Weekly Mirror]. Ukraine, 24.11.2013 – http://dt.ua/columnists/usi- Decree of the President of Ukraine No. 699/2013 of 20.12.2013 «On Regional Development, 5.07.2013 – http://minregion.gov.ua/zhkh/ ua/regulatory/proekty-reguljatornyh-aktiv-dlja-obgovorennja-ta- budinki-rostavlyat-na-lichilnik-130603_.html amendments to the Regulation on State Agency on Energy Efficiency reforma-zhitlovo-komunalnogo-gospodarstva/-informaciya-scho- analizy-reguljatornogo-vplyvu/proekt-zakonu-ukrayini-rro-komer- 16 The third part of the Ukrainian dwellings is equipped with the heat and Energy Saving of Ukraine» // Legislation of Ukraine, 19.02.2014 – do-viyiznogo-zasidannya-kolegiyi-u-m--lvovi-vid-27-06-2013-rro- ciyniy-oblik-teplovoyi-energiyi-vodi-ta-vodovidvedennya-u-sferi- meters //UNIAN, 15.10.2013 – http://www.unian.ua/society/842167- http://zakon4.rada.gov.ua/laws/show/699/2013 energoefektivnist-u-zhitlovo-komunalnomu-gospodarstvi/ komunalnih-roslug/ (text of draft law) tretina-ukrajinskih-romeshkan-osnascheni-lichilnikami-tepla.html 18 The State Agency on Energy Efficiency and Energy Saving presented

66 PAGE Ukraine and Energy Community: Still Does Not Fit Ukraine and Energy Community: Still Does Not Fit PAGE 67 DIRECTIVE 2010/30/EU

the same time, at the level of ordinary consumers Conclusion the information on possibilities and ways of ener- DIRECTIVE 2010/30/EU ON ENERGY PRODUCT LABELLING1 gy costs saving is not still available enough; there- In spite of some progress in development of the fore, there is a need for a system-based and rather draft of National Energy Efficiency Action Plan and • Unification of standards. Most of household products shall bear EU Energy Efficiency Labelling far-reaching information campaign, into which other documents, there is a problem with their ap- that shall clearly specify the key consumer characteristics of the product. The Directive not only proval and adoption of final decisions. Therefore, it various interested parties could be involved. covers household products, but also expands the scope of regulation to industrial and commercial is still too early to speak about the implementation appliances, equipment, and products, which consume no energy. However, considerable impact by Ukraine of its commitments under the Directive on energy saving can be achieved (e.g., fencing of buildings and structures). The labelling applies 2006/32/ЕС. Besides, against the background of ex- to refrigerators, freezers, washing machines, laundry driers, dishwashers, ovens, cooktops, water istence of several programmes pursuing the similar heaters and hot water storage vessels, air conditioners, lamps, TV sets, motor vehicles. aims, it is hard to find publicly available, timely, full and system-based reports on their fulfilment. It does • open Information and Sharing. Promotion of energy efficiency and responsible use of energy not allow assessing to the full extent the achieve- by end users shall be provided. Dissemination and exchange of information shall be provided by ment of the goals proclaimed and potential obsta- electronic communication facilities in cooperation with other EU member countries. cles in this way. The traditional problem is a lack of sufficient resources to hold large-scale information • Control system. Every 4 years, the EU member countries shall deliver to the European Commission campaigns on energy efficiency promotion among reports on their operations in this area, whereupon the European Commission shall submit the all targeted audiences, in particular, among the consolidated information to the European Parliament. consumers. In addition, the insufficient coordina- protection of Consumers. Penalties shall be set for failure to comply with the provisions of the tion between the public agencies, responsible for • national legislation to the extent of labelling of energy products and any and all required measures the implementation of the state policy in the filed shall be taken in order to ensure their implementation. of energy efficiency, continues to raise serious concerns, including the allocation of responsibility and authority. 1 The Directive 95/13/EC, 96/60/EC, 98/11/EC, 2002/40/EC, Delegated Regulations 1059-1062/2010, 626/2011 are also applied.

According to the Order of the Cabinet of Ministers for a minimal level of energy efficiency at the level the deadline for the Directive implementation is higher than “А” class, which results in application the 1st of February, 2012, according to the list of of a new additional mark “+” to the A-G scale eve- the Energy Community acquis for Ukraine – 31 ry second year until “А+++” class will be achieved. December, 2011. The document is applied since the 1st of January, 2013 and should be binding in full for all member In addition to the Directive 2010/30/EU the Eu- countries. The deadline for its implementation is ropean Commission has adopted a range of Del- 1 January, 2013. egated Regulations. The Delegated Regulation 1059/2010 with regard In particular, on 4 May, 2011 the Delegated Regu- to energy labelling of household dishwashers lation 626/2011 with regard to energy labelling was adopted on 28 September, 2010 and it can- of air conditioners was adopted. The Regulation cels the Directive 97/17/EC. The Regulation es- cancels the Directive 2002/31/EС and introduces tablishes a single labeling design and content for “two scales of energy efficiency based on a prin- household dishwashers; sets the requirements cipal function and on specific aspects that are im- to the technical documentation and certificates portant for a consumer”1. The Regulation covers for household dishwashers; defines the require- the introduction of a seasonal efficiency meas- ments to information provision for any kind of urement method, and setting of requirements as distance selling, advertisement and technical 2 1 Commission Delegated Regulation (EU) No 626/2011 of 4 May 2011 advertising materials . The Regulation is applied supplementing Directive 2010/30/EU of the European Parliament the project «The Young and Energy-Saving» to teachers // Ukrainska and of the Council with regard to energy labelling of air conditioners 2 Commission Delegated Regulation (EU) No 1059/2010 of 28 Septem- energetyka [Ukrainian Energy], 14.10.2013 – http://ua-energy.org/ // Official Journal of the European Union, 19.02.2014 – http://www. ber 2010 supplementing Directive 2010/30/EU of the European Parlia- post/37552 energy-community.org/pls/portal/docs/1176182.PDF ment and of the Council with regard to energy labelling of household

