Monitoring report on Ukraine's progress in the implementation of the association agreement with the European Union in the areas of energy and environment, August 2017

This publication was prepared with the support of the European Union and the International Renaissance
Foundation. The contents of this publication are the sole responsibility of NGO “DIXI GROUP”, as well as
Civil Network “OPORA”, All-Ukrainian NGO “Energy Association of Ukraine”, Resource & Analysis Center
“Society and Environment”, Association “European-Ukrainian Energy Agency”, and can under no
circumstances be regarded as reflecting the position of the European Union and/or the International
Renaissance Foundation.
The project “Enhancing impact of civil society in monitoring and policy dialogue on energy and related
sectors’ reforms in line with the Association Agreement implementation” aims at strengthening the role of
civil society in advocating reforms in the energy and related sectors.
The key objectives of the project are:
• monitoring of the implementation of the energy provisions of the Association Agreement, including
relevant environmental and trade-related commitments;
• strengthening the civic experts’ and local actors’ capacity to track actual implementation of the
reforms;
• facilitation of public dialog to lead in proper implementation of the European energy and
environmental reforms;
• informing stakeholders and the Ukrainian society about the meaning and potential benefits of
European reforms in energy and related sectors in order to empower them to keep the
government accountable for pursuing these reforms.
www.enref.org

Executive Summary
In August, the government approved the Energy Strategy by 20351
titled "Security, Energy Efficiency,
Competitiveness". The full text of the document, however, was published as late as early September. Yet,
most Task Force experts responded positively to the fact that such a strategic document had been
approved, hoping it would serve as the basis for the government policy in this field.
In the gas sector, experts pay much attention to an open letter from the Energy Community Secretariat to
the Government of Ukraine, regarding the imposition of public service obligations on natural gas market
actors. Besides, the Task Force warns about possible complications in the work of the Supervisory Board of
NJSC Naftogaz of Ukraine. Meanwhile, the regulator has restarted discussions on gas distribution tariff
setting.
In the electricity sector, the Task Force points to the creation of the Coordination Center for the
Establishment of a New Electricity Market, outlining the amount of preparatory work to launch the market
model. Experts also highlight the regulator's publication of a timetable of adoption of the necessary acts. At
the same time, the issue of the API2+ formula is especially high on the agenda, particularly, this is a case
currently under the NABU's investigation.
Experts notice a positive trend in the creation of working groups to implement the adopted energy
efficiency legislation. At the same time, the transparency and publicity of these groups raise concern.
Experts also highlight some improved approaches in the system of housing and utilities’ subsidies provision,
calling for a comprehensive change of this system.
With priority given to the development of renewable energy sources in the Energy Strategy, environmental
experts saw no implementation progress in the month of monitoring.
Likewise, experts in oil and oil products’ sector see no implementation progress in their industry, pointing
to numerous delays and rescheduling.
In the efforts to improve the business climate, experts point to the problems in reforming the NEURC, as
well as complications with publishing the regulator's decisions. Against this background, the Antimonopoly
Committee has started evaluating the state aid mechanisms, and a risk management system has been
introduced for the ProZorro system, a fact positively taken by the Task Force experts.
Most commonly used abbreviations:
AA – Association Agreement
CcSUP – Complex (Consolidated) Safety Upgrade Program of
Power Units of Ukrainian Nuclear Power Plants
CMU – Cabinet of Ministers of Ukraine
DHU – district heating utility
DSO – distribution system operator
ENTSO-E – European Network of Transmission System
Operators for Electricity
GDS – gas distribution systems
GTS – gas transportation system
LNG – liquefied natural gas
LRW – liquid radioactive waste
Naftogaz – National Joint-Stock Company Naftogaz of Ukraine
NEURC – National Energy and Utilities Regulatory Commission
SNRIU – State Nuclear Regulatory Inspectorate of Ukraine
TSO – transmission system operator
TPP – thermal power plant
YuUNPP – Yuzhno-Ukrainsk Nuclear Power Plant
VRU – Verkhovna Rada of Ukraine
WEM – wholesale electricity market
1 Resolution No. 605-r of the Cabinet of Ministers of Ukraine, dated August 18, 2017.

Gas
During the August plenary parliamentary vacations, the Parliament registered no draft law concerning
the gas sector reform. In August, the government finalized its approval of the new Energy Strategy of
Ukraine by 2035, cut by 25 percent the social gas consumption norms for consumers without meters
installed, and held a teleconference initiating the preparation of fuel and energy enterprises for the
coming heating season.
Despite some progress in the gas sector reform, the Energy Community Secretariat drew the attention
of the government of Ukraine to shortcomings, calling for amendments to be made to the mechanism
approved by the Cabinet of Ministers to impose public service obligations on natural gas market actors
to secure general public interests on the natural gas market.
As a result of the NEURC's campaign to reissue and provide licenses in the gas sector, 318 companies
had obtained as of September 1, 2017 the right to supply natural gas on the domestic market of
Ukraine (ENGIE became the third international company on this list in August), and 42 companies – the
right to distribute natural gas. The regulator also published a draft decision on reforming the tariff
setting in the gas distribution sector and announced a public campaign to discuss it.
Judging by the negative response of the various stakeholders (in particular, of the Ukrtransgaz team
and trade union, and the Prosecutor General's Office of Ukraine – on the dismissal of Ukrtransgaz Vice-
President I.Burak, of the National Security and Defense Council – on the financing required for GTS
support and modernization, and of an independent Naftogaz Supervisory Board member – on
resignation), it is our conclusion that the current decisions of the Naftogaz management do not always
meet the arising challenges and draw increasingly more criticism.
Within the framework of a joint project with the European Commission to enhance the security of gas
supply, the Ukrainian GTS has been tested for readiness for the next heating season, and upon the
results of this test, recommendations will be given for the development of a set of measures to prevent
crisis situations. As of the end of August, Ukrtransgaz registered record volumes of gas transit to Europe
by the Ukrainian GTS: the transit reached a six-year high of 61.95 bcm.
Directive 2009/73/EC concerning common rules for the internal market in natural gas and repealing
Directive 2003/55/EC (Article 338, 341, Annex XXVII to the Association Agreement) in accordance with
Article 278 of the Association Agreement
The August reformist standstill of the Verkhovna Rada was apparently due to the fact that MPs were on
the plenary parliamentary vacations ending September 5.
In August, the government adopted several gas sector-related documents. The first document to draw
attention is the resolution adopted on the eve of the new heating season and reducing the standard gas
consumption norms for households (No. 6092
). According to this resolution, the gas consumption norms
for consumers that do not have gas meters installed have been changed as follows: if the consumer has a
gas cooker and centralized hot water supply, the norm is reduced from 4.4 to 3.3 cubic meters per person
per month3
(for periods when centralized hot water supply is suspended, the norm is 5.4 cubic meters per
month); if the consumer does not have centralized hot water supply and a gas water heater, the norm is
reduced from 7.1 to 5.4 cubic meters, and if a gas water heater is installed - from 14 to 10.5 cubic meters.
2 http://www.kmu.gov.ua/control/ru/cardnpd?docid=250210068
3 In April 2015, the Cabinet of Ministers already reduced the social gas consumption norm from 6 to 3 cubic meters. But that
decision was reversed by courts in the lawsuits initiated by oblast gas supply companies. Therefore, the government introduced
in February 2016 a compromise option of 4.4 cubic meters per person.

