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In March the Ministry of Energy and Coal Industry and the National Energy Regulation Commission (NERC) addressed the market players urging "to take the immediate steps that would make any corrupt practices in procurements in energy sector impossible, to refuse from unnecessary and unreasonable costs, to cease the purchase of tangible assets at overcharge prices, to remove the intermediate agents from the procurement chain and to introduce the direct purchases from manufactures". Yet earlier the Ministry of Energy and Coal Industry issued the Order dated 11.03.2014 No. 237 "On immediate steps for stabilization of the sector financial standing and prevention of corrupt practices", in which the specific instructions were given. The new government’s action programme and its intents to implement the key reforms have received the support of the Energy Community. In general, certain changes took place in almost all the sectors related directly or indirectly to the implementation by Ukraine of its commitments taken in the framework of the Energy Community . In gas industry: The Verkhovna Rada (parliament) of Ukraine has considered a whole range of draft laws on amendments to the Article 197 of the Tax Code of Ukraine concerning the value-added tax exemption of the natural gas import. It should be noted that this issue influences the gas market much more than the regulatory decisions, as it allows to adjust the final gas tariffs downwards/upwards by 20%. The draft law No. 3853 dated 08.01.2014 by S.Katsuba ("the Sovereign European Ukraine" group) was excluded from consideration, instead on January 16 the Cabinet of Ministers’ draft law No. 3853-1 dated 14.01.2014 was admitted.


In another alternative draft legislation No. 3853-2 dated 15.01.2014, originated by О.Myrnyi and І.Miroshnychenko (both from the All-Ukrainian Union "Svoboda" faction), it was proposed to exempt from VAT only the import transactions performed by the NJSC "Naftogaz Ukrainy" as the authorized entity on provisioning of the natural gas resources for the Ukrainian population and consumers. At the same time MP P.Petrenko (All-Ukrainian Union "Batkivschyna" faction) has registered his draft law No. 4025 dated 27.01.2014, in which he proposed to repeal the amendments earlier adopted by the Verkhovna Rada. In a similar draft legislation No. 4397 dated 11.03.2014 А.Senchenko and L.Кoteliak (both from the All-Ukrainian Union "Batkivschyna" faction) proposed to exclude the respective legislative provisions. Contrary to this, the mentioned above S.Каtsuba brought in the draft law No. 4039 dated 28.01.2014, which was supported by the Verkhovna Rada and repeated again the provision on VAT exemption for gas import. His another draft legislation No. 4397-1 dated 17.03.2014 is also under consideration now, which reiterates the proposals of the "Svoboda" faction PMs on application of that VAT exemption for "Naftogaz" only. Among others the Parliament has also considered the governmental draft legislation No. 4042 dated 28.01.2014, which introduced the amendments into the Land Code of Ukraine regarding simplification of the land plot granting for development, construction, exploitation and servicing of oil-and-gas wells and supporting facilities (pipelines, installations, access roads, power and communication lines). In particular, it was proposed to carry out the mentioned works under the agreement with the land owner, holder or by consent with the land user, without changing the designated purpose of land plot use. However, in February the document has been already withdrawn. The legislators have also dealt much attention to the problem of the NJSC "Naftogaz Ukrainy" financial deficit, which according to the company management, will amount to UAH 80 bn. In the parliament the draft law of the same S.Katsuba No. 4075 dated 03.02.2014 was also registered, which proposed to allocate UAH 24.73 bn from the State Budget of Ukraine in 2014 to reimburse for "Naftogaz" the difference between the purchase price of the imported gas and its selling price for the economic entities aiming to produce thermal energy, including for the past periods. The document has not been considered yet. Meanwhile, at the end of March the Verkhovna Rada supported the draft law No. 4575 dated 27.03.2014 on large-scale reallocation of the State Budget funds for 2014, which was presented by the government in the framework of the "anti-recessionary package". The document increases more than threefold the threshhold amounts of the state bonds issued for acquiring into state property in exchange for the additionally issued "Naftogaz" shares, – from UAH 11.1 bn to 33.337 bn. In this connection it is important to emphasize that a new company management is ready to implement reforms aimed at financial rehabilitation. In terms of strategy the new government still does not have any straightforward approach: the Prime Minister А.Yatseniuk has announced the intentions to privatize the constituent parts of the holding, while the Ministry of Finance is going to initiate the provision to "Naftogaz" of the sole gas supplier status. Among the changes specifically aimed at fulfillment of the commitments in the framework of the Energy Community, it is worth to mention the NERC Resolution dated 26.12.2013 No. 1722, which approves the amendments to the Procedure for access and inclusion to the Integrated Gas Transportation System of Ukraine. In particular, it delineates more clearly the external and the internal supplies. Along with the issue of access to GTS, the progress can also be found in the problem of gas supplies diversification. The EU Commissioner for Energy G.Oettinger during the phone conversation with Minister Y.Prodan asserted the support of the Ukraine’s initiatives on diversification and the EU readiness to provide the financial assistance for the GTS modernization. After launching the reverse supplies in full the government expects to get from 7-10 tо 20, and even 25 bcm of gas from Europe.