68 PAGE Ukraine and Energy Community: Still Does Not Fit Ukraine and Energy Community: Still Does Not Fit PAGE 69 since 20 December, 2011, and its certain articles In addition, the following Directives, which form Yet earlier the government adopted a range of clude: Technical Regulation with regard to energy – since 20 April, 2010. The deadline for its imple- the part of the Energy Community acquis with other Regulations with regard to energy label- labelling of energy-using products (based on the mentation is 31 December, 2012. regard to energy labelling, were also adopted: ling: by the Resolution of 16 February, 2011 Directive 2010/30/ЕU), Technical Regulation with Directive 2002/40/EC with regard to household No.108 – Technical Regulation with regard to en- regard to energy labelling of household electric The Delegated Regulation 1060/2010 with regard electric cookers, Directive 98/11/EC with regard ergy labelling of household washing machines refrigerators (based on the Delegated Regula- to energy labelling of household refrigerating to household lamps, Directive 96/60/EC with re- (with reference to the Directive 95/12/ЕС), by the tion 1060/2010) and Technical Regulation with appliances was adopted on 28 September, 2010, gard to household combined washing and dry- Resolution of 16 February, 2011 No. 107 – Techni- regard to energy labelling of household washing and it cancels the Directive 94/2/EC. The Regula- ing machines, and also Directive 95/13/EC with cal Regulation with regard to energy labelling of machines (based on the Delegated Regulation tion’s innovations are similar to the Delegated regard to electric drum dryers. The deadline for household refrigerators, freezers and their combi- 1061/2010). Regulation 1059/2010, but they are applied to re- the implementation of all the Directives above is nations (with reference to the Directive 94/2/ЕС), frigerating appliances3. The Regulation is applied 31 December, 2011. by the Resolution of 6 January, 2010 No.5 – Tech- The approved Regulations “establish principal re- since 30 November, 2011, and its certain articles nical Regulation with regard to energy labelling quirements with regard to information provision – since 30 March, 2012. The deadline for its imple- The Order of the Cabinet of Ministers of 3 August, of household electrical equipment, by the Reso- to the consumers on the level of energy and other mentation is 31 December, 2012. 2011 No. 733-r “On approval of the Action Plan lution of 27 December, 2008 No.1144 – Technical primary resources efficiency use” concerning the on fulfilment of the commitments taken in the Regulation on labelling of household lamps with relevant equipment, that “enables consumers to The Delegated Regulation 1061/2010 with regard framework of the Treaty establishing the Energy regard to energy consumption efficiency. The ob- select the most energy efficient products”. Ac- to energy labelling of household washing ma- Community” refers to this Directive indirectly, as ligatory application of the Regulation for all pro- cording to the action plans on implementation chines was also adopted on 28 September, 2010, far as the development of the National Energy ducers and suppliers of household lamps is pro- of those Technical Regulations, in 2013 their vol- it cancels the Directive 95/12/EC and defines for Efficiency Action Plan is concerned. As we have vided for since the 1st of July, 2010. The technical untary application was proposed, while on 1 July, the household washing machines the same pa- mentioned above in the previous section, the changes to this Regulation were introduced on 2014 it was envisaged to “execute state market rameters as those mentioned in description of draft document was developed and presented, 8 April, 2013 by the Resolution of the Cabinet of supervision over the compliance of the house- the above Regulations. The Regulation is applied and actually we expect for its adoption. Ministers No.235 “On amendments to certain Res- hold electrical equipment with the requirements” since 20 December, 2011, and its certain articles olutions of the Cabinet of Ministers of Ukraine” of the Technical Regulations. – since 20 April, 20124. The deadline for its imple- The development of the draft Resolutions of the (paragraph 10). mentation is 31 December, 2012. Cabinet of Ministers on amendments to the ap- As for the rest of commitments, the Ministry of plicable ones and preparing of new Resolutions The Directives, basing on which the mentioned Economic Development of Ukraine in its response The Delegated Regulation 1062/2010 with regard on implementation of the relevant technical Ukrainian Regulations were developed, were re- to the request for public information states the to energy labelling of televisions was adopted on Regulations is envisaged by the Action Plan on placed in the European Union by new ones, con- necessity to continue the work on their develop- 28 September, 2010; it introduces the require- implementation of the Nation-Wide Programme taining the updated standards and requirements. ment. In its report on implementation of the ac- ments to TV sets labelling similar to those given on Adaptation of the Ukrainian Legislation to the According to the Action Plan on implementa- quis in 2013 the Energy Community Secretariat in the descriptions of the above Regulations. The European Union Legislation in 2013, approved tion of the Nation-Wide Programme on Adapta- noted that the State Agency on Energy Efficiency Regulation is applied since 30 November, 2011, by the Order of the Cabinet of Ministers of 25 tion of the Ukrainian Legislation to the European and Energy Saving had started the work regard- and its certain articles – since 30 March, 20125. March, 2013 No. 157-r6. In particular, it refers to Union Legislation in 2013, the governmental ing the Technical Regulations on energy labelling The deadline for its implementation is 31 Decem- the Technical Regulation with regard to energy Resolutions No. 107 (of 16.02.2011), No. 108 (of of televisions, household air conditioners and ber, 2012. labelling of household refrigerators, freezers and 16.02.2011) and No.5 (of 06.01.2010) had to be lamps. their combinations (deadline is June, 2013, based amended – by June, 2013. The remarkable fact is dishwashers // Official Journal of the European Union, 19.02.2014 – on the Delegated Regulation 1060/2010), Tech- that the amendments to the first two Resolutions The Law of Ukraine “On Standards, Technical http://www.energy-community.org/pls/portal/docs/1176177.PDF nical Regulation with regard to energy labelling 3 Commission Delegated Regulation (EU) No 1060/2010 of 28 Sep- were planned earlier yet – by November, 2012, Regulations and Conformity Assessment Proce- tember 2010 supplementing Directive 2010/30/EU of the European of household electrical equipment (deadline is that was mentioned in the similar programme of dures” defines that “international and regional Parliament and of the Council with regard to energy labelling of June, 2013, based on the Directive 2010/30/EU), household refrigerating appliances // Official Journal of the European the legislative adaptation for 2012. standards shall be adopted as national standards Union, 19.02.2014 – http://www.energy-community.org/pls/portal/ Technical Regulation with regard to energy label- by the central executive body on standardization docs/1176179.PDF ling of household washing machines (deadline is On 7 August, 2013 the Cabinet of Ministers ap- issues”, and “the central executive body respon- 4 Commission Delegated Regulation (EU) No 1061/2010 of 28 Sep- tember 2010 supplementing Directive 2010/30/EU of the European June, 2013, based on the Delegated Regulation proved by its Resolution No.702 a range of Techni- sible for the formulation of the state policy in Parliament and of the Council with regard to energy labelling of 1061/2010). cal Regulations and declared its Resolutions No.5 the field of technical regulation, shall submit the household washing machines // Official Journal of the European Union, 19.02.2014 – http://www.energy-community.org/pls/portal/ of 06.01.2010, No.107 and No.108 of 16.02.2011 agreed draft of Technical Regulation to the Cabi- docs/1176180.PDF to have lost force.7. The approved Regulations in- net of Ministers”. According to the governmental 5 6 Commission Delegated Regulation (EU) No 1062/2010 of 28 Septem- Ordinance of the Cabinet of Ministers of 25 March, 2013 No. 157-r «On Resolution of 13.03.2002 No.288 “On approval of ber 2010 supplementing Directive 2010/30/EU of the European Parlia- approval of the Action Plan on implementation of the Nation-Wide 7 Resolution of the Cabinet of Ministers of 7 August, 2013 No. 702 “On ment and of the Council with regard to energy labelling of televisions Programme on Adaptation of the Ukrainian Legislation to the Euro- approval of Technical Regulations with regard to energy labelling” // lists of central executive bodies in charge for the // Official Journal of the European Union, 19.02.2014 – http://www. pean Union Legislation in 2013 « // Legislation of Ukraine, 19.02.2014 Legislation of Ukraine, 19.02.2014 – http://zakon4.rada.gov.ua/laws/ technical regulation in respective areas and for energy-community.org/pls/portal/docs/1176181.PDF – http://zakon4.rada.gov.ua/laws/show/157-2013-%D1%80 show/702-2013-%D0%BF

70 PAGE Ukraine and Energy Community: Still Does Not Fit Ukraine and Energy Community: Still Does Not Fit PAGE 71 DIRECTIVE 2010/31/EU

development of Technical Regulations”, the rel- Conclusion evant functions in the area of energy labelling are assigned to the State Agency on Energy Efficiency In spite of the fact of the partial implementation DIRECTIVE 2010/31/EU CONCERNING ENERGY PERFORMANCE OF BUILDINGS and Energy Saving8. of commitments in the area of energy labelling, its considerable part has not been implemented yet. This fact can illustrate an obvious example of • Unification and Harmonization of requirements. This, in particular, applies to adoption of the Ukraine’s development lag, especially taking into estimation methodology of energy efficiency of buildings at the national and regional levels; tak- consideration that the European legislation in this ing the required measures in order to guarantee minimum energy efficiency requirements for area is already being updated and further devel- buildings and structures, which are set in order to achieve economically optimal level of costs; estimation of economically optimal level of minimum energy efficiency requirements of buildings; oped. Besides, a slow advance in this direction also taking the required measures to guarantee compliance of new and existing buildings and build- restrains the campaign on consumer awareness ings under repair, minimum energy efficiency requirements; setting of systemic requirements ap- regarding the energy efficiency policy, which could plicable to general energy efficiency. become more visible in everyday life. At the same time, it is worth to mention some modest advances • In addition, by 31 December 2020 all new buildings shall become structures with close to zero in consumer awareness with regard to labelling. Fi- energy consumption and re-equipment of buildings owned by government authorities will be nally, it is obvious that the State Agency on Energy started after 31 December 2018. Efficiency and Energy Saving should be enhanced for the purposes of preparation and introduction of • Drafting of Legislation. The Government shall draft the National Plan of increase in the number Technical Regulations. of buildings with close to zero energy consumption, which will include the targets differentiated by categories of buildings. The laws shall be drafted and steps shall be taken to provide incentives for re-equipment of buildings under repair into structures with close to zero consumption.

• Awareness. By 31 December 2012 and every subsequent 3 years, the European Commission shall publish a report on achievements of the EU member countries within the framework of increase in the number of buildings with close to zero energy consumption. The Report shall serve as a foundation for drafting of the Action Plan and propositions of the best practices for efficient re- equipment of the existing buildings.

• financial Incentives and market barriers. The EU member countries had to design by 30 June 2011 and further update every 3 years financial facilities and instruments in order to achieve energy efficiency of buildings. In turn, the European Commission shall render assistance in setting up of national and regional programs of finance, check them and give propositions in relation to improvement of finance.

• Additional Arrangements and Independent Expert Examination. Action shall be taken to set up certification systems of energy efficiency of buildings, to provide issue of such certificates, their demonstration in public places; to perform regular checks of heating systems and air conditioning systems. It is important that the EU member countries guarantee that certification of energy efficiency of buildings and check of heating and air conditioning systems are performed by independently qualified and accredited experts.