Gas
The second important document approved by the government is the updated Energy Strategy by 2035
"Security, Energy Efficiency, Competitiveness"4
. In the opinion of Vice Prime Minister V. Kistion, this is a
program that outlines the totality of energy sector reforms that Ukraine needs to implement by 2035. The
objectives of the reforms are: to slash by half the energy intensity of the economy by 2030 and increase
domestic energy outputs from traditional and renewable sources5
.
On August 23, during a meeting with Energy Community Secretariat Director J. Kopac, Minister of Energy
and Coal Industry I. Nasalyk assured the meeting participants that the energy sector reform was on
schedule and thanked the Secretariat for supporting the reforms6
. He noted that the updated Energy
Strategy of Ukraine by 2035 adopted by the government made it possible to further the reforms, and that
Ukraine was determined to fully meet its international obligations under the Treaty establishing the
Energy Community.
In implementing a new mechanism, under which the gas suppliers that supply gas to households in
fulfillment of the public service obligations imposed upon them (gaz-zbuty) will receive a due 2.5 percent
margin in cash from special accounts to their regular clearing accounts, the Cabinet of Ministers adopted
a resolution (No. 6677
), regulating the introduction of appropriate amendments to Resolution No. 296 of
April 26, 2017. The approved mechanism stipulates that the formula for calculating the standard amount
of transfer to a gaz-zbut will include a special correction factor that will depend on the share of coverage
by subsidies of the cost of gas supplied to households in the previous month. If subsidies covered 50
percent of this cost, gazzbuts will receive to their clearing accounts 5 percent of the total cash amount in
proceeds, and if the subsidies cover 80 percent of the cost - 12.5 percent of such cash proceeds.
In addition to the above documents, the Cabinet of Ministers, in an attempt to support Naftogaz,
approved a short-term fund facility for it from Joint-Stock BankUkrgasbank PJSC, with a lending limit of
UAH 3.5 billion (Instruction No. 514-p8
).
At the same time, in commenting on the decision of the Circuit Administrative Court of Kyiv9
that bound
the Cabinet of Ministers to determine sources and the procedure for compensating Naftogaz for its
outlays connected with its public service obligations to supply of gas to households, Vice Prime Minister
V. Kistion stressed that the current level of Naftogaz's profits made it impossible to pay any compensation
to the company for supplying gas to residential consumers10
. For the government has established
(Resolution No. 35111
) that support for the general social interests on the natural gas market and
protection of consumer rights is the core objective of Naftogaz, not profits in this market segment.
It should be noted that in August the government failed to approve the amendments to the Regulation on
Imposition of Public Service Obligations (PSO) on Subjects of the Natural Gas Market (Resolution
No. 18712
), while the draft of the amendments was made public by the Ministry of Energy and Coal
Industry in July13
. At the same time, the Ministry of Energy and Coal Industry has not published the new
gas prices for households (according to the effective regulation, the prices should have been made public
by July 1), a fact holding back the start of a campaign of gas supply contracting for the new heating season
4 http://www.kmu.gov.ua/control/uk/publish/article?art_id=250208523&cat_id=244274160
5 As a Contracting Party of the Energy Community, Ukraine has committed to bring its output of electricity produced from
renewable sources up to 11 percent by 2020. Currently, this indicator barely exceeds 1 percent.
6 http://mpe.kmu.gov.ua/minugol/control/uk/publish/article?art_id=245230712&cat_id=35109
7 http://search.ligazakon.ua/l_doc2.nsf/link1/KP170667.html
9 http://www.reyestr.court.gov.ua/Review/67846832
11 http://www.kmu.gov.ua/control/uk/cardnpd?docid=250014675

Gas
with heating companies14
.
The imperfection of the said regulation (approved by Resolution No. 187) in the part concerning
regulation of Naftogaz's purchases of domestically produced natural gas at a fixed price from its
subsidiary Ukrgazvydobuvannya and transfer of this gas for sale to the gas supply companies from a
clearly established list was the reason for the criticism the government received from the Energy
Community Secretariat. According to D. Buschle, a representative of the Secretariat, such a mechanism
provides preferences to oblast gas distribution companies and fixes their concentration on the market,
which is unacceptable15
.
In this regard, the Secretariat sent an open letter on August 22 to the government of Ukraine16
with a
preliminary opinion emphasizing inconsistency of the current version of Resolution No. 187 with the
commitments Ukraine had undertaken. And on August 25, the Energy Community Secretariat jointly with
the World Bank submitted to Ukrainian authorities a draft of new public service obligations regulation
taking into account their proposals on how to meet the international commitments while guaranteeing
social security for Ukrainians17
.
In August, within the framework of the NEURC's campaign to issue new form licenses to gas market
operators, the regulator approved 28 natural gas supply licenses18
and one gas distribution license19
. In
addition to the gas supply licenses issued to three foreign companies, other events surfaced in August,
witnessing the progressing opening of Ukraine's gas market, in particular: in July, ENGIE increased
eightfold the gas supply to its Ukrainian subsidiary Engie Energy Management Ukraine LLC20
; another foreign
operator, the Polish company PKN Orlen, began importing gas to Ukraine21
.
At the same time, the NEURC has failed to pass the decision approving the new methodology for
calculating the tariff (subscription fee) for the services of gas distribution companies (oblast and municipal
gas companies). This has happened because the NEURC chairman, D. Vovk, had to cancel the August 4
commission meeting considering the draft of this decision, yielding to the pressure by representatives of
the Federation of Trade Unions of Ukraine, which objected to the introduction of such a subscription
fee22
.
Instead, the regulator published a package of regulatory changes in the gas distribution sector23
aimed at
furthering the implementation of the Law "On the Natural Gas Market" and initiated public discussions on
the proposed innovations. The package is intended to regulate the problematic aspects of three legislative
and regulatory acts. These aspects were identified during the public discussion of the actual functioning of
the distribution market with market operators. These, in particular, are the GDS Code, the Model
Agreement on Natural Gas Distribution, and the Methodology for the Tariffication of Natural Gas
Distribution Services. The essence of the changes is the introduction of the principle of "booked capacity"
14 http://www.naftogaz.com/www/3/nakweb.nsf/0/0F44D98F375796B3C22581800037F163?OpenDocument&year=2017&mont
h=08&nt=%D0%9D%D0%BE%D0%B2%D0%B8%D0%BD%D0%B8&
15 http://p.dw.com/p/2j2ca
16 https://www.energy-community.org/news/Energy-Community-News/2017/08/22.html
18 According to the media (http://interfax.com.ua/news/economic/445936.html), even Ukrposhta (Ukrainian Post) applied for a
license to supply natural gas. As company representatives explained (https://www.epravda.com.ua/news/2017/09/4/628633/),
Ukrposhta plans to supply gas to satisfy the needs of its own chain in the heating season. The NEURC will consider this application
at its meeting of September 7, 2017.
19 http://www.nerc.gov.ua/?id=27267
20 http://biz.liga.net/ekonomika/tek/novosti/3705278-frantsuzskaya-engie-uvelichila-postavki-gaza-v-ukrainu-v-8-raz.htm
21 https://dt.ua/ECONOMICS/pkn-orlen-pochala-postavlyati-v-ukrayinu-prirodniy-gaz-252636_.html
22 https://economics.unian.ua/energetics/2065104-natskomisiji-z-tarifiv-ne-vdalosya-vidroditi-abonplatu-za-gaz.html
23 http://www.nerc.gov.ua/data/filearch/Materialy_zasidan/2017/serpen/04.08.2017/p1_04-08-2017.pdf