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By results of the trilateral meeting held on 19 March, Ukraine has commenced the negotiations with Slovakia with the direct involvement of the European Commission. A special working group will be established for negotiating the key issues – specifically, necessary investment and subject matter of arrangements between the gas transportation operators. According to the G.Oettinger’s forecasts, the reverse supplies will be started before the end of 2014. Regarding the other NERC’s regulatory work, it’s worth to mention the Resolution dated 31.12.2013 No. 1910 (the order for purchase price formation for the state companies-gas producers was changed), Resolution dated 23.01.2014 No. 47 (the Algorithm for funds allocation received on current accounts with special regime of using the guaranteed gas suppliers was adjusted), and the Resolution dated 31.01.2014 No. 87 (the Standard Agreement on purchase and sale of gas between its owners and suppliers was changed). By its letter dated 14.03.2014 No. 1563/17/47-14 the regulatory authority obliged the oblast gas companies to minimize costs and to reduce respectively the load on tariffs for natural gas transportation by distribution pipelines and its supply. At that background the discussion evolved regarding gas tariffs increasing. The raise in tariffs for population (by 73%) and limit prices for thermal power enterprises (by 40%) was declared starting already since May 1st. The Ministry of Finance emphasizes that the process will be gradual and will affect only the well-to-do categories of population. According to media reports such mechanisms of social support are now being considered as targeted social assistance or special tariffs for low-income consumers. The recommended levels of prices are defined by the Resolution of the Cabinet of Ministers dated 25.03.2014 No. 81 "On improvement of the state policy regulating prices for natural gas and tariffs for thermal energy, and on enhancement of social aid for population in paying for utility services". In addition, the government ordered 6 ministries to submit within two weeks for its consideration the agreed proposals on assistance to the most vulnerable social groups in paying for the utility services. In electric power industry: The draft law No. 4337 dated 03.03.2014 extends the list of situations endangering the national security of the state. Its author - Igor Vasiunyk (All-Ukrainian Union "Batkivschyna" faction) – proposes to select from the threats in economic area the risks related to the energy sector and to set their list in a separate paragraph. Those risks include: non-fulfillment of programs aimed at protection of national interests in energy sphere; insufficient diversification of the sources of fuel and energy supplies; inefficiency of the fuel and energy resource use; lack of control over the state enterprises dealing with transportation of natural gas by trunk pipelines and its storage in underground gas storages; sale, privatization or alienation from the state property in any other way or assignment for use or in management of the Integrated Gas Transportation System of Ukraine or its constituent parts. The legislative proposal No. 3580 dated 07.11.2013 "On energy audit", entered by О.Zarubinskyi ("Sovereign European Ukraine" group), sets the legal, economic and organization bases for performance of energy audit, content and goals of those activities, establishes requirements to energy auditors and level of their professional qualification, requirements to the energy auditing firms. In the opinion of the Central Scientific Experts Office of the Verkhovna Rada both documents need additional finalization. The alternative draft law No. 3580-1 dated 20.11.2013 was introduced by S.Pashynskyi (All-Ukrainian Union "Batkivschyna" faction). It defines the principles of energy audit activities, forms of its implementation, requirements to the contractor, rights and obligations of the commissioning and executing parties, grounds for this audit conducting, as well as requirements to presentation of the energy audit results.