8 Resolution of the Cabinet of Ministers of 13 March, 2002 No. 288 “On approval of lists of central executive bodies in charge for the technical regulation in respective areas and for development of Technical Regu- lations “ // Legislation of Ukraine, 19.02.2014 – http://zakon1.rada.gov. ua/laws/show/288-2002-%D0%BF

72 PAGE Ukraine and Energy Community: Still Does Not Fit Ukraine and Energy Community: Still Does Not Fit PAGE 73 The implementation of the Directive 2010/31/ЕU, rejected, neither the officials, nor their represent- Regional Development approved by its decision Conclusion according to the Order of the Cabinet of Ministers atives took part in discussions2. In response to the the standard ДСТУ Б EN 15217:201X “Energy ef- of 3 August, 2011 No.733-r, should be included request on access to the public information the ficiency in buildings. Methods of presentation of Ukraine has not only shown any positive advance- into the National Energy Efficiency Action Plan Ministry of Regional Development, Construction, energy performance and energy certification of ments in implementation of the Directive but to and the relevant sections are provided in the de- Housing and Utility Services noted that “the ful- buildings”, that is also mentioned in the same re- some extent stepped backwards, namely in the leg- veloped draft. However, the document itself as of filment of the mentioned task was included into sponse given for the request. islative issues. The situation illustrates both system January, 2014 is still in the process of approval. the draft of the National Action Plan for 2014”. It is weaknesses in awareness-raising work, including Also the document should be referred to in the remarkable that in its report for 2013 the Energy The officials of the Ministry also noted that in with the people’s deputies, from one hand, and the Order of the Cabinet of Ministers “On the approv- Community Secretariat named the law on ener- Ukraine the norms and standards are in effect, necessity to take into consideration their observa- al of the action plan on introduction of certain gy efficiency in public and residential buildings which regulate the building energy efficiency tions and to establish efficient dialogue, from the Directives of the European Union in the area of as main priority, having added that as a second indicators, determine the rules for design of new other hand. Since the draft law was rejected, we had energy efficiency”, the draft of which, according priority the Regulation on energy efficiency in construction, rebuilding and overhaul, as well as not found any references about the development of to the State Agency on Energy Efficiency and En- buildings should also be developed. It is interest- the rules for energy classification of buildings. a new draft. All put together these facts can demon- ergy Saving, is in the process of agreeing with the ing to know that the development and approval They informed on development of the standard strate some disregard from a part of Ukraine of its Ministry of Justice. of the Law “On Energy Efficiency in Buildings” is ДСТУ Б В.2.5-44:2010, harmonized with the Eu- commitments fulfilment in this area of energy effi- defined as one of conditions for attainment of the ropean EN 15450:2007 “Heating systems in build- ciency policy. On 24 February, 2012 the Energy Community Ukraine’s Energy Strategy goals. ings – Design of heat pump heating systems”, published the Final Report on the Energy Efficien- which establishes the requirements to design, cy in Buildings in the Contracting Parties1. There Summarizing the fulfilment of the National Plan construction and commissioning of the building is a reference in the document that “Ukraine in- of Reforms in 2013, the First Deputy Minister of heating systems using heat pumps. tends to review its regulatory framework… that Regional Development, Construction, Housing also includes the development and adoption of a and Utility Services of Ukraine H.Semchuk men- By the Resolution of 17 October, 2013 No. 948 the new law on energy efficiency in buildings”. tioned “the improvement of the legislative regu- government approved the Programme for heat- lation in energy efficiency in buildings” among ing systems modernization for 2014-2015. The On 12 January, 2012 the draft law on energy ef- the key tasks for 20143. Meanwhile the Ministry goal proclaimed in it is to “improve the economic ficiency in residential and public buildings (reg- reports on introduction in 2012 of the instrument and energy efficiency and safety of heating sys- istration number 0856), was registered in the for granting soft loans for modernization of resi- tems, minimization of fuel and energy resources Verkhovna Rada, and it was proposed by the dential buildings4. use, namely, reduction by 49.6% of the basic vol- Cabinet of Ministers. The draft law was approved ume of natural gas consumption due to its sav- in principle on 15 May, 2012 by the parliament of Besides, in its response to the request on access ing (25.4%) and replacement with the alternative the previous convocation. During the preparation to public information, the Ministry of Regional types of fuel (24.2%)”5. The Programme provides of the document for the second reading, accord- Development declared the approval and putting for the mounting of the waste heat boilers, re- ing to the Head of the Verkhovna Rada Commit- into operation of the following standards pursu- placement and updating of boilers, re-equipment tee on Construction, Urban Development, Hous- ant to the Directive: ДБН В.1.2-11:2008 “Principal of boiler-houses, mounting of heat pumps and ing, Utilities and Regional Policy S.Кilinkarov, 55 requirements to buildings and facilities. Energy boilers operating at bio fuel, change of heating amendments to it were made�. The draft law was saving”; ДБН В.2.6-31:2006 “Thermal building in- networks, mounting of installations for solar ener- rejected after consideration in second reading sulation”; ДБН В.2.5-67:2013 “Heating, ventilation gy use, etc. The funding that should amount total- on 10 October, 2013. The deputies have not even and air conditioning”. In particular, since the sec- ly to 27.845 bln. UAH, shall be allocated from the agreed to remit the draft law for another second ond half year of 2013 the standard requirements state and local budgets, and from “other sources” reading. to maximum heat rates for heating of residential as well; in particular 8.865 bln. UAH should be al- houses were established at the level of 40-70 located in the first year. The tasks on support of the draft law and adoption kw-h/m2 instead of 73-89 kw-h/m2 (changes to of regulatory acts for its further implementation ДБН В.2.6-31). On 27 November, 2013 the Sci- are defined in the National Action Plan 2013 on entific and Technical Council of the Ministry of

Implementation of the Programme of Economic 2 Records of the plenary session. Fifteenth meeting. 10 October, 2013 Reforms for 2010-2014 (p. 164). At the same time, // Verkhovna Rada of Ukraine, 10.10.2013 – http://iportal.rada.gov.ua/ according to the records of the Verkhovna Rada meeting/stenogr/show/5075.html 3 Ibidem. 5 meeting, in which the mentioned draft law was Lending at preferential rate helps to get the positive results in ensur- 4 In the Ministry of Regional Development the fulfillment of the Na- ing energy efficiency in residential buildings even now // Ministry of tional Plan 2013 in the field of «Housing and Utility Services Reform- Regional Development, 15.10.2013 – http://minregion.gov.ua/news/ 1 Study on Energy Efficiency in Buildings in the Contracting Parties of ing» was discussed // Ministry of Regional Development, 23.01.2014 pilgove-kredituvannya-dae-mozhlivist-vzhe-sogodni-otrimuvati- the Energy Community. Final Report // Energy Community, 24.02.2012 – http://minregion.gov.ua/news/v-minregioni-obgovorili-vikonann- rozitivni-rezultati-v-napryamku-rrovedennya-energoefektivnih-za- – http://www.energy-community.org/pls/portal/docs/1410177.PDF ya-nacplanu-2013-roku-za-napryamkom-reforma-zhkg-805801/ hodiv-v-zhitlovih-budinkah/

74 PAGE Ukraine and Energy Community: Still Does Not Fit Ukraine and Energy Community: Still Does Not Fit PAGE 75 DIRECTIVE 2009/119/EC

DIRECTIVE 2009/119/EC TO MAINTAIN MINIMUM STOCKS OF CRUDE OIL AND/OR PETROLEUM PRODUCTS • Implementation of this Directive requires creation and maintenance of the stocks system Рік в Енергетичному equivalent to 90 days of average daily net imports or 61 days of average daily inland con- OIL sumption.

According to the decision of the Ministerial Coun- response to the information inquiry, the process cil, Ukraine has to implement the requirements of of approval of the provisions of the said law is still the Directive by January 1, 2023. ongoing at the Ministry.

The first steps in the regulatory implementation In October 2013 the government issued Order No. of the provisions of the directive were made back 833-r3, whereby it complemented the action plan on December 8, 2009, by government Order No. for the implementation of obligations as part of 1498-r1, whereby the concept for creating mini- the Treaty establishing the Energy Community. mum stocks of crude oil and petroleum products The Cabinet of Ministers, by virtue of its decision, in Ukraine for the period until 2020 was approved. assigned the obligations to the Ministry of Energy The document provides for the accumulation of and Coal Industry, Ministry of Economic Develop- the 90-day volume of internal consumption of ment, NERC, State Agency of Reserve, Ministry crude oil and petroleum products, considering of Finance, Ministry of Justice and NAK Naftogaz the volume of domestic produced oil, through of Ukraine, to bring the regulatory framework the joint efforts of the state and the market play- regarding oil and/or petroleum products into ers. For this purpose, the government planned to compliance with the requirements of Directive build a distributed system of storage capacities 2009/119/EC by December 1, 2022. with the total holding capacity of 2-2.05 million tons around Ukraine within 10 years. The evaluat- The adaptation of the Ukrainian law to the EU ed total cost of creating stocks and improvement energy law in the oil sector is also dwelt upon in of infrastructure was 21.7 bln. UAH. the recently published updated Energy Strategy of Ukraine until 2030. The authors provide for Throughout 2007-2008 the specialists of Nafto- build-up and supporting crude oil and petroleum gasbudinformatika LLC, with the involvement of product stocks at the level sufficient to ensure independent experts, also developed the draft internal consumption for the period of not less law On minimum stocks of oil and petroleum than 90 days, at the expense of the market players products2. The valuable novelty introduced in the and without the involvement of the state budg- law is the concept of creating the State Agency et funds. It is also forecasted that the procedure for Managing Minimum Stock of Crude Oil and for accounting and use of stocks will be unified, Petroleum Products responsible for building up, a competent body in case of difficulties with the monitoring, updating and sale of stocks. In addi- supplies will be determined and action plan in tion to that, as a source of financing the draft law case of crisis situations will be developed. determines, in particular, state budget funds and money collected from the crude oil and petroleum products’ market stakeholders. Conclusion