Gas
instead of the connected capacity, which in the opinion of the authors of the package, should ensure a
more fair determination of the capacity value for consumers, simplify for them the process of changing it,
and change the procedure for establishing and reviewing tariffs for gas distribution services.
An unexpected obstacle to the NEURC's regulatory functions provided by the new regulator law was the
Uryadovyi Kurier newspaper's delayed publication of the NEURC's resolutions24
. Despite numerous calls of
the regulator on the editorial board of the newspaper, government authorities, and international
organizations, there are 35 NEURC-adopted decisions still remaining unpublished (and accordingly, not
brought into effect), most of which are expected to be published in two to more than 20 weeks.
According to the NEURC, this "leads to a legal collapse in the energy and public utilities sectors and limits
the regulator's functional independence."
Apart from that, a working discussion of issues in organizing independent audit of the regulator was held
on August 22 at the Energy Community Secretariat office in Vienna, an event initiated by the NEURC
management25
.
Since September 1, Naftogaz has increased by 6.3-6.7 percent in comparison with August 2017 its gas
prices for industrial and other consumers 26
that are not subject to the Regulation for Imposition of Public
Service Obligations on Subjects of the Natural Gas Market to Ensure General Public Interests. According to
the new price list27
, the price for gas as a commodity (inclusive of VAT) is set from September 1, 2017 as
follows: for monthly gas consumption of up to 50,000 cubic meters inclusive, unregulated monthly
consumption, and monthly consumption exceeding 50,000 cubic meters without prepayment - UAH
8,749.2 per 1,000 cubic meters; for monthly consumption exceeding 50,000 cubic meters with
prepayment28
– UAH 7,921.2 per 1,000 cubic meters (the same price level of UAH 7,921.2 per one
thousand cubic meters is set for Naftogaz's subsidiaries wholly-owned by the founding company).
Regulation (EU) No. 715/2009 on conditions for access to the natural gas transmission networks and
repealing Regulation (EC) No. 1775/2005 (Articles 338, 341, Annex XXVII to the Association Agreement)
in accordance with Art. 278 of the Association Agreement, trade-related issues (Articles 269-274 of the
Association Agreement)
As it became known on August 329
, the Naftogaz management dismissed from August 1 Vice President
and Chief Engineer of Ukrtransgaz PJSC І. Burak, following an internal investigation, which lasted less than
a week – from July 25 through July 31 (appointing instead an acting vice president in the person of
О. Mykhalevych, deputy chief engineer for GTS modernization and prospective development). Taken as
administrative pressure, this decision triggered an extremely negative reaction on the part of the working
collective and the united trade union committee of Ukrtransgaz central office employees30
. Considering
this dismissal as groundless, the trade unions threatened Naftogaz with potential lawsuits, petitions to
authorities, and even a strike31
. According to a statement by Trade Union Commission Chairman
V. Honcharova, given to the ZIK television channel32
, the actual reason behind this dismissal was the fact
that at a closed-door meeting of the National Security and Defense Council on July 7, I. Burak disclosed
24 http://www.nerc.gov.ua/?news=6171
26 http://www.naftogaz.com/www/3/nakweb.nsf/0/9A3E7AB5CC6776BCC2258183003A40AD?OpenDocument&year=2017&mon
th=08&nt=%D0%9D%D0%BE%D0%B2%D0%B8%D0%BD%D0%B8&
27 http://www.naftogaz.com/files/Information/Naftogaz-gas-prices-ne-PSO-September-2017.pdf
28 Payments made within the calendar month preceding the month of gas supply
29 http://utg.ua/utg/media/news/2017/08/pro-zminy-v-kerivnyctvi-utg.html
30 https://zaxid.net/ukrtransgaz_zvilniv_vitseprezidenta_profspilki_ogolosili_strayk_n1432841
31 http://tvi.ua/novini/profspilki-ukrtransgazu-ogoloshuyut-pro-pochatok-trudovogo-strajku.html
32 http://zik.ua/news/2017/07/26/goncharov_naftogaz_robyt_vse_shchob_likviduvaty_ukrtransgaz_1139517

Gas
the true information about the unsatisfactory performance indicators of Ukrtransgaz for the first six
months of 2017. According to an open letter of I. Burak, published on the trade union committee's
website, the scheduled GTS diagnostics works had been completed by 35 percent, maintenance and
repairs by 23 percent, and capital investment by 14 percent only33
.
Shortly, the media reported that the Prosecutor General's Office of Ukraine initiated proceedings against
Naftogaz officials in connection with the dismissal of the Ukrtransgaz Vice President34
. The names of the
persons defending in the case are not specified; it is only reported that they are suspected of violating
Articles 172 ("A gross violation of the labor legislation") and No. 364 ("Abuse of power or office") of the
Criminal Code.
At the same time, Naftogaz also dismissed C. Proctor, a foreign independent member of the Supervisory
Board, the media reported referring to a statement by Naftogaz made in the information disclosure
system of the National Securities and Stock Market Commission35
. Since the Supervisory Board is
authorized to make a decision discharging its member only if there is a resignation application from this
member, it seems reasonable to conclude that a corresponding application was actually submitted and
satisfied. Back in spring, three independent Naftogaz Supervisory Board members addressed the
government, warning36
of possible resignations, if there would be no progress in resolving burning issues.
That address included the signature of Yu. Kovaliv, the former Supervisory Board chairperson who has also
resigned by now. According to the Naftogaz charter, the Supervisory Board should consist of five persons,
whereas now there are only four in office. As contracted, C. Proctor's term of office expires on September
30, 2017. If no new Supervisory Board member is appointed by that date, this body may lose the ability to
make decisions at all (a quorum requires at least four board members).
The meeting participants under the chairmanship of CNSDU Secretary O. Turchynov insist on urgent
tender competition to be held by Naftogaz for contracts to modernize and overhaul elements of the gas
transmission system. This is stated in a decision passed upon the results of the July 7 meeting and
published in the media in August37
. In addition, the decision points out that Naftogaz should identify both
priority measures of GTS modernization and overhaul, and measures of the company's long-term
strategy, factoring in the need to ensure reliable gas transmission further on. The reason for the CNSDU's
intervention in this area is the concern about the "preparation for the heating season of 2017/2018 and
uninterrupted GTS operation in the long term."
The NEURC also requires clarity as regards the preparation of a development plan for the domestic GTS
(Letter No. 8404/16.1.1/7-17 of the NEURC chairman D. Vovk to Acting Ukrtransgaz President M. Khymko,
dated August 01, 201738
).
Minister of Energy and Coal Industry I. Nasalyk criticized Naftogaz's position on the gas transmission
system39
. He noted that he supported Ukrtransgaz's leaders in their position for the need to increase
investment in the GTS, and as one of the factors emphasizing the importance and relevance of Ukraine's
GTS after 2019, he names the recent decisions taken, in particular, by the United States regarding
sanctions against Russia and the Nord Stream 2 project.
33 http://www.dsnews.ua/economics/kobolev-prodolzhaet-zachistku-ukrtransgaza--03082017220000
34 http://www.epravda.com.ua/rus/news/2017/08/10/627931/
35 http://enkorr.com.ua/a/news/Naftogaz_uvolil_nezavisimogo_chlena_nabsoveta/228780
36 http://www.naftogaz.com/www/3/nakweb.nsf/0/B08A8DBA3B8A09DDC22580FA003B8506?OpenDocument&year=2017&mon
th=04&nt=%D0%9D%D0%BE%D0%B2%D0%B8%D0%BD%D0%B8
37 http://www.epravda.com.ua/rus/news/2017/08/15/628070/
38 https://www.epravda.com.ua/news/2017/08/9/627890/
39 http://mpe.kmu.gov.ua/minugol/control/publish/article?art_id=245227484

