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USAID Municipal Energy Reform Project in Ukraine VR Verkhovna Rada of Ukraine 142 g USAID MUNICIPAL ENERGY REFORM PROJECT IN UKRAINE ANALYTICAL REPORT ON THE ROLES AND FUNCTIONS OF KEY PLAYERS OBSTRUCTING LONG-TERM DEVELOPMENT PLANNING OF DISTRICT HEATING SYSTEMS, INCLUDING NETWORKS, IN UKRAINE November 2018 This document is produced for review by the United States Agency for International Development (USAID). Prepared by the USAID Municipal Energy Reform in Ukraine Project. USAID MUNICIPAL ENERGY REPORT PROJECT IN UKRAINE ANALYTICAL REPORT ON THE ROLES AND FUNCTIONS OF KEY PLAYERS OBSTRUCTING LONG-TERM DEVELOPMENT PLANNING OF DISTRICT HEATING SYSTEMS, INCLUDING NETWORKS, IN UKRAINE This document has been prepared with support of the United States Agency for International Development (USAID). Opinions and views of the authors presented in this publication do not necessarily coincide with the views of USAID or the US Government. This document was prepared by: Author Organization Contact Details Dmytro Levytskyi Municipal Development Institute [email protected] Aliona Nych Municipal Development Institute [email protected] Olha Romanyuk Municipal Development Institute [email protected] Olha Stognushenko Municipal Development Institute [email protected] Nadiia Sylchenko Municipal Development Institute [email protected] Reviewer Organization Contact Details Dmytro Yemelyanenko RTI International [email protected] Diana Korsakaite RTI International [email protected] CONTENTS LIST OF FIGURES ····················································································· V LIST OF TABLES ······················································································ V LIST OF ABBREVIATIONS ·········································································· VI EXECUTIVE SUMMARY ·············································································· 1 INTRODUCTION ························································································ 3 ANALYSIS OF INSTITUTIONAL ROLES AND FUNCTIONS OF KEY PLAYERS IN LONG-TERM HEAT NETWORK DEVELOPMENT PLANNING ····························· 8 1. OVERVIEW OF KEY PLAYERS in the HEATING SECTOR ................. 8 2. MANDATE RELATED TO REGULATORY AND LEGAL FUNCTIONS 11 2.1 The Level of National Legislation ............................................. 11 2.2 The Level of By-laws ............................................................... 11 3. MANDATE RELATED TO DEVELOPMENT, CONFIRMATION, COORDINATION, APPROVAL, AND IMPLEMENTATION OF IPs ..... 13 4. MANDATE OVER TARIFF FORMATION AND SETTING ................... 18 5. MANDATE ON LICENSING OF ECONOMIC ACTIVITY IN THE HEATing SECTOR .............................................................................. 30 6. MANDATE FOR STATE SUPERVISION/CONTROL .......................... 34 7. MANDATE RELATED TO DEVELOPMENT AND APPROVAL OF HEAT SUPPLY SCHEMES ................................................................. 38 8. MANDATE REGARDING CONNECTION TO/DISCONNECTION FROM HEAT NETWORKS ............................................................................. 39 CONCLUSIONS ······················································································· 42 ANNEXES ······························································································· 45 ANNEX 1. CATALOG OF MANDATES REGARDING LONG-TERM HEAT NETWORK DEVELOPMENT PLANNING AND NETWORK INVESTMENT PLANNING .................................................................. 46 ANNEX 2. DISTRIBUTION OF mandateS REGARDING STATE REGULATION OF ACTIVITIES OF HEAT ENERGY GENERATION, TRANSMISSION, AND SUPPLY ..................................................................................... 49 ANNEX 3. REGULATORY AND LEGAL FRAMEWORK FOR REGULATION OF ACTIVITIES OF ECONOMIC ENTITIES IN HEAT SUPPLY SECTOR (BY NEURC AND OSA LICENSEES).................................. 50 ANNEX 4. MANDATE OF KEY PLAYERS WITH RESPECTIVE REFERENCES TO REGULATORY AND LEGAL FRAMEWORK ................................ 53 Table 4.1. Mandate Regarding Formation and Implementation of Investment Programs .......................................................................... 53 Table 4.2. Mandate Related to Tariff Formation and Setting ............... 58 Table 4.3. Mandate Related to Licensing of Economic Activity in Heat Supply Sector ..................................................................................... 66 ROLES OF KEY PLAYERS OBSTRUCTING LONG-TERM PLANNING FOR DH SYSTEMS III Table 4.4. Mandate Related to Exercise of State Supervision/Control . 68 Table 4.5. Mandate Regarding Approval of Heat Supply Schemes ..... 70 Table 4.6. Mandate Regarding Connection to/Disconnection from Heat Networks ............................................................................................. 