A document with a similar name has been under Ukraine has not yet come close to creating a regu- development by the Ministry of Energy and Coal latory framework needed to build up crude oil and Industry since 2012. As of January 2013, the Min- petroleum product stocks, despite the fact that the istry was addressing the comments from the cen- respective work was carried out long before the ac- tral executive bodies involved. According to the cession to the Energy Community, and the results

1 Ordinance of the Cabinet of Ministers of December 8, 2009, No. 1498-r gained in the course of this work were available. «On approval of the Concept for Creating Minimum Stocks of Crude Oil and Petroleum Products in Ukraine for the period until 2020» // Legislation of Ukraine, 19.02.2014 – http://zakon1.rada.gov.ua/laws/ 3 Ordinance of the Cabinet of Ministers No. 833-r of October 23, 2013, show/1498-2009-р On amendment of the action plan regarding the implementation of 2 The Draft Law On minimum stocks of crude oil and petroleum prod- the obligations as part of the Agreement on establishing the Energy ucts //Naftogazbudinformatika, 19.02.2014 – http://www.ngbi.com. Community// Legislation of Ukraine, 19.02.2014 – http://zakon1.rada. ua/Z_1.html gov.ua/laws/show/833-2013-р

76 PAGE Ukraine and Energy Community: Still Does Not Fit Ukraine and Energy Community: Still Does Not Fit PAGE 77 DIRECTIVE 2008/92/ЕС

Directive 2008/92/EC concerning a Community procedure to improve the transparency of gas and electricity prices charged to industrial end- users • Implementation of this Directive requires measures to develop a detailed statistical reporting system in companies supplying gas and electricity to end consumers.

REGULATION 1099/2008

REGULATION 1099/2008 ON ENERGY STATISTICS • It specifies uniform framework conditions for receipt, transfer, evaluation and dissemination of energy statistics.

• According to the decision of the Energy Community Ministerial Council D/2013/02/MC-EnC, the Regulation 147/2013 is also applied.

In accordance with the Decision, Ukraine should with IЕА the action plan on energy balance opti- have brought its legislation into conformity with mization3. Since then, the State Statistics Service both regulations by 31 December 2013. has already published the energy balance twice – the publication for the previous year takes place The commitments were incorporated into the na- in December4. tional legislation with adoption by the Cabinet of Ministers of the Order No. 833-r, whereas Decem- In the Verkhovna Rada of the previous convoca- ber 1, 2013 was set as the deadline for the acquis tion, the draft law No. 11065 “On energy statistics” in the field of statistics. was registered; however, it was never considered and later withdrawn. Instead, on 20 December, The State Statistics Development Strategy by 2013 a new draft law No. 3805 “On the Unified 2017, approved by the Order of the Cabinet of State System for Monitoring of Production, Sup- Ministers No. 145-r of 20 March, 2013, does not ply, Transportation, Consumption and Payment provide any details regarding the energy statistics for Fuel and Energy Resources and Utility Servic- issues. At the same time, оne of the main docu- es” was registered in the parliament. It proposed ment’s section relates to the legislation harmoni- to establish the principal bases for formation of zation as a whole “with the relevant international the regional, territorial and nation-wide energy Рік в Енергетичному standards and EU legal regulations”1. At the be- balances by all types of energy resources. ginning of 2012, the State Statistics Service for the first time in 20 years has formed the Ukraine’s energy balance for 2010 using the IЕА and Eurostat State Statistics Service, 19.02.2014 – http://ukrstat.org/uk/express/ expr2012/02_12/Energ_03_02.zip 2 STATISTICS methodology . In October, 2012 Ukraine signed 3 Ukraine and IЕА adopted the action plan on the country’s energy balance optimization – Boiko // “RBK-Ukrainа”, 19.10.2012 – http://www. 1 Ordinance of the Cabinet of Ministers of 20 March, 2013 No. 145-r «On rbc.ua/ukr/newsline/show/ukraina-i-mea-rrinyali-rlan-deystviy-ro- Approval of the State Statistics Development Strategy for the period optimizatsii-energobalansa-19102012115100 until 2017» // State Statistics Service, 19.02.2014 – http://www.ukrstat. 4 For more information see: Energy balance of Ukraine // State Statis- gov.ua/telefon/ukr/strateg2012.htm tics Service, 19.02.2014 – http://www.ukrstat.gov.ua/operativ/opera- 2 Express issue of 3.02.2012: Energy balance of Ukraine for 2010 // tiv2012/energ/en_bal/arh_2012.htm

78 PAGE Ukraine and Energy Community: Still Does Not Fit Ukraine and Energy Community: Still Does Not Fit PAGE 79 In the course of the hearings in the relevant com- gy goals, is rather active. On 26 July, 2013, Ukraine Conclusion mittee of the Verkhovna Rada in October 2013, the agreed and approved the Energy Statistics Action director of the Department on Trade Statistics of Plan on the basis of the Memorandum of Un- In spite of the actual absence of any noticeable ad- the State Statistics Service А.Fryzorenko informed derstanding signed with INOGATE7. In 2014, it is vances in legislation and regulatory base, the State that the institution is already guided by the EU planned to hold a special event8, and also a series Statistics Service has approximated considerably to Statistical Requirements Compendium. The an- of regional seminars with the participation of the the implementation of the Directive 2008/92/EC and nual energy statistics provides for the data receipt representatives from the State Statistics Service Regulation 1099/2008. It became possible due to ful- by all types and directions of fuel consumption and the Energy Community Secretariat. filment of the domestic plans and implementation of some steps in the framework of international pro- “Since the beginning of the independent for- As regards the Energy Statistics Action Plan9, cov- jects. At the same time, certain data sets still are not mation of the country’s energy balance in 2012, ering the period from 2012 to 2015, it provides processed in a way provided for by the EU standards. the energy statistics in Ukraine complies in gen- for increasing institutional capacities, develop- eral with the requirements of the Regulation ment of the reporting system based on interna- 1099/2008”, he stated. “The situation is different tional standards (IЕА, Eurostat), calculation of the concerning the Directive 2008/92/ЕС. The State energy balances, development of the reporting Statistics Service of Ukraine does not collect in- system in energy and energy efficiency. Not least formation on natural gas and electricity prices for of all, the Energy Community Secretariat has or- industrial consumers”5. The Energy Community dered a special research10, proposing the annual Acquis Implementation Report in 2013 demon- programme of adaptation of the State Statistics strates the need for the semi-annual reporting on Service practices to the European practices by the gas and electricity prices. In this regard, the State fourth quarter of 2014. The programme includes Statistics Service was advised to set coordination the establishment of the energy prices statistical with the NERC. accounting system, improvement of the data collection system regarding the renewable energy The numerous technical assistance and interna- and the end-use energy consumption. tional cooperation projects being implemented at the State Statistics Service are also aimed at solving those and other problems. The TACIS programme projects are under way; in Novem- ber 2013, the second EU Twinning project in the field of statistics with the total budget of 1.5 mln. EUR has started. The latter is aimed to enhance the institutional capacities of the State Statistics Service for collection, procession and distribution of the statistical products in compliance with the acquis6.

The work of INOGATE programme which coop- 7 Memorandum of Understanding on cooperation in the field of sta- erates with the State Statistics Service since May tistics between the INOGATE Technical Secretariat and the State Statistics Service of Ukraine (26.07.2013) // INOGATE, 19.02.2014 – 2012, in the framework of the “D” component of http://www.inogate.org/media/documents/Ukraine_MoU_ENG%20 the Complex Programme for the support of the and%20UA.pdf 8 The performance of the INOGATE activities in energy statistics in Baku Initiative and the Eastern Partnership ener- the partner countries: component “D”. Presentation // INOGATE, 5 Records of the committee hearings «Situation with implementation 19.02.2014 – http://www.inogate.org/media/documents/Compo- of the Ukraine’s commitments under the Protocol on the Accession of nent%20D%20implemented%20and%20future%20activities_Octo- Ukraine to the Energy Community, ratified by the Law of Ukraine, of 15 ber%208%202013_RUS.pdf December, 2010 No.2787-VI» of 15 October, 2013 // Verkhovna Rada 9 National Energy Statistics Action Plan for Ukraine. Final Report // of Ukraine, 30.10.2013 – http://kompek.rada.gov.ua/kompek/control/ INOGATE, 19.02.2014 – http://www.inogate.org/media/documents/ uk/publish/article?art_id=47328&cat_id=47139 FINAL%20ESAP_UA_ENG.pdf 6 Twinning Project «Support to Development Processes in the State Sta- 10 Energy Institute Hrvoje Požar. Implementation of the energy statis- tistics Service of Ukraine with the Objective to Enhance its Capacity tics acquis. Assessment Report (October 2013) // Energy Commu- and Production « // State Statistics Service, 19.02.2014 – http://www. nity, 19.02.2014 – http://www.energy-community.org/pls/portal/ ukrstat.gov.ua/menu/zmist_tvit_2.htm docs/2484185.PDF

80 PAGE Ukraine and Energy Community: Still Does Not Fit Ukraine and Energy Community: Still Does Not Fit PAGE 81 Memorandum of Understanding on Social Issues in the Context of the Energy Community

• social dialogue. The signatories will promote the realization of the efficient social dialogue in energy, and will maintain it.