Gas
Thus, the stumbling block that is behind the unresolved conflict between Naftogaz and Ukrtransgaz and
that enmeshes government institutions in the conflict remains the approach to determining the capital
investments ofUkrtransgaz in the GTS in the 2017 financial plan and their adjustment. A decision on this
subject was made back in March, but remained still incomplete as of late August.
On August 8, 2017, the Supervisory Board of Naftogaz unanimously supported the election of P. Stanczak
to the post of Ukrtransgaz PJSC President40
and on August 21, in accordance with the decision of Naftogaz,
the sole shareholder of Ukrtransgaz (No. 12641
), he was elected President of Ukrtransgaz. Until the
moment P. Stanczak signs the contract, whose terms and conditions are established by the shareholder's
decision No. 126, the functions of the president will be performed by M. Khymko. As reported, the
experience of the newly elected president in the field of gas transportation, distribution, and storage
exceeds 25 years; in particular, in 2003-2004, P. Stanczak was responsible in Polish PGNiG for unbundling
the functions of gas transmission system operator and creating an independent operator of the Polish
GTS, Gaz-System S.A. P. Stanczak is expected to actually begin performing the duties of Ukrtransgaz
president once the documentation formalities are over.
Directive 2004/67/EC concerning measures to safeguard security of natural gas supply (Articles 338, 341,
Annex XXVII to the Association Agreement), functioning of an "Early Warning Mechanism" (Annex XXVI
to the Association Agreement), reacting to an emergency situation (Articles 275-276, 309, and 314 of
the AA)
One example of effective cooperation between Ukraine and the European Commission in ensuring
security of gas supply is a project of the Joint Research Center of the European Commission, which is
under implementation for the second year in a row42
. In August, representatives of the Center, in
collaboration with representatives of Naftogaz, Ukrtransgaz, and the Ministry of Energy and Coal Industry
successfully carried out in accordance with the EU methodology and standards a study of possible crisis
scenarios concerning natural gas supply to Ukraine. The study was funded by the European Commission
within the framework of technical assistance; its beneficiary is the Ministry of Energy and Coal Industry of
Ukraine as the central body of executive power responsible for monitoring the security of natural gas
supply. The purpose of the project was to identify the risks threatening Ukraine's gas transportation
system in the heating season of 2017/2018, analyze the scenarios, probability, and consequences of their
occurrence, and update the hydraulic model designed to simulate the GTS operation. The results of the
study serve as the basis for developing a set of preventive measures to significantly improve the readiness
of the GTS for emergencies.
The results of the eight months of 2017 showed growth in almost all performance indicators of Ukraine's
GTS43
. Specifically, since the beginning of the year, Ukrtransgaz has transited to the EU countries 23.4
percent more natural gas than in the same period of 2016 - 61.95 billion cubic meters. It is noteworthy
that this volume of transit is the largest since 2011. The volume of gas injected into UGS has also
increased: this year, Ukrtransgaz injected 7 billion cubic meters of natural gas into gas storage facilities,
up 71 percent against the same period last year. As of September 1, 2017, Ukrainian gas storage facilities
had accumulated 14.8 billion cubic meters of gas44
. In addition, gas imports from European countries have
increased by 95.8 percent, compared with 2016 - up to 9.4 billion cubic meters. In terms of import
directions, this amount of gas breaks down as follows: imports from the Slovak direction - 7.1 billion cubic
meters, from the Hungarian side - 1.5 billion cubic meters, and from the Polish side - 0.8 billion cubic
40 http://utg.ua/utg/media/news/2017/08/pawel-stanchak-is-new-ukrtransgas-president.html
41 http://utg.ua/img/menu/company/docs/2017/126.pdf
42 http://mpe.kmu.gov.ua/minugol/control/publish/article?art_id=245228091
43 http://utg.ua/utg/media/news/2017/09/utg-report-for-8m-2017.html
44 Ibid.

Gas
EUROPEAN LAW UPDATES
In June, the European Commission announced public consultations on the strategy of Trans-European Networks for
Energy (TEN-E). The consultations will last until September 4. The purpose of the consultations is to assess the
effectiveness, integrity, and economic efficiency of this strategy, which is intended to help the governments and
businesses of EU member countries to combine the electricity and gas infrastructure across national borders.
On July 11, EU Commissioner for Climate Action and Energy M. Canete and Minister of Economy, Trade and Industry
of Japan H. Seko signed a Memorandum of Cooperation between the EU and Japan on Promoting and Establishing a
Liquid, Flexible and Transparent Global Liquefied Natural Gas Market. According to the Memorandum, the parties will
exchange experience and take joint actions to promote the best practices (flexibility in LNG purchase and sale
contracts, organization of gas hubs in consumer markets, price transparency, reporting, etc.).
On July 21, the General Court of the EU canceled the interim measures of protection on a claim lodged by Polish
PGNIG regarding the decision of the European Commission on auction access to 50 percent of the OPAL pipeline
reserve capacity. This mechanism can now be used by Russian Gazprom, contracting most of the pipeline capacity
under the procedure exceptional for the EU Third Energy Package.
On August 1, the ACER Energy Regulators Association and the European Network of Gas Transmission System
Operators (ENTSOG) announced renewal of the common platform for consultations on the implementation of
network codes. From now on, this platform (http://www.gasncfunc.eu/) accepts comments and complaints from any
stakeholder and on any issue related to codes and instructions on gas markets.
meters. Parallel to this, according to the GTS operator's update, the domestic output of gas in Ukraine
increased by 3 percent, coming close to 13.8 billion cubic meters for the eight months. Some, although
quite insignificant, drop was registered in gas consumption, by 0.5 percent from 17.9 billion cubic meters
as of the beginning of the year45
.
Following Poland, Lithuania received on August 21 its first LNG tanker from the American export terminal
Sabine Pass, the first LNG lot delivered from the USA to the Baltic States and one of the first US supplies
to Eastern Europe46
. The Clean Ocean gas carrier transported 140,000 cubic meters of LNG to the Klaipeda
terminal in pursuance of an agreement concluded in June between Lietuvos duju tiekimas and Cheniere
Marketing International. In July, the Lithuanian company signed another agreement, this time with Gas
Natural Fenosa, under which LNG supplies are expected in mid-September. In addition, Norwegian Statoil
and American Koch Supply & Trading supply LNG to Lithuania from Norway and Nigeria.
Despite the high cost of LNG and the maintenance cost of the terminal to receive it, Lithuania expects
some future benefits from its ability to receive LNG supplies. In particular, the Lithuanian government
hopes its country will eventually become a regional liquefied natural gas distribution center (hub). In the
words of Minister of Energy of Lithuania Z. Vaiciunas47
, "This will not only strengthen energy
independence, but also exacerbate competition among gas suppliers." In this case, the overseas fuel
supplies will subsequently help reduce gas prices both in the neighboring countries and in Lithuania itself.
45 Ibid.
46 http://www.delfi.lt/verslas/energetika/i-lietuva-atplauke-pirmasis-sgd-krovinys-is-jav.d?id=75529063
47 https://www.gazeta.ru/business/2017/08/21/10844792.shtml

Electricity and Nuclear Safety
On June 11, the Law of Ukraine "On the Electricity Market" came into force, introducing a new market
model in accordance with the Third Energy Package and providing a procedure for transition to it. On
August 9, the Cabinet of Ministers of Ukraine issued a decision creating a Coordination Center for the
Introduction of a New Electricity Market. Vice Prime Minister V. Kistion took the chair of it. The NEURC
and Energorynok SC are to perform the functions of the Center's Secretariat. To successfully implement
a new market model, it is necessary to implement a series of organizational, technical, and legislative
measures. One of the first organizational steps for the transition to the new market model is expected
to be the incorporation of Ukrenergo NEC and certification of electricity TSO. To implement the
provisions of the Law, more than 100 regulatory acts have to be developed and adopted, 86 of which
must be ready and adopted by June 2018. The bulk of the acts fall within the purview of the NEURC.
Therefore, the Regulator passed in August an adoption schedule for such acts, began to publish first
drafts, and adopted the TSO Certification Regulation.
To reduce the dependence on coal from the anti-terrorist operation area, the second power-generating
unit of the Zmiyivska TPP was converted to operation on coals of the gas group. The lawfulness of the
approval of the API2+ formula raises much concern – the National Anti-Corruption Bureau of Ukraine
currently has this matter under investigation. The SNRIU and the United States Nuclear Regulatory
Commission signed an agreement on renewal of the agreement on technical information exchange and
cooperation in the field of nuclear safety.
Directive 2009/72/EC of July 13, 2009 concerning common rules for the internal market of electricity
and repealing Directive 2003/54/EC (Articles 269, Chapter 11, Section IV of the EU-Ukraine Association
Agreement)
On August 9, the Coordination Center for the Introduction of a New Electricity Market was created (CMU
Resolution No. 599)48
and the corresponding Coordination Center (CC) Regulation adopted. The chair of
the Center was taken by Vice Prime Minister V. Kistion, who is in charge of energy issues in the
government. The CC consists of representatives of the VRU, Ministry of Energy and Coal Industry, NEURC,
Ministry of Finance, Ministry of Economic Development and Trade, AMCU, Energorynok SC, Ukrenergo
NEC, WEM Council, and others.
The Coordination Center for the Introduction of a New Electricity Market is an advisory and consultative
body under the Cabinet of Ministers of Ukraine, created for the implementation of the final provisions of
the Law "On the Electricity Market." The core tasks of the Coordination Center are coordination of actions
related to the introduction of a new electricity market; preparation of proposals and recommendations
on measures related to the introduction of a new market of electric energy and control over their
implementation; preparation, adoption, and control of the relevant plans; analysis of progress in
introducing a new electricity market and of causes of market introduction problems. The organizational,
record-keeping, and information functions of the Coordination Center are assigned to its secretariat,
whose role is performed by the NEURC (monitoring, coordination of working groups) and Energorynok SC
(information and organizational components).
On August 10, the NEURC adopted a schedule of submission of draft regulatory documents needed to
implement the Law of Ukraine "On the Electricity Market." The key implementers are Energorynok SC and
Ukrenergo NEC. It is necessary to develop and adopt a total of more than 100 regulatory acts, 86 of which
must be ready and adopted by June 2018.49
48 http://zakon3.rada.gov.ua/laws/show/559-2017-%D0%BF

