Ukraine energy policy outlook Ildar GAZIZULLIN International Centre for Policy Studies May 25, 2012, KSE Alumni congress
SummaryEnergy is important for sustaining macroeconomicfundamentals in Ukraine: it affects trade balance,prices and industrial outputOver 2012–2015 Ukraine can do very little tochange energy supply and demand, but, it can domuch more in terms of policy designIf Ukraine succeeds with a right policy mix it willimplement the ambitious objectives of the EnergyStrategy to 2030
Ukraine’s Energy Strategy to 2030 The revised Strategy, which is to be launched this year, sets objectives, which are broadly in line with the EU energy policy aims: – Having less negative impact of energy on environment – Becoming less vulnerable from imported energy – Achieving affordable energy for consumersHowever, to meet the Strategy’s targets Ukraine will have to invest annually 10-20 times more than it does today
Current supply-side energy projects face risksSupply-side energy projects are most popular inUkraine:– Building LNG terminal at the Black Sea– Welcoming majors to explore shale gas– Stimulating renewables through green tariffs– Substituting gas with coal (and nuclear)These are considered to be less effective thandemand side measures, like increasing energyefficiency
Energy policy has to changeDespite greater openness to FDI in the energysector, the business climate has not improved:– Policy making is not consistent which increases uncertainty– Favoritism distorts competitionEnergy prices for most of the consumers are belowcost recovery, while energy prices for mostproducers have reached the EU levelsUkraine already faces a risk of power deficit due togeneration capacity constraints
European Energy Community frameworkUkraine’s membership in the Energy Community ofSouth East Europe (ECT) is a key factor of reformingUkraine’s energy marketsOriginally designed for the Balkan countries, ECTultimate goal is to create a common energy marketby connecting energy networks but also throughregulatory convergenceGiven a delay with the signing the EU-UkraineAssociation Agreement, ECT is currently the No 1framework agreement with the EU in the sector
Energy reforms=Implementing the Energy Community TreatyUkraine has to implement about 12 EUDirectives and Regulations by 2018Most of Ukraine’s commitments deal withcompetition (liberalizing gas and powermarkets) and environmental protection(reducing emissions, making environmentalimpact assessment, increasing fuel quality)
Reform outlookUkraine’s Action Plan to implement the President’sEconomic Reform Program for 2012 has taken into accountmost of the requirements of the Energy Community. Still,the timeframes in the Plan are not being adhered toUnless five key conditions are met, any reform will beimpossible:– public support– reform advocacy groups– two-way communication with voters– administrative and regulatory capacity to turn all political objectives into administrative procedures and policies– monitoring and oversight
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