• social protection. The signatories will strive to develop the maximum possible levels of consumer social protection, suitable for viable and competitive market, and, if necessary, to apply the guarantees limiting the effects of the social and economic changes for certain social groups in accordance with the commitments taken under the Treaty establishing the Energy Community.

• partners, information and consultation. The signatories acknowledge the necessity to involve social partners at all respective levels by promoting social dialogue on monitoring of the Treaty establishing the Energy Community fulfilment and its effects. It relates, in particular (but not limited to), liberalization of markets, competitiveness and restructuring. Therefore, each signatory party should introduce the efficient mechanisms of social partners informing on these issues and conducting of consultations with them.

• Workers adaptation. The signatories should foster their efforts to improve the workers adaptation, especially of the low-skilled workers and the workers nearing retirement age, support investment into human capital, life-long learning, promote mobility, assist in development of special employ- ment, training and support services.

• priority areas. The fundamental rights of workers referred to in the European Convention for the Protection of Human Rights and Fundamental Freedoms, the European Social Charter, the Commu- nity Charter of Fundamental Social Rights of Workers and the EU Charter of Fundamental Rights; the labour legislation regarding promotion of the working conditions improvement and raising of living standards; occupational safety of the energy sector workers; equal opportunities – emphasiz- ing, where appropriate, at implementation of the principle of equal pay for equal work for men and women;

• Action plans. Each signatory, in consultation with the respective social partners, should discuss the approach of dealing with the issues within social sphere. This approach should take into account the applicable EU social legislation. After consultations the relevant further steps should be stated in a form of the social action plans aimed at solution of the issues mentioned in the previous sections of Memorandum. The social action plans should be prepared in a close cooperation with the social partners.

In the Order of the Cabinet of Ministers “On ap- In the course of the Fifth Energy Community Social proval of action plan on fulfilment of commit- Forum held on 11-12 September, 2012, Ukraine has ments taken under the Treaty establishing the En- informed about the prepared draft of the Social Ac- ergy Community”, there are no any references as tion Plan, which received the comments from trade for the actions on social issues. However, Ukraine unions, and at that moment was under considera- Рік в Енергетичному signed in 2011 the Memorandum of Understand- tion of public bodies, and its adoption was expect- ing on Social Issues in the Context of Energy Com- ed to have place very soon2. The Forum in its turn munity1. It implicates, in particular, such system- urged Ukraine and Moldova to complete the adop- based recommendations as dialogue with all so- tion of documents by the end of 2012. Although SOCIAL ISSUES cial partners and also the development and adop- there was the information on existence of a draft, tion of the Social Action Plan. we did not manage to find it in publicly available sources. Accordingly, we can assume that consulta-

1 Ukraine and Moldova acceded to the Social Memorandum of the En- ergy Community // Ukrinform, 4.10.2011 – http://www.ukrinform.ua/ 2 Conclusions of the 5th Energy Community Social Forum (11-12 Sep- ukr/news/ukrana__moldova_pridnalisya_do_sotsalnogo_memoran- tember 2012, Bečiči) // Energy Community, 19.02.2014 – http://www. dumu_energetichnogo_spvtovaristva_1046261 energy-community.org/pls/portal/docs/1708177.PDF

82 PAGE Ukraine and Energy Community: Still Does Not Fit Ukraine and Energy Community: Still Does Not Fit PAGE 83 18 tions on it do not cover all the possible social part- stabilize the economic situation, including in- lined the need to increase tariffs, the representa- Cabinet of Ministers made the respective decision ners. Besides, it does not foster the social dialogue creasing of tariffs for energy resources6. It was tives of the governmental agencies told about the with regard to institutions and organizations funded 12 regarding the monitoring of “implementation of also mentioned as one of the key IMF demands artificial retaining of tariffs . from the state and local budgets, and also industrial the Treaty establishing the Energy Community to provide the financial assistance to Ukraine. In consumers and other economic entities. Upon mak- and its effects”, as prescribed in Memorandum. a study of the Ukrainian gas pricing policy and The Energy Strategy of Ukraine also refers to the ing such a decision, it was declared the readiness to 19 consequences of tariff raising it is stated that the economically justified prices for energy carriers, purchase more Russian gas at reasonable price . Unfortunately, the conduction of consultations establishment of the below-cost gas and heating refusal from cross-subsidization and introduction Against this background the Head of the National with social partners on draft of the Social Action prices is a weak tool and “costs” to Ukraine about of the mechanisms of target-focused subsidies for Commission on State Regulation of Utility Services Plan was not also included into the National Ac- 5% of GDP annually, at the same time supporting the vulnerable social groups. In opposition to this stated that it was not worth to expect for the reduc- 13 tion Plan for 2013 on implementation of the Pro- those who consume the most, that means the the former President V.Yanukovych and Prime- tion of prices for gas for the population, but it might 14 20 gramme of Economic Reforms for 2010-2014. It is well-to-do households7. The authors of the docu- Minister М.Аzarov argued against the tariffs in- be said about the tariffs stabilization . At the end of not referred directly to as well in the updated En- ment also emphasize that after tariff increase by crease, considering it as the IMF requirement and 2013 the President also set a task to reduce the value 21 ergy Strategy of Ukraine, although the document 20% for households, they will reduce gas con- not a real need. The former Vice Prime Minister of electricity for the consumers , and NERC adopted referred to the Concept on establishment of the sumption by 5% approximately and of the heat О.Vilkul stated that before the start of the heating the respective Resolution on prevention of tariffs in- 22 social support system for the coal sector workers – by 3%, and at the expense of tariff increase the season the Cabinet of Ministers had considered crease . Therefore, a step was made to demolition and population of depressed territories. In the 2013 government will be able to reimburse in full the the issue of gas tariffs increase for population of the policy aimed at saving of natural resources Implementation Report of the Energy Community additional costs for the low-income groups. and district heating providers and decided to re- and gradual approximation of the tariffs for the con- Secretariat Ukraine was classified along with the tain them until the end of the season, “given that sumers to the real prices for energy products. other four countries, as the country that had not The World Bank also recommended Ukraine to the government takes into account not only the approved the social action plan and these coun- increase the tariffs for the population and to de- economic justification but the social component 15 tries are encouraged to “rectify it with priority”3. velop targeted programmes of social assistance8. as well” . At the same time, despite of the state- Conclusion They assess the direct budgetary and extra- ments about the social protection of population, Ukraine did not manage to implement in full the pro- In the report of the Energy Community for 2013 it budgetary subsidies in about 7% of GDP9. In ad- the government of Ukraine had not applied the visions of the Memorandum in social issues, having is also mentioned the necessity of provision by the dition, according to the study of the World Bank, applicable and enshrined in the Memorandum not built up the comprehensive dialogue with the so- contracting parties of a clear definition of “vulner- “the richest part of population receives about mechanism, namely, dialogue building with the cial partners and having not approved the Social Ac- able consumers”, which makes the commitment half of the subsidies granted for gas and heat”, social partners and adoption of the Social Action tion Plan. Even facing the immense need for reforming in accordance with the Third Energy Package and and “the poorest 20% of population receive only Plan, which would build up a clear and effective of tariffs for energy carriers, the government had not will allow allocate the assistance more accurately 13% of subsidies”10. The experts of the German policy of targeted subventions. taken the advantage of the mechanisms enshrined in to those who really need it. In June of 2013 the En- Advisory Group also stressed on necessity to the Memorandum, and had not developed in coop- ergy Community Regulatory Board published the increase tariffs, pointing out at substantial gap After reaching agreement with Russia concerning eration with social partners the measures aimed at research “Treatment of the vulnerable customers with the importation value. Referring to the for- a lower price for natural gas, the government pro- protection of population. Instead the representatives in the Energy Community”, in which it is stated that eign experience, they emphasized that a highly claimed the preserving of stable tariffs for popula- of central power refused to increase the tariffs, refer- 16 Ukraine has no legislative definition of such con- target-focused assistance and energy efficiency tion . Meanwhile, the President spoke in favour of ring to the people’s requests. Besides, the definition of 17 sumers (one of the three countries in the study)4, support can protect the citizens and raise the reduction of gas tariffs for the consumers and the the “vulnerable consumers” is still not defined at the although there exist the definition of consumer cat- acceptance of such a policy11. The Ukrainian ex- legislative level, that is particularly important in the egories for granting benefits, including in energy. perts, representatives of business as well under- context of implementation of the Third Energy Pack- The study also refers to the differentiated tariffs for 12 International Center for Policy Studies. Report on policy-making age and introduction of a clear targeted assistance. seminar: «New tariffs for gas and electricity: what should be the social 6 electricity, principles of subsidies granting, etc. It is IMF still recommends Ukraine to raise the tariffs // BBC Ukraine, 31.10.2013 action plan concerning the vulnerable consumer groups?» (9 Novem- pointed out that many countries (including Ukraine) – http://www.bbc.co.uk/ukrainian/news_in_brief/2013/10/131031_rl_ ber, 2012, Kyiv) // Slideshare, 19.02.2014 – http://pt.slideshare.net/ imf_recommendatons_again.shtml ICPS/ss-report-draftukr 18 The government made a decision to reduce prices for gas for the failed to calculate the percentage of the households 7 population // Governmental Portal, 30.12.2013 – http://www.kmu. Ukraine Gas Pricing Policy: Distributional Consequences of Tariff 13 Ukraine plans to resume negotiations with IMF – President // Offi- 5 gov.ua/control/uk/publish/article?art_id=246953502 which may receive the economic support . Increases. IMF Working Paper (October 2012) // IMF, 19.02.2014 – cial Іnternet Representation of the President of Ukraine, 10.12.2013 http://www.imf.org/external/pubs/ft/wp/2012/wp12247.pdf – http://www.president.gov.ua/news/29718.html 19 Ukraine will buy more Russian gas, if the price is acceptable – 8 President // Official Іnternet Representation of the President of World Bank urges Ukraine to increase the gas tariffs // Ekonomichna 14 The Ukrainian government makes best efforts not to increase the The International Monetary Fund recommend- Ukraine,19.12.2013 – http://www.president.gov.ua/news/29793.html Pravda [Truly about Economy], 7.10.2013 – http://www.epravda. utility tariffs // Presa Ukrainy [Ukrainian Press], 21.11.2013 – http:// ed Ukraine to take a range of steps in order to com.ua/news/2013/10/7/397657/ uapress.info/uk/news/show/11112 20 The National Commission on State Regulation of Utility Services 9 explained the gas disfavour to population // Ukrainska Energetyka The issue that requires special attention: tariffs for gas and services 15 The Cabinet of Ministers froze the prices // Kommersant-Ukraina 3 2013 Annual Implementation Report on the of the Acquis under the of the centralized heat supply for the population of Ukraine // World No. 164 (1867), 14.10.2013 – http://www.kommersant.ua/doc/2319425 [Ukrainian Energy], 7.02.2014 – http://ua-energy.org/post/41218 Treaty Establishing the Energy Community (1 September 2013) // En- Bank, 7.10.2013 – http://www.worldbank.org/content/dam/World- 16 21 ergy Community, 19.02.2014 – http://www.energy-community.org/ bank/document/Ukraine-Oct2013-Focus-ua.pdf The tariffs for the population will remain stable, - Prime Minister // The President sets a task to the Government to make the electric- Governmental Portal, 25.12.2013 – http://www.kmu.gov.ua/control/ ity for the consumers cheaper // Official Іnternet Representation of pls/portal/docs/2304177.PDF, p. 216 10 Ibidem. uk/publish/article?art_id=246941109 the President of Ukraine, 20.12.2013 – http://www.president.gov.ua/ 4 Energy Community Regulatory Board. Treatment of the vulnerable 11 How to increase the tariffs for energy carriers in Ukraine? Inter- 17 news/29825.html customers in the Energy Community (June 2013) // Energy Com- The head of state supports the soonest possible reduction of price national experience of energy market reforming in the context for gas for the consumers // Official Іnternet Representation of the 22 The document preventing from increase of the electricity tariffs for munity, 19.02.2014 – http://www.energy-community.org/pls/portal/ of the social protection // German Advisory Group, November docs/2124179.PDF, p. 5 President of Ukraine,26.12.2013 – http://www.president.gov.ua/ end users came into force // Governmental Portal, 4.02.2014 – http:// 2012 – http://www.ier.com.ua/files/publications/Policy_Briefing_ news/29860.html www.kmu.gov.ua/control/uk/publish/article?art_id=247020729 5 Ibidem, p. 14 Series/2012/0000017294-rB_08_2012_ukr.pdf