71 ROLES OF KEY PLAYERS OBSTRUCTING LONG-TERM PLANNING FOR DH SYSTEMS IV LIST OF FIGURES Figure 1. Distribution of mandate of state administration and state regulation in the heat supply sector ······································································ 9 Figure 2. Summary of main decision-makers regarding long-term heat network development planning and network investment planning ························· 10 Figure 3. Schematic diagram of mandates of the key players in preparation and implementation of IPs and monitoring of IP implementation ····················· 14 Figure 4. Distribution of mandate between government bodies with regard to economic activity licensing in heating sector (per NEURC Resolution #308 of March 22, 2017) ·································································· 33 LIST OF TABLES Table 1. Summary List of By-laws Developed to Satisfy the Requirement of Art. 261 of the Law of Ukraine On Heat Supply ··········································· 16 Table 2. Classification of Tariffs Based on Activity Type in the Heat Supply Sector ························································································· 19 Table 3. Mandate to Develop and Approve Tariff Formation Procedures in the Heating Sector ·············································································· 21 Table 4. Tariff Setting Mandate in the Heat Supply Sector ·································· 27 Table 5. Distribution of Mandate Between NEURC and OSA/KCSA in Licensing Economic Activity in the Heat Supply Sector ········································ 32 Table 6. Examples of Punitive Sanctions to Be Imposed on Economic Entities for Law Violations ··············································································· 36 ROLES OF KEY PLAYERS OBSTRUCTING LONG-TERM PLANNING FOR DH SYSTEMS V LIST OF ABBREVIATIONS AMC Antimonopoly Committee of Ukraine ARES Alternative and renewable energy sources CGU Cogeneration unit CHP Combined heat and power plant CHWS Centralized hot water supply COM Cabinet of Ministers of Ukraine DH District heating DRS State Regulatory Service of Ukraine FER Fuel and energy resources FSCP State Service of Ukraine for Food Safety and Consumer Protection Gcal Gigacalories Heat energy transmission Transportation of heat energy by main and local/distribution according to principles of heat networks according to principles of incentive-based incentive-based regulation regulation IFI International financial institution IP Investment program KCSA Kyiv City State Administration LG Local government LTs License Terms MinEnergy Ministry of Energy of Ukraine MinRegion Ministry of Regional Development, Construction, and Housing and Communal Services of Ukraine NCSRC National Communal Services Regulatory Commission NEURC licensees Economic entities subject to state regulation by the National Energy and Communal Services Regulatory Commission NEURC National Energy and Communal Services Regulatory Commission NPP Nuclear power plant OSA Oblast state administrations OSA/KCSA licensees Economic entities licensed by Oblast State Administrations and the Kyiv City State Administration SAEE State Agency for Energy Efficiency and Energy Saving of Ukraine SESI State Energy Supervisory Inspectorate of Ukraine SNRI State Nuclear Regulatory Inspectorate of Ukraine SRS State Regulatory Service of Ukraine ROLES OF KEY PLAYERS OBSTRUCTING LONG-TERM PLANNING FOR DH SYSTEMS VI TPP Thermal power plant USAID Project USAID Municipal Energy Reform Project in Ukraine VR Verkhovna Rada of Ukraine ROLES OF KEY PLAYERS OBSTRUCTING LONG-TERM PLANNING FOR DH SYSTEMS VII EXECUTIVE SUMMARY The Analytical Report on the Roles and Functions of Key Players Obstructing Long-Term Development Planning of District Heating Systems, Including Networks, in Ukraine (the Report) evaluates the legally mandated functions and responsibilities of key players in district heating (DH) under current Ukrainian law. The objective of the Report is to identify existing deficiencies in the legal mandates of central government authorities and local government authorities, as well as economic entities, that impede sustainable long-term infrastructure planning activities in the DH sector. The Report presents systematic analysis of the effective legal framework—the roles/functions and rights and responsibilities that are directly or indirectly mandated to key players in the area of network planning. The Report is accompanied by the Catalog of Mandates, which comprises a systematized code that contains cross references to legal acts and regulations applicable to the DH sector as a whole and heat energy transportation in particular. Comparative legal analysis was used to determine how the mandates of the key players impede a sustainable
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