Regulation 714/2009/EC of July 13, 2009 on conditions for access to the network for cross-border
exchanges in electricity and repealing Regulation 1228/2003 (Article 270, Chapter 11, Section IV of the
EU-Ukraine Association Agreement)
On August 8, Ukrenergo NEC presented the electronic auction platform Damas opening access to the
throughput capacity of the interstate power grids50
. This platform has been implemented and operated at
Ukrenergo SE since May 18, 2017, and direct access to it51
is available through the official website of the
company. Any electricity transmission or supply licensee is eligible to take part in the auctions after the
appropriate registration. Offered at such auctions is "the share of throughput capacity of the interstate
power grids that was not distributed on the annual and monthly auctions, or not used up, as well as that
returned for redistribution."52
If the access period offered at the annual auction ranges from 30 days to
one calendar year, at the monthly auction it ranges from 1 day to the end of the corresponding month,
and at the hourly auction, the offered access period is hourly up to one day. Access to the throughput
capacity of interstate power grids of Ukraine is offered to market operators at special auctions under the
Procedure for Electronic Auctions to Distribute the Throughput Capacity of Interstate Power Grids
approved by Resolution No. 426 of the NEURC, dated March 28, 2017.53 The Resolution came into effect
on May 12, 2017.
Agreement)
On August 10, the NEURC passed Resolution No. 1016, approving thereby the Procedure for Certification
of the Electricity Transmission System Operator for the New Electricity Market.54
In accordance with
Section XVII of the Final and Transitional Provisions of the Law "On the Electricity Market", the Regulator
has to approve the TSO certification procedure within two months of the effective date of the Law, which
has been done. As the applicable legislation requires, the draft resolution was approved by the
Antimonopoly Committee.
On August 28, the NEURC adopted a resolution amending the Conditions and Rules of the Entrepreneurial
Activity of Electricity Transmission by Trunk and Interstate Power Grids (No. 1030).55
The amendments
clarify the licensee's powers with regard to the prohibition of the activities to produce, distribute, and
supply electricity, as well as trader activities, except for the activities to purchase and sell electric energy
to compensate the technological loss of power in the process of its transmission by power grids and
balancing, including for the purposes of emergency assistance to/from transmission system operators of
neighboring countries and settlement of imbalances. It is also established that the licensee is bound to
perform the balancing in order to provide/receive emergency assistance to/from transmission system
operators of neighboring countries under emergency assistance contracts between the respective
transmission system operators on the conditions approved by the NEURC. For this purpose, electricity is
purchased/sold on the wholesale electricity market of Ukraine.
On August 31, the NEURC published a draft resolution titled "On Approval of the Rules for Settling
Disputes Arising between Business Entities Operating in the Energy and Public Utilities’ Sectors." The
document is developed with the intention to create conditions for an alternative method of pre-trial
settlement of disputes between business entities operating in the energy and public utilities’ sectors.56
50 https://ua.energy/media/pres-tsentr/pres-relizy/elektronna-auktsionna-platforma-ukrenergo-krok-energetychnoyi-
yevrointegratsiyi/
51 https://ua.energy/kliyentam/auktsiony/auktsionna-platforma-2/
52 https://ua.energy/media/pres-tsentr/pres-relizy/elektronna-auktsionna-platforma-ukrenergo-krok-energetychnoyi-
yevrointegratsiyi/
53 http://zakon3.rada.gov.ua/laws/show/v0426874-17
54 http://www.nerc.gov.ua/?id=26922
55http://www.nerc.gov.ua/?id=27201

These Rules do not apply to consumers who turn to the NEURC with complaints claiming violation of their
rights and interests.
Agreement)
On August 18, the CMU approved the Energy Strategy by 2035 titled "Security, Energy Efficiency,
Competitiveness."57
The new Energy Strategy of Ukraine takes into account the international
commitments of Ukraine in the energy sector and aims at halving the energy intensity of the economy by
2030 and increasing electricity production from both traditional and alternative sources. It is proposed
that by 2035 the energy production from RES will reach 25 percent in the energy balance and NPPs will
account for a 50 percent share. The focus will be on energy efficiency and energy saving.
By its Instruction No. 531-р, dated August 9, 2017, the Cabinet of Ministers approved the financial plan of
National Energy Company "Ukrenergo" SC for 2017. 58
The key indicators in the financial plan are:
• total income – UAH 8,209.2 million (up UAH 360.9 million or 4.6 percent from the 2016 plan);
• net profit – UAH 7,876.98 million (up UAH 270.9 million or 3.6 percent);
• tariff for 2017 – 6,933 kopecks/kWh (up 0.617 kopecks/kWh as compared with 2016);
• total incoming power - 111,500 million kWh.59
Article 339, Chapter 1, Section V of the EU-Ukraine Association Agreement, Coal Market
A positive factor for Ukraine's coal sector is the adoption of the new Energy Strategy of Ukraine by 2035,60
which outlines the main development targets for the industry, such as: optimization of the structure of
state-owned coal enterprises and improvement of their economic and technical indicators; transition to
self-sustaining production with the state support reoriented to health and safety, environmental
protection, and coal branch restructuring; and increase in energy coal outputs.61
During August, measures were implemented to reduce the dependence on coal of the anthracite group,
diversify coal supplies, and accumulate its stocks. In particular, the second power-generating block of the
Zmiivska TPP has been converted to operation on coal of the gas group grades "Г" and "ДГ."62
On August
14, the unloading of the third vessel loaded with anthracite coal (75,000 tonnes) from South Africa
began63
, and in late August, the first lot of coal from the USA was sent to Ukraine and is expected to arrive
in September.64
Also, the investigation into the lawfulness of the April 2016 approval of the API2+ formula
continued.65,66
Article 342, Chapter 1, Section V of the EU-Ukraine Association Agreement, Nuclear Cooperation,
Council Directive No. 2014/87/Euratom, Council Directive No. 2013/59/Euratom, Council Directive No.
2006/117/Euratom
59 https://ua.energy/media/pres-tsentr/pres-relizy/kabmin-zatverdyv-finansovyj-plan-ukrenergo-na-2017-rik/ь
62 http://kharkivoda.gov.ua/news/87894
63 https://economics.unian.ua/energetics/2080436-u-portu-yujniy-pochali-rozvantajennya-tretogo-balkera-z-vugillyam-z-par.html
64 https://www.facebook.com/ukr.embassy.usa/posts/1508407082535852
65 https://economics.unian.ua/energetics/2098469-formula-rotterdam-zastosovuetsya-nezakonno-sitnik.html
66 https://economics.unian.ua/energetics/2070296-nkrekp-pidozryuyut-u-zmovi-pri-zatverdjenni-formuli-rotterdam-plyus.html