84 PAGE Ukraine and Energy Community: Still Does Not Fit Ukraine and Energy Community: Still Does Not Fit PAGE 85 REFERENCES TO LAWS AND REGULATIONS

Energy Community • Resolution No. 107 of February 16, 2011, «On • Order No. 588-r of July 30, 2012, «On approval Verkhovna Rada of Ukraine approval of the Technical Regulation with regard • 2013 Annual Report on the Implementation of the of the action plan for regulatory support of the to energy labelling of household refrigerators, • Law of Ukraine No. 2894-III of December 13, 2001, Acquis under the Treaty Establishing the Energy implementation of energy efficient policy of heat freezers and their combinations (with reference to “On Fauna” Community, 9.10.2013 consumption and modernization of heat supply the Directive 94/2/ЕС), sector” • Law of Ukraine No. 3164-IV of December 1, • Memorandum of Understanding on Social • Resolution No. 108 of February 16, 2011, «On 2005, «On Standards, Technical Regulations and Issues in the context of the Energy Community, • Order No. 818-r of October 24, 2012, «On approval of Technical Regulation with regard to Procedures for the Evaluation of Compliance” 18.10.2007 approval of the status of wetlands of international energy labelling of household washing machines importance» • Law of Ukraine No. 2467 – VI of July 8, 2010 «On the • 11th Energy Community Ministerial Council. (based on the Delegated Regulation 1061/2010).» Principles of the Natural Gas Market Operation» Meeting Conclusions (Belgrade, 24th October • Order No. 73-r of February 13, 2013, «On approval • Resolution No. 235 of April 8, 2013, «On 2013) of First Priority Measures for European Integration • Law of Ukraine No. 2818 – VI of December 21, amendments to certain Resolutions of the Cabinet of Ukraine for 2013» 2010, “On the Main Principles (Strategy) of the • Energy Institute Hrvoje Požar. Implementation of of Ministers of Ukraine» National Environmental Policy of Ukraine for the • Order No. 145-r of March 20, 2013, «On approval the energy statistics acquis. Assessment Report Period until the Year 2020” • Resolution No. 510 of July 24, 2013, «On amending of the State Statistics Strategy for the Period until • Energy Institute Hrvoje Požar, ILF. Study on the clause 1 of the resolution of the Cabinet of 2017» • Law of Ukraine No. 3038-VI of February 17, 2011 Implementation of the Regulation (EU)994/2010 Ministers of Ukraine No. 705 of July 25, 2012» «On Regulation of Urban Construction Activity» concerning measures to safeguard security of gas • Order No. 157-r of March 25, 2013, «On approval • Resolution No. 541 of July 24, 2013, «On approval supply in the Energy Community of Action Plan on implementation of the Nation- • Law of Ukraine No. 4220-VI of January 5, 2013, of the rates for calculating the amount of damage Wide Programme on Adaptation of the Ukrainian “On Amendment of some legal acts of Ukraine incurred through the breaches of the laws on Legislation to the European Union Legislation in regarding the strengthening of responsibility and President of Ukraine natural reserves» 2013» improvement of state regulation in the area of urban construction activity” • Decree No. 462/2011 of April 13, 2011, «On the • Resolution No. 687 of July 24, 2013, «On • Order No. 189-r of April 1, 2013, «On amendment State Agency on Energy Efficiency and Energy amendments to the resolutions of the Cabinet of of the National Action Plan of Environmental • Law of Ukraine No. 606-VII of September 19, 2013, Saving of Ukraine” Ministers of Ukraine No. 243 of March 1, 2010 and Protection for 2011-2015» «On amendments to section V «Final Provisions” No. 1056 of October 17, 2011” of the Law of Ukraine On Regulation of Urban • Order No. 429-r of June 19, 2013, «On approval • Decree No. 134/2012 of February 22, 2012, «On Construction Activity” regarding the lifting of the • Resolution No. 771 of July 24, 2013, «On approval of the action plan on the implementation of amendment of some decrees of the President of ban on land allotment» Ukraine” of the procedure for issuance, use and termination Directive 2001/77/ЕС and Directive 2003/30/ЕС» of the guarantee of electricity origin for business • Law of Ukraine No. 663-VII of October 24, 2013, • Order No. 603-r of July 17, 2013, «On approval • Decree No. 187/2012 of March 12, 2012, «On the entities producing electricity from alternative «On the principles of the electricity market of the Concept of Nationwide Special-Purpose National Action Plan for 2012 to implement the energy sources» functioning in Ukraine» program of economic reforms in 2010 - 2014 Economic Program of Industry Development for «Prosperous society, competitive economy, and • Resolution No. 702 of August 7, 2013, «On Approval the period until 2020» • Resolution No. 567-VII of September 17, 2013, of technical regulations on energy marking” “On taking as a basis the draft Law of Ukraine effective state» • Order No. 1071-r of July 24, 2013, «On approval of on amendment of some laws of Ukraine • Resolution No. 808 of August 28, 2013, «On the Energy Strategy of Ukraine for the period till • Decree No. 128/2013 of March 12, 2013, «On the regarding the implementation of the provisions National Action Plan for 2013 to implement the approval of the list of activities and objects, which 2030» pose increased environmental danger» of the Convention on the environmental impact program of economic reforms in 2010 - 2014 • Order No. 794-r of September 26, 2013, “On assessment in cross-border context” «Prosperous society, competitive economy, and • Resolution No. 948 of October 17, 2013, «On approval of the working draft “Modernization and • Draft Law of Ukraine «On Energy Statistics”, effective state» approval of the Programme for heating systems repair of Urengoy-romary-Uzhhorod main gas line registration No. 11065 of August 6, 2012 • Decree No. 699/2013 of December 20, 2013, modernization for 2014-2015» on the 3616.8-3626.62 km section» • Draft Law of Ukraine «On energy efficiency in «On amendment of the Regulation on the State • Resolution No. 951 of December 30, 2013, «On • Order No. 870-r of October 2, 2013, «On residential and public buildings «, registration No. Agency on Energy Efficiency and Energy Saving of Reducing the Prices for Natural Gas « amendment of the National Action Plan of Ukraine” 0856 of December 12, 2012 • Order No. 577-r of May 25, 2011, «On approval Environmental Protection for 2011-2015» • Draft Law of Ukraine “On amendment of the Law of the National action plan on environmental • Order No. 833-r of October 23, 2013, «On of Ukraine “On licensing some types of business protection for 2011-2015” amendment of the Action Plan on Implementation Cabinet of Ministers of Ukraine activities”, registration No. 0932 of December 12, of the Commitments under the Treaty establishing • Resolution No. 288 of March 13, 2002, “On approval • Order No. 733-r of August 3, 2011, « On approval of 2012 the Action Plan on fulfilment of the commitments the Energy Community» of lists of central executive bodies in charge for the • Draft Law of Ukraine «On amendment of some taken in the framework of the Treaty establishing • Draft Order «On approval of the draft Concept of technical regulation in respective areas and for laws of Ukraine regarding obligatory commercial the Energy Community « Special-Purpose State Program for Limitation of development of Technical Regulations” accounting and improvement of relations in the Emission of Certain Pollutants into Air from • Order No. 156-r of March 28, 2012, «On approval the area of housing and public utility services”, • Resolution No. 1144 of December 27, 2008, “On the Large Combustion Plants of Electricity Sector of the action plan for the implementation of registration No. 2052 of January 21, 2013 approval of the Technical Regulation with regard (thermal power plants, combined heat and power to energy labelling of household refrigerators, the nationwide program of adaptation of the Ukrainian law to the European Union law in 2012» plants) of Ukraine» • Draft Law of Ukraine “Draft Law on alternative freezers and their combinations ” types of fuel (on the marking of biofuel and • Draft Order “On approval of the action plan • Order No. 184-r of April 5, 2012, “On approval of composite petrol), registration number No. 2273 • Resolution No. 5 of January 6, 2010, «On approval regarding the implementation of some directives the plan of first priority actions regarding the of February 11, 2013 of the Technical Regulation of the energy labeling of the European Union in the energy efficiency of household electrical equipment» integration of Ukraine into the European Union for 2012” area” • Draft Law of Ukraine “On amendment of some • Resolution No. 243 of March 1, 2010, On approval legal acts of Ukraine regarding the protection of of the State Target Economic Programme for Energy • Order No. 525-r of August 1, 2012, «On approval the fauna and flora”, registration No. 2503 of March Efficiency and Development of Energy Carrier of the action plan for the reduction of sulphur 7, 2013 Production from Renewable Sources of Energy and content in some types of liquid fuel according to the requirements of Directive 1999/32/EC» • Draft Law of Ukraine «On amendment of some laws Alternative Types of Fuel for 2010-2015» of Ukraine regarding the implementation of the