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The members of the All-Ukrainian Union "Svoboda" faction О.Мyrnyi and І.Мiroshnychenko have registered their draft legislation No. 4106 dated 06.02.2014, in which they propose to amend the Law "On electric power industry" and to envisage the responsibility of the energy suppliers to consumers only in the case of the customer supply interruption due to a fault of energy supplier – in amount of double value of the unsupplied electric power, if the volume of the undersupplied electric energy exceeds 10% of the contracted amount. If this indicator does not exceed the contracted amount more than by 10%, the consumer is exempt from paying to the energy supplier of the double value of difference between the actual consumed and contracted volume. Another draft law - No. 3624 dated 15.11.2013 is also being considered in the Parliament. Its author – А.Yatsenko, member of the "Economic Development" group – proposes to postpone for 5 years the commencement of application of the legislation on inclusion of the client’s sites into the power lines and gas distribution networks, that had been in force until the enforcement of the Law of Ukraine "On amendments to certain laws of Ukraine concerning payment for inclusion into the networks of the natural monopoly entities". The legislative proposal No. 4566 dated 26.03.2014, presented by the head of the relevant committee М.Маrtynenko (All-Ukrainian Union "Batkivschyna" faction), proposes to extend the effect of the mechanisms of satisfaction of accounts payable and receivable established by the Law "On measures to ensure the steady functioning of enterprises of the fuel and energy complex", till 1 January, 2016, and to change the settlement date for repayment of debt liabilities to 1 January, 2013. The above instruments can be applied to 213 enterprises, against which the action of solvency can be brought or whose accounts can be seized for their debts. At the same time, in the explanatory note to the draft law it was emphasized that filing of a bankruptcy petition against the FEC enterprises would not allow them to take part in the Wholesale Electric Power Market reforming, that should take place in accordance with the commitments in the framework of the Energy Community. The similar legislative proposal No.4566-1 dated 26.03.2014 was originated by V.Bandurov (Party of Regions faction). It is notable that the explanatory note repeats the same statements, including references to supposed fulfillment of the commitments in the framework of the Energy Community. NERC continues to develop regulatory provisions for introduction of the incentive-based tariff regulation. On 10th of January the Resolution No. 7 was approved, which establishes the rates of return on regulatory asset base, formed as of the date of transfer to the incentive-based regulation, and Resolution No. 6, by which the Order for definition of the regulatory asset base of the natural monopoly entities in electric power industry is amended. In renewable energy industry: On February 4th the Ministry of Energy and Coal Industry published the text of the updated Energy Strategy of Ukraine until 2030, the ordinance on approval of which dated 24 July, 2013 was published by the government on 29 January, 2014. The implementation of the strategy elements will increase a share of the renewable sources of energy in the total balance of the installed capacities to the level of 12.6 % until 2030. On January 16th the Ministry of Energy and Coal Industry published the text of the draft law "On amendments to the Article 2 of the Law of Ukraine "On alternative fuel types". The document proposes to set the content of bioethanol and/or biological components on its basis in gasolines sold in the territory of Ukraine in the following ratios:

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Until 1 July, 2014 – the recommended content is at least 5% (by volume);

from 1 July, 2014 – the mandatory content is at least 3% and not exceeding 5% (by volume);

from 1 July, 2016 – the mandatory content is at least 5% and not exceeding 10 % (by volume).