On August 1, the SNRIU and the United States Nuclear Regulatory Commission signed an agreement on
renewal of the agreement on technical information exchange and cooperation in the field of nuclear
safety.67
According to the new Energy Strategy of Ukraine by 2035, the main tasks in the nuclear energy sector are:
to increase the share of nuclear power generation in total electricity output; to diversify nuclear fuel
supply sources; to expand the domestic uranium resource base; to increase the output of uranium and
zirconium; to create a stock of fresh nuclear fuel (uranium concentrate); to study the possibilities of
creating capacities to produce nuclear fuel; and to develop and approve a concept of management of
spent nuclear fuel from Ukrainian NPPs.68
Therefore, pursuing the diversification of nuclear fuel supply sources for nuclear power plants, the share
of nuclear fuel supplied from Russia is planned to be reduced from 49 percent (as of the first half of 2017)
to 45 percent by the end of 2017. Westinghouse has already stated its readiness to increase its nuclear
fuel supplies to Ukraine's nuclear power plants.69
In the meantime, 75 percent of the YuUNPP's active
capacity is loaded with Westinghouse fuel, and the second power-generating block is planned to be
loaded by the end of the year, as well as the active capacity of the third block in 2018. The plant is
planned to switch to American fuel completely in 4 years.70
Also in July, the SNRIU permitted the use of
Westinghouse fuel on power-generating units No. 1 and No. 4 of the Zaporizhzhia NPP.71
To bring the level of safety at Ukraine's NPPs into line with international requirements, "post-Fukushima"
and CCSUP measures were implemented in August. In particular, as part of the implementation of "post-
Fukushima" safety measures, the KhNPP received four mobile diesel-generating stations to support safe
operation of the KhNPP in an emergency with complete power outage at the NPP.72
Also, as part of CCSUP
measures, the first power-generating block of the YuUNPP underwent works to replace old batteries for
new ones of series Classic from Exide Technologies GmbH (GNB Industrial Power) in the general block and
third channel safety system.73
On August 30, the draft law "On Amendments to Certain Laws of Ukraine Regulating the Nuclear Energy
Sector" (No. 5703 dated January 23, 2017) was withdrawn in the VRU.74
Article 342, Chapter 1, Section V of the EU-Ukraine Association Agreement, Nuclear Cooperation,
Cooperation in Solving the Problems Resulting from the Chornobyl Disaster and Decommissioning of
the Chornobyl Nuclear Power Plant
On August 1, the first stage of comprehensive testing of SNFSF-2 began, involving simulated spent fuel
assemblies (SSFA). The "hot" testing of SNFSF-2 involving spent nuclear fuel is scheduled to start in
December 2017.75
The industrial site of the Chornobyl NPP has resumed the works to construct a LRW reprocessing plant to
treat the LRW accumulated at the Chornobyl NPP, generated in the process of the facility's
decommissioning, and the LRW from the Shelter Object.76
68 http://mpe.kmu.gov.ua/minugol/doccatalog/document?id=245213112
69 https://economics.unian.ua/energetics/2094979-westinghouse-gotuetsya-zbilshiti-svoyu-chastku-na-rinku-yadernogo-paliva-
ukrajini-zayava-kompaniji.html
70 https://economics.unian.ua/energetics/2080704-tretiy-blok-yujno-ukrajinskoji-aes-hochut-povnistyu-perevesti-na-palivo-
westinghouse-v-2018-rotsi-energoatom.html
71 http://www.snrc.gov.ua/nuclear/uk/publish/article/369005
72 http://www.energoatom.kiev.ua/ua/press/nngc/47452-
na_hmelnitckyi_aes_prodovjuyut_vprovadjuvati_postfukusmsk_zahodi_z_bezpeki/
73 http://www.energoatom.kiev.ua/ua/press/nngc/52937-
na_yuuaes_vedetsya_zamna_akumulyatornih_batareyi_na_sistemah_vajlivih_dlya_bezpeki/
74 http://w1.c1.rada.gov.ua/pls/zweb2/webproc4_1?pf3511=60992
75 http://dazv.gov.ua/novini-ta-media/vsi-novyny/vitalij-petruk-kholodni-viprobuvannya-tse-vikhid-na-pryamu-do-provedennya-
garyachikh-viprobuvan-ta-vvedennya-v-ekspluatatsiyu-svyap-2.html

On September 14, 2017, Commission Regulation (EU) 2017/1485 of August 2, 2017 establishing a guideline on
electricity transmission system operation comes into force.
It was developed by the ENTSO-E and combines in a single legislative document the previous three draft codes for
operation under normal conditions (regarding operational safety, operational planning and scheduling, and load
frequency control and redundancy).
The Grid Code provides detailed recommendations for:
(a) operational safety requirements and principles;
(b) rules and responsibilities for the coordination and data exchange between TSOs, between TSOs and DSOs,
and between TSOs, DSOs, and the Significant Grid User, which means that an existing and a new power
generating installation and an installation that uses the grid in terms of demand and is regarded as a TSO is
significant because of its impact on the transmission system in terms of supply safety, including the provision
of supporting services, in operational planning and on-line mode);
(c) rules of training and certification of the system operator's staff;
(d) power shutdown coordination requirements;
(e) requirements for planning between areas covered by controlling organizations;
(f) rules intended to establish a Union framework for controlling load frequency and redundancy.
76 http://dazv.gov.ua/novini-ta-media/vsi-novyny/u-grudni-2017-roku-na-prommajdanchiku-dsp-chornobilska-aes-planuyut-
vvesti-v-ekspluatatsiyu-zavod-z-pererobki-ridkikh-radioaktivnikh-vidkhodiv.html

Energy Efficiency and Social Issues
A traditional still season in the previous years, this August was for the government quite a busy month in
terms of progress in the energy efficiency reform. Following the conceptual adoption of most of the basic
laws (the latest draft law from the energy efficiency package titled "On Housing and Communal
Services," which had not been adopted, was scheduled for voting in early September), the initiative in
this area has generally shifted to executive authorities.
Expectedly, the Ministry of Regional Development as the principal regulatory acts developer created
working groups to prepare the regulatory framework for all three laws. Unfortunately, none of them is
working intensively enough, and the process itself can hardly be regarded as completely transparent and
open to the public. At the same time, the Cabinet of Ministers has succeeded in upgrading the
approaches to social assistance in the field of utility bill payments by improving certain approaches to
subsidies. Welcoming such initiatives, the expert community, however, keeps stressing the need for
comprehensive changes to this system to be able to monetize subsidies at the level of consumers, in the
first place.
Directive 2012/27/EC on energy efficiency
Initially the government committee77
, and later the Cabinet of Ministers78
, approved the draft Energy
Strategy of Ukraine by 2035. The formation of an energy-conscious society is declared among (actually the
topmost of) the six priorities of the government energy policy for this period of time. Unfortunately, as of
early September 2017, the only publicly available text of this document remained the draft version of June
1, 2017 posted on the website of the Ministry of Energy and Coal Industry79
, though the official text was
thereafter released80
. Apart from that, the government approved the concept of further heating reform81
,
which, despite declaring quite right goals and effective approaches, is extremely general.
Energy Audits and Energy Management Systems (Article 8)
While the fate of the dubious government order introducing a national energy management system in
public sector institutions in Ukraine remains unclear, and achievements in promoting energy audits are
fixed at the level of information seminars and public events only, 82
some local self-government bodies keep
showing far greater initiative than the central government. In particular, the Cherkasy Raion State
Administration has decided to introduce a simple energy management system in some public sector
institutions, appreciating the energy and money savings achieved in other regions of the country.83
Despite the fact that the Cabinet of Minister's instruction is not made public as of today, the State Agency
on Energy Efficiency and Energy Saving together with experts of the USAID project "Municipal Energy
Reform in Ukraine" has developed for local self-government authorities regulations on:
• the introduction of energy management systems in public sector institutions financed from local
budgets;
• monitoring of fuel and energy consumption by public sector institutions;
• financial incentives for persons responsible for implementing energy management systems in pubic
sector institutions;
• establishment of energy consumption limits for pubic sector institutions.
77 https://day.kyiv.ua/uk/news/100817-uryadoviy-komitet-shvaliv-energetichnu-strategiyu-ukrayini-do-2035-go-kistion
78 http://www.kmu.gov.ua/control/uk/publish/article?art_id=250208232
79 http://mpe.kmu.gov.ua/minugol/control/uk/doccatalog/list?currDir=50358
80
http://mpe.kmu.gov.ua/minugol/control/uk/publish/article?art_id=245234085&cat_id=35109
83 http://provce.ck.ua/cherkaskyj-rajon-stane-pershoprohidtsem-u-vprovadzhenni-masshtabnoho-proektu-z-
enerhomenedzhmentu/