86 PAGE Ukraine and Energy Community: Still Does Not Fit Ukraine and Energy Community: Still Does Not Fit PAGE 87 provisions of the Concept on the environmental • Draft Resolution “On taking as a basis the Draft NERC • Resolution No. 884 of July 8, 2013, «On approval impact assessment in cross-border context”, Law of Ukraine On efficient use of fuel and energy of methodological recommendations concerning • Resolution No. 32 of January 17, 2013, «On registration No. 2109а of May 23, 2013 resources” No. 3071/P of October 25, 2013 preparation of the action plan on ensuring of approval of the Rules for connection of electricity- separation and independency of activities on • Draft Law of Ukraine « on the Procedure of Natural • Recommendations of the Committee hearings (the generating plants to electric networks» electricity transmission by the local electric Gas Supply to Residents of Ukraine», registration Verkhovna Rada Committee for Fuel and Energy • Resolution No. 75 of January 31, 2013, «On networks and on electricity supply at regulated No. 2437 of March 1, 2013 Complex, Nuclear Policy and Nuclear Safety) on amendment of NERC resolution of April 19, 2012 tariff» the topic: «The status of the implementation of • Draft Law of Ukraine «On amendment of clause No. 420» Ukraine’s obligations taken under the Protocol • Resolution No. 898 of July 11, 2013, «On approval 9, section ІІ «Final Provisions” of the Law of on Ukraine’s accession to the Energy Community, • Resolution No. 76 of January 31, 2013, «On approval of the Procedure for determining the necessary Ukraine “On amendment of some legal acts of ratified by the Law of Ukraine No. 2787-VI of of the Standard agreement on connection to gas income from the activities related to supply of Ukraine (regarding the export of energy sources December 15, 2010 networks” electricity at regulated tariffs in case of the use of to the Energy Community member countries)”, incentive based regulation” registration No. 2471а of July 2, 2013 • Resolution No. 77 of January 31, 2013, “On approval of the Procedure for calculation of payments • Resolution No. 899 of July 11, 2013, «On approval • Draft Law of Ukraine “ On peculiarities of the Ministry of Energy and Coal Industry for connection of the customers’ facilities to gas of the Procedure for determining the regulatory energy services procurement», registration No. • Order No. 690 of September 7, 2012, «On the stock- networks” basis for the assets of the subjects of natural 2548а of July 5, 2013 taking of non-core assets of the NJSC Naftogaz of • Resolution No. 87 of January 31, 2014, “On approval monopolies in the electricity sector” • Draft Law of Ukraine « Draft law on amendments Ukraine” of the amendments to the Standard agreement • Resolution No. 900 of July 11, 2013, “On approval of to certain legislative acts of Ukraine regarding • Order No. 920 of November 26, 2012, «On approval on natural gas purchase and sale (between the the Procedure for the calculation of retail rates for legal foundations for fulfilment of energy service of the Procedure to Develop and Agree Upon the owners and suppliers of natural gas)» electricity; rates for the electricity transmission by agreements ”, registration No. 2550а of July 5, 2013 Annual Natural Gas Delivery and Distribution • Resolution No. 115 of February 12, 2013, local electricity networks; rates for the electricity • Draft Law of Ukraine “On amendment of some Balance Forecast for Ukraine, the Planned «Methodology for calculation of payment for supply at regulated tariff in case of the use of legal acts of Ukraine for the purpose of reforming (Calculated) Natural Gas Delivery and Distribution connection of electricity-generating plants to incentive based regulation” the National Joint Stock Company “Naftogaz of Balance As Well As to Form and Approve Planned electric networks « • Resolution No. 979 of July 18, 2013, «On Ukraine”, registration No. 2937 of April 26, 2013 Distribution of Natural Gas Supply Distribution amendment of the License Terms of Business Among Consumers» • Resolution No. 226 of March 7, 2013, “On approval • Draft Law of Ukraine “ On efficient use of fuel of the Standard agreement on the operational activities related to the supply of natural gas, gas and energy resources «, registration No. 3071 of • Order No. 205 of April 23, 2013, «On organization control of the components of the United Gas (methane) of coal deposits at regulated rate” August 12, 2013 of the implementation of the National Action Transportation System of Ukraine (between • Resolution No. 980 «On amendment of the terms Plan for 2013 at the Ministry of Energy and Coal • Draft Law of Ukraine «On voiding the Law of owners and gas transportation or gas distribution and rules of entrepreneurship activities related to Industry of Ukraine” Ukraine “On amendment of some laws of Ukraine enterprises)” the supply of electricity at regulated rate” regarding the manufacture and use of motor fuels • Order No. 277 of May 16, 2013, «On Results of • Resolution No. 227 of March 7, 2013, “On approval • Resolution No. 1009 of July 23, 2013, «On setting containing bio components», registration No. Ministry of Energy and Coal Industry Board of 25 of the Standard agreement on the use of the long-term parameters of regulation for the 3145 of August 30, 2013 April 2013» components of the United Gas Transportation purposes of incentive-based regulation” • Draft Law of Ukraine “On amendment of the Law of • Order No. 368 of June 13, 2013, “On Establishing System of Ukraine (between owners and gas • Resolution No. 1029 of July 26, 2013, «On the Ukraine «On alternative types of fuel» (regarding the Task Force on Restructuring of the NJSC transmission or gas distribution enterprises)” use of incentive-based regulation in the area of the clarification of the deadlines for adding Naftogaz of Ukraine» • Resolution No. 228 of March 7, 2013, “On approval electricity transmission by local electric networks” bioethanol to motor petrol on a recommended • Order No. 682 of September 20, 2013, «On of the Standard agreement on the operation of and compulsory basis)”, registration No. 3146 of • Resolution No. 1030 of July 26, 2013, «On approval of the methodology for determining the components of the United Gas Transportation August 30, 2013 approval of the Procedure for setting rates for the free transmission capacity of the United Gas System of Ukraine (between owners and gas electricity supply licensees at regulated rate and/ • Draft Law of Ukraine «On amendment of the Transportation System of Ukraine” transmission or gas distribution enterprises)” or transmission of electricity by local electric Law of Ukraine On Alternative Types of Fuel • Order No. 882 of December 2, 2013, «On assigning • Resolution No. 251 of March 14, 2013, « On the networks in case of the use of incentive-based (on clarification of business entities to whom the functions of an operator of the United Gas amendment of the Procedure of setting, review regulation” the requirement as to the compulsory adding Transportation System of Ukraine” and termination of “green tariff” for business of bioethanol to motor petrol is applicable)”, • Resolution No. 1031 of July 26, 2013, «On entities» registration No. 3230 of September 11, 2013 • Order No. 936 of December 12, 2013, «On taking approval of the Procedure for the distribution of actions for strengthening financial discipline at • Resolution No. 369 of April 3, 2013, «On approval assets, expenses and revenues between types of • Draft Law of Ukraine «On commercial accounting