The government proposes to amend the Law "On electric power industry" and to reduce the "green" tariff for the producers of solar energy to the level applied to the wind power industry . The new tariff rates will be effective for the solar power plants put into operation after the 1st of June, 2014. According to the Minister Y.Prodan, the drafted legislative changes can guarantee the European rules of work for the alternative energy sector and allow to reduce the annual load on the wholesale price for energy by UAH 1.4 bn. The sectoral association called the initiative "the elimination of the solar energy industry", and some experts think that it can have adverse effect on the sector resulting in violation of the Ukraine’s commitments to EU. Meanwhile, a new draft law No. 4596 dated 27.03.2014 on incentives for electric power production from the alternative sources has been registered in the Verkhovna Rada. The authors of the document – Y.Моskalenko ("Sovereign European Ukraine" group) and V.Polochaninov (All-Ukrainian Union "Batkivschyna" faction) – propose to fix the "green" tariff for the electric power produced from solar energy by the large (over 10 МW of available capacity) photovoltaic power stations at the level proportionate to the average level of the fixed tariff for those entities in the European countries. According to the comparative table the tariff rates will be reduced more than twice. In environmental protection: On February 10th the Cabinet of Ministers issued the Ordinance No. 49-р and Ordinance No. 50-р concerning preparation and conduction of the Sixth meeting of the Parties of the Convention on Environmental Impact Assessment in a Transboundary Context on 1-5 June, 2014. Taking into account the results of that event and some other supporting events the draft law "On amendments to certain laws of Ukraine on implementation of the provisions of the Convention on Environmental Impact Assessment in a Transboundary Context " can be finalized. At the same time, on 26 March, 2014 the Verkhovna Rada did not approve the draft law in the second reading. The document was aimed at implementation of the requirements of two international agreements: Convention on Environmental Impact Assessment in a Transboundary Context and Convention on Access to Information, Public Participation in Decision-making and Access to Justice in Environmental Matters. The draft law provided for a new procedure of environmental impact assessment and return of the cancelled some years ago state environmental expert evaluation of the construction projects. Meanwhile, a draft legislative has been registered in the parliament proposing to amend the Forestry Code in order to protect the endangered birds listed in the Red Book of Ukraine . In particular, it is proposed to prohibit the large-scale forest fell within a radius of 100 m from the breeding areas of the red-listed birds.

In the meantime, the Ministry of Ecology and Natural Resources by its Order No. 16 dated 24.01.2014 assigned a responsible person (Focal Point) on implementation of the Convention on Access to Information, Public Participation in Decision-making and Access to Justice in Environmental Matters (Aaarhus Convention) and his assistant. It will make the procedure of public debate on materials of environmental impact assessment better regulated and clear.

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On February 26th the Ministry of Energy and Coal Industry published the draft Order "On approval of the Order of preparation and introduction of the thermal power plant reconstruction projects", in which it is proposed to suspend the effect of the Order of the Ministry of Fuel and Energy No. 499 dated 09.10.2008 "On approval of the Plan for reconstruction and modernization of the thermal power plants and combined heat-andpower plants for the period until 2020", and to prepare the proposals on its revision, in particular, in the part of a procedure for investment project funding. At the same time the ministry has already begun the revision of plans on reconstruction of large combustion installations. Therefore, the adjusted Schedule of the thermal power units reconstruction in 20142016 and the first quarter of 2017 was approved by the Order No. 219 dated 26.02.2014, and the measures on efficiency improvement of the investment projects for reconstruction of the thermal power units in 2014 were formulated in the Order No. 243 dated 17.03.2014. In energy efficiency: In the framework of the joint project of EBRD and the Ministry of Regional Development, Construction and Housing and Utility Services "Technical assistance for the energy efficiency improvement in residential buildings" the draft national standards were developed:  draft standard ДСТУ-Н Б А.2.2-ХХХ:201Х "Energy efficiency of buildings. National method of calculation of energy consumption for heating, cooling, ventilation, lighting and hot water supply";  draft standard ДСТУ-Н Б А.2.2-ХХХ:201Х "Energy efficiency of buildings. Instruction for application of the method of the energy assessment conduction and buildings’ energy certification "; According to the information of the Ministry of Regional Development, the issue of іmplementation of the international standard ISO 50001 "Energy management systems – Requirements with guidance for use" is being discussed, in particular, it was translated and presented in Ukrainian. In addition, the government studies the application of the "Display" instrument, which allows to perform the energy consumption efficiency assessment of buildings, inform the building owners and users on the necessity of the rational use of energy and to accumulate the data base on building energy and performance indicators. In oil and oil products industry: According to media reports, the Ministry of Energy and Coal Industry considers the amendments to the Procedure for holding the auctions on sale of the liquefied gas and also oil, aimed at achievement of more transparency and efficiency. In particular, the two-level system on definition of reserve prices for sale of liquefied gas on special auctions, based on the price quotations and taking into consideration the customs value of the imported LPG, is being agreed now.

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Monitoring of Ukraine's implementation of its commitments in the framework of the Energy Community  

In the framework of the project "Improving implementation of Ukraine’s commitments within the Energy Community through enhancing impact of c...