The said Regulation is published on the official website of the State Agency on Energy Efficiency and Energy
Saving84
. The recommendations it provides were developed within the framework of the signed
memoranda of partnership between the State Agency on Energy Efficiency and Energy Saving and local
authorities regarding the implementation of energy management in the public sector.
Metering (Article 9)
A working group has been established within the Ministry of Regional Development and Municipal
Economies to prepare by-laws aimed at implementing the Law "On Commercial Accounting of Thermal
Energy and Water Supply," which came into effect on August 2. The working group includes representatives
of the sectoral VRU committee, water supply and sewerage companies and district heating utilities, the
NEURC, State Agency on Energy Efficiency and Energy Saving, Ministry of Economic Development and
Trade, Association of Ukrainian Cities, NJSC Naftogaz, non-governmental organizations, and housing and
utilities experts. On August 30, the working group had its first meeting, at which a list of draft legislative
and regulatory acts was presented, prepared by experts of the Ministry of Regional Development and
Municipal Economies Development, including:
Draft government resolutions:
- On approval of the procedure for the notification by external utility network operators of building
owners (co-owners) of their intention to install commercial metering devices;
- On approval of the procedure for transferring the fees paid by consumers for the installation of a
commercial metering device by an external utility network operator to the communal contractor
that is not the operator of the given external utility network;
- On approval of the procedure for determining the technical feasibility of the installation of heat
distribution meters and economic feasibility of the installation of heat distribution meters;
- On approval of the procedure for monitoring the coverage by installed commercial metering
devices and the procedure for information exchanges between the authority monitoring the
coverage of utilities by installed commercial metering devices and the body that is authorized to
make decisions to bring subjects to responsibilities for violations;
Draft orders of the Ministry of Regional Development and Municipal Economies:
- On approval of the procedure for installing commercial metering devices in buildings and equipping
utility systems for such metering;
- On approval of the procedure for equipping individual premises in buildings with heat distribution
meters/heat distributing devices and equipping utility systems for such accounting;
- On approving the methodology for determination of the fee for the installation, replacement, and
maintenance of commercial metering devices and distribution of tis amount among the consumers;
- On approval of the procedure for accepting metering devices for subscriber registration;
- On approving the methodology for distributing the cost of consumed utility services in the building
among the consumers;
- On approving the methodology for determining and calculating correction factors for distribution of
consumed heat among individual consumers (in corner apartments (premises) and apartments
(premises) located on the ground and topmost floors of buildings, etc).
According to the minutes of the working group's meeting received by Energy Reforms experts from one of
its participants, a decision was made to identify the main executors in the relevant structural units of the
Ministry that were to coordinate working subgroups and interaction among their members in drafting
legislative and regulatory acts.
84 http://saee.gov.ua/sites/default/files/ENERGY_MANAGEMENT_14_08_2017.docx

The Ministry of Regional Development and Municipal Economies85
and the NEURC (in response to the
official request for information from NGO Civil Network OPORA) simultaneously reported on the current
coverage of the housing stock by heat meters, and it is noteworthy that the data presented by the ministry
and the data from the national commission vary considerably. This could be explained by the difference in
indicators (the Ministry of Regional Development and Municipal Economies counted buildings with central
heating systems and buildings that actually are equipped with heat meters, whereas the regulator counted
the total number of heating inputs and the number of meters installed on them), if the variances were not
so striking in some regions. For example, according to the ministry, there are 944 buildings with meters
installed in the Zhytomyr Oblast, while according to the regulator, there are almost half of that number of
meters installed on the heating inputs, that is, only 482. On the other hand, the Ministry of Regional
Development and Municipal Economies reports 4,175 buildings equipped with meters in the Kharkiv region,
while the NEURC gives a greater figure of 4,650 meters. Despite these regional variances, both the ministry
and the national regulator arrive at similar summary figures: 56,964 buildings are equipped with meters
(Ministry of Regional Development and Municipal Economies) and 56,317 meters installed on heating
inputs (national commission).
Communication of Energy Efficiency Improvement Updates to Consumers and Other Stakeholders
(Articles 12, 17)
The State Agency on Energy Efficiency and Energy Saving, as a specialized body of executive power that
implements the state energy saving and energy efficiency policy, is exercising energetic efforts in its
information component. Continuing the positive dynamics of the previous periods, the State Agency on
Energy Efficiency and Energy Saving held in August a number of public events that focused on energy
management and benefits of the ESCO mechanism in the Donetsk region, 86
, as well as ways to improve
energy efficiency in the industrialized region of the Zaporizhzhia Oblast.87
In addition, the agency's
specialists developed and distributed recommendations to local authorities on the implementation of an
energy management system in public sector institutions.88
Energy Service Market (Article 18)
The national database of potential ESCO objects previously created by the State Agency on Energy
Efficiency and Energy is actively developing: while as of the beginning of August it counted about 7,000
objects, at the end of the month their number exceeded 10,00089
.
In addition, with the support of the Friedrich Ebert Foundation and market operators, the State Agency on
Energy Efficiency and Energy Saving continued in August the information campaign promoting energy
audits and the benefits of the ESCO-mechanism for the Kherson 90
and Donetsk Oblast 91
state
administrations. As earlier, the main purpose of those events was to spread the word promoting the
benefits of ESCO-contracts in the public sector, which is completely in line with the government functions
as seen by the relevant articles of the Directive.
Energy Efficiency Fund, Financing and Technical Support (Article 20)
As was the case with the law on commercial accounting for heat, a working group was created under the
Ministry of Regional Development and Municipal Economies to develop regulatory acts in pursuance of the
85 http://www.minregion.gov.ua/wp-content/uploads/2017/07/Priladi-obliku-01.07.2017.pdf
86 http://saee.gov.ua/uk/news/1909
89 http://saee.gov.ua/uk/content/energoservis_1