the NJSC Naftogaz of Ukraine” of the Procedure for setting and review of tariffs licensees’ activities related to electricity supply at of thermal energy, water and sewerage in the area for the services related to the transportation, regulated rate and/or electricity supply by local of public utility services”, registration No. 3670 of • Order No. 998 of December 24, 2013, «On distribution, supply of natural gas, as well as electric networks” November 21, 2013 reorganization of the Subsidiary Company injection, storing and drawing of natural gas» “Budivelnyk” of the NJSC Naftogaz of Ukraine” • Resolution No. 1032 of July 26, 2013, «On approval • Draft Law of Ukraine «On amendment of some • Resolution No. 642 of May 30, 2013, «On increase of the Procedure for determining the necessary legal acts of Ukraine regarding the delimitation • Order No. 999 of December 24, 2013, «On of service standards for electricity consumers « income from electricity transmission activities of property right to pipeline transport objects”, liquidation of the Subsidiary Company of local electric networks in case of the use of registration No. 3715 of December 2, 2013 “Naftogazbezpeka” of the NJSC Naftogaz of • Resolution No. 709 of June 20, 2013, «On Ukraine” improvement of the quality of services provided incentive-based regulation” • Draft Law of Ukraine “On amendment of some laws to natural gas consumers” • Resolution No. 1105 of August 15, 2013, “On of Ukraine regarding re-gasification”, registration • Draft law of Ukraine “On amendments to article 2 amendments to the License Terms of business No. 3755 of December 13, 2013 of the Law of Ukraine “On Alternative Fuels” • Resolution No. 771 of June 27, 2013, «On approval of the Procedure for determining the amount of activities related to the supply of natural gas, gas • Draft Law of Ukraine “ On Unified State System for local component for the objects of electricity sector, (methane) of coal deposits at regulated rate” monitoring of production, supply, transportation, including the commissioned сonstruction stages of • Resolution No. 1110 of August 15, 2013, consumption and payment for fuel and energy electricity stations (startup complexes) generating «Regulation on the procedure of submission, resources and utility services, registration No. electricity from alternative energy sources (except determination and approval of the economic rates 3805 of December 20, 2013 for blast furnace gas and coke gas)» of regulatory technological electricity spending”

88 PAGE Ukraine and Energy Community: Still Does Not Fit Ukraine and Energy Community: Still Does Not Fit PAGE 89 • Resolution No. 1410 of November 7, 2013, « • Draft resolution “On amendments to the License On approval of Amendments to the Procedure Terms for business activities related to the for Auctioning to Get Access to Transmission transmission of natural, oil gas and gas (methane) Capacities of the Interstate Electric Networks of of coal deposits via pipelines» Ukraine for Electricity Export « • Draft resolution “On amendments to the • Resolution No. 1431 of November 14, 2013, “On License Terms for business activities related to approval of the Changes to the Procedure for the distribution of natural gas, oil gas and gas calculation of fees for connection of customers’ (methane) of coal deposits” objects to gas networks” • Draft resolution “On amendments to the License • Resolution No. 1467 of November 21, 2013, «On Terms for business activities related to the storing approval of the Procedure for financing services of natural gas, oil gas and gas (methane) of coal related to connection of electricity-generation deposits” plants to electric networks was approved» • Draft resolution “On approval of the Changes to • Resolution No. 1499 of November 28, 2013 «On the Procedure of Control over compliance with approval of the Procedure for setting the rates for license terms of business activities in the natural natural gas transmission by distribution pipelines gas market” on the basis of long-standing incentive-based • Draft resolution «On approval of the Procedure for regulation” compensation of losses caused to the gas supply • Resolution No. 1500 of November 28, “On approval or gas distribution enterprise as a consequence of of the Procedure for determining regulatory basis the consumers’ breach of the Rules of gas supply of the assets of entities, which carry out natural services provisions to the consumers” gas distribution” • Draft resolution «On approval of the Procedure • Resolution No. 1722 of December 26, 2013, “On for compensation of losses caused to natural gas approval of changes to the Procedure of access consumer as a consequence of the breach by a gas and connection to the United Gas Transportation supply or gas distribution company of the Rules of System of Ukraine” gas supply services provisions to the consumers» • Resolution No. 1910 of December 31, 2013 «On • Letter No. 591/15/47-14 of January 29, 2014 approval of changes to the Procedure for natural «Information on NERC regulatory activities in 2013” gas pricing for business entities, which produce gas” Ministry of Environment and Natural Resources • Resolution No. 7 of January 10, 2014, “On setting regulatory rate of income for the regulatory base • Order No. 541 of October 22, 2008, “On Adoption of assets created as of the date of shifting to of New Technological Standards for Permissible incentive-based regulation” Emissions of Pollutants from Thermal Power Plants, with the Nominal Thermal Capacity over 50 MW” • Resolution No. 47 of January 23, 2014 “On amendments to the Procedure for distribution • Order No. 659 of December 17, 2012, «On approval of funds received to the current accounts of of the Base plan of adaptation of Ukrainian guaranteed natural gas suppliers with special environmental law to the EU law (Baseline conditions of use” approximation plan)» • Draft Resolution “On approval of the Methodology for calculation of the rates for natural gas Miscellaneous transmission via main pipelines” • European Commission MEMO/13/400. EU-Ukraine • Draft Resolution “On approval of the Methodology Conclusions on the Roundtable Gas Market for calculation of the rates for natural gas Developments in Ukraine transmission via distribution pipelines” • 8th Joint Ukraine-EU Report on the Implementation • Draft Resolution “On approval of the Methodology of the Memorandum of Understanding between for calculation of the rates for natural gas supply at Ukraine and EU on Cooperation in the Energy regulated rate” Sector in 2013 • Draft Resolution “On approval of the Procedure • Order of the State Property Fund of Ukraine No. of financing services related to connection of 1955 of August 28, 2013 «On approval of changes customers’ objects to gas networks” to the Methodology for evaluation of the assets • Draft Resolution “On approval of the Procedure for of natural monopolies’ subjects, business entities the formation of the investment programs of gas in the related markets in the area of combined supply, gas distribution, gas transmission and gas electric and thermal energy production” storage enterprises” • Memorandum of understanding regarding • Draft Resolution «On amendments to the License cooperation in the area of statistics between Terms for business activities related to the the Technical Secretariat INOGATE and the State distribution of natural, oil gas and gas (methane) Statistics Services of Ukraine of coal deposits” • Conclusive report «Action Plan in Energ

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