Law "On the Energy Efficiency Fund." According to the Ministry of Regional Development and Municipal
Economies, a number of bylaws have already been developed, including a draft government resolution on
the establishment of the Energy Efficiency Fund and approval of its charter, and sent to the central
executive authorities for approval in accordance with the Cabinet of Ministers Regulation. However, the
said acts have not been posted on the official website of the principal developer. In addition, a scheduled
meeting of the working group is being prepared to consider proposals on the preparation of other draft
acts concerning operation of the Energy Efficiency Fund.
While the creation of the Energy Efficiency Fund is yet underway, the monitoring conducted by the State
Agency on Energy Efficiency and Energy Saving shows that since early October 2014, approximately 320,000
families have taken advantage of the state support for the implementation of energy efficiency measures in
the housing sector under the government's "warm loans" program for a total of more than UAH 4 billion.
Some 210,000 families have drawn UAH 3.5 billion to acquire energy efficient materials and equipment. In
particular, the individual home insulation projects are the most popular. Over 21,000 private households
have drawn UAH 367 million from banks to install solid fuel boilers. Condominiums and housing
associations also accounts for a significant share in the state financial support for thermo-modernization of
apartment buildings. In particular, more than a thousand of condominiums and housing associations (about
80,000 families) have received UAH 178.3 million from banks.92
In view of the fact that the state budget allocations had been used up as early as April 2017, banks
temporarily suspended lending for energy efficiency projects, though the issue of "warm loans" resumed
from August 1493
.
Directive 2010/31/EU on the energy performance of buildings
The Law "On Energy Performance of Buildings" is possible to implement only through the adoption and
implementation of the provisions and rules of by-laws. Such bylaws are currently being drafted by a
working group created by the Ministry of Regional Development and Municipal Economies, with the
participation of experts, representatives of central executive bodies and international technical support
donors. However, it has been a long time since the public domain had any draft regulatory acts published
and information released on whether such documents had been sent to central executive authorities for
approval. Therefore, it is rather difficult to talk about the content of such acts.
Such an unjustified delay is a bad message, as the law provides for at least eight complex regulatory acts to
be developed, for example, regarding the need to establish the characteristics of buildings with nearly zero
energy consumption and of the minimum profitability level based on the methods for calculating energy
performance indicators of buildings. According to the transitional provisions of the law, all the said acts
must be developed within six months of its effective date (except for the adoption of the first national plan
to increase the number of buildings with nearly zero energy consumption, for which the government has
been given up to two years)94
.
Social Issues
Changes have occurred in the field of social support for housing and communal services consumers. The
new subsidy calculation rules have started to work since August 18, 2017. This means that from now on,
when deciding on the amount of subsidy to be provided, incomes for the latest six months will be taken
into account rather than incomes for the whole past year, as it used to be previously. In addition, the
changes also apply to subsidies for households with unemployed persons. From now on, the income of the
unemployed for this period will be taken as double the amount of subsistence minimum.
94 http://zakon3.rada.gov.ua/laws/show/2118-19/print1501171330168556

Positive changes have also been noticed with regard to the debts incurred by subsidy recipients for housing
and utility services, specifically, if a family has a debt of up to UAH 340, this will not deprive it of a due
subsidy, unlike earlier when any housing and utility debt automatically deprived of the right for a subsidy.
Some changes also took place in the issue of changed place of residence of a subsidy recipient. From now
on, subsidies will be provided either at the place of actual residence (which has to be reported in advance)
or at the place of registration, whereas before August 18, subsidies for housing and utility services were
provided to citizens without taking into account their place of registration and actual residence.
In early August, the President signed amendments to the Law "On the State Budget of Ukraine for 2017,"
adopted earlier by the Verkhovna Rada, increasing thereby the state budget subventions to local budgets
for relieves and housing subsidies for households by UAH 14.1 billion to almost UAH 61.2 billion.95
However, according to calculations by public experts participating in the working group on monetization of
subsidies, the allocated amounts will still not suffice to cover all relieves and subsidies by the end of 2017,
since some of them have been used for covering the arrears in state guarantees due to the residential
sector for housing and utility services, incurred as a result of a partial lack of funding at the beginning of the
year. There is a high probability of new waves of social tension associated with unsystematic funding of
DHU enterprises through social support programs, which may leave such enterprises unable to provide
utility services to consumers.
The stated intentions to create a centralized register for collecting the full information about subsidy
recipients are not implemented yet. Moreover, regulation is needed for the issues of access to this register
for authorized fiscal authorities, its synchronization with other registers, and filling it up with the necessary
data, for example, about the energy consumption by the population, etc.
Significant changes may be expected for retail consumers of natural gas in Ukraine in the light of the
recommendations provided to Ukraine by the Energy Community Secretariat in its letter of August 22.96
Proceeding from the negative evaluation of the existing system of imposing public service obligations on
suppliers of gas to households, this competent authority has proposed to cancel on certain conditions the
obligation of state-owned mining companies to sell gas for such purposes in favor of NJSC Naftogaz of
Ukraine and the latter's obligation to unconditionally sell this gas to oblast distribution companies. Provided
that the proposed changes will be implemented to a significant degree, gas consumers in Ukraine will be
theoretically able to choose a supplier, as there will be new companies competing with traditional oblast
gas companies. It is expected that the newly established retail companies of NJSC Naftogaz of Ukraine will
become the initial competitors, which the company sees as a great opportunity,97
, and additionally, oblast
gas companies may themselves compete with one another outside their traditional oblast markets. The
implementation of these proposals will bring Ukraine significantly closer to the goal of complete
implementation of the provisions of Directive 2009/73/EC in so far as it relates to ensuring consumer rights.
95 http://www.president.gov.ua/news/prezident-pidpisav-zmini-do-derzhbyudzhetu-na-2017-rik-yaki-42630
97http://www.naftogaz.com/www/3/nakweb.nsf/0/70B7A05B71C1F63DC225818C00271911?OpenDocument&year=2017&month=
08&nt=%D0%9D%D0%BE%D0%B2%D0%B8%D0%BD%D0%B8&

The modalities of adoption and implementation of the Clean Energy for All Europeans initiative remain the central
updating issue of the European energy law. The package of legislative initiatives concerns the adoption of new
editions of the Energy Performance of Buildings Directive and the Energy Efficiency Directive. The deadlines and
ways for approving the updates of these fundamental documents by the European Parliament were discussed at a
meeting of the European Energy Council with the participation of energy ministers of the member states, Vice-
President of the European Commission M. Šefčovič and EU Commissioner for Energy and Climate Change
M. Canete. The meeting also approved (and published in August) the earlier discussed amendments to the energy
efficiency labeling regulation. Following the results of this meeting, Mr. Canete made a speech welcoming the
progress made but remarking that further work was needed with the European Parliament to make the national
commitments of member states more ambitious.
The European Commission also approved new special ecodesign rules for vacuum cleaners sold and used on the EU
territory. According to DG Energy, the regulation innovations reflect advanced technologies and achievements in
technological progress, and the application of the new rules is estimated to save up to EUR 70 for each consumer in
the service life of each appliance. The new rules also promise to save up to 20 TWh by 2020.

Environment and Renewable Energy Sources
The Association Agreement was not being implemented in August 2017 in so far as it related to the issues
covered by the monitoring. The only fact worth mentioning here was the President's signing of the Law
"On Amendments to Certain Legislative Acts of Ukraine on Conservation of the Primeval Forests under
the Framework Convention on the Protection and Sustainable Development of the Carpathians."
At the same time, "green" energy projects have at last been legislatively promoted to the priority
category. The evidence is the government-approved Energy Strategy of Ukraine by 2035 "Security, Energy
Efficiency, Competitiveness," according to which the share of electricity generated from RES in the total
national electricity output should reach 25 percent. Given that as of August 1 this share was only 1.43
percent, this target looks overly ambitious so far, requiring a very fast growth in "green" generation
capacities.
Directive 2009/147/EC on the Conservation of Wild Birds (Article 4.2) (Article 363 of the AA)
On August 31, 2017, the President finally signed98
the Law "On Amendments to Certain Legislative Acts of
Ukraine on Conservation of the Primeval Forests under the Framework Convention on the Protection and
Sustainable Development of the Carpathians," which passed vote in the Verkhovna Rada in May 2017.99
This law is extremely important in view of the need to protect virgin forests in Ukraine and will have an
indirect positive effect on the conservation of wild birds. The law makes cutting virgin forests impossible
and will pave the way for the introduction of administrative responsibility for the destruction of and
damage to virgin forests.
Directive 2009/29/EC on the promotion of the use of energy from renewable sources and amending and
subsequently repealing Directives 2001/77/EC and 2003/30/EC (Article 338 of the AA)
According to the results of the first half of 2017, 126.5 MW of "green" capacities were introduced in
Ukraine, of which 118.1 MW was the share of solar power generation. This is a result of the "green" solar
energy tariff remaining very high, and despite the volatile political situation and defective "rules of the
game" on the market, investors want to invest in "green" projects. Parallel to this, solar projects are
becoming increasingly interesting not only for businesses, but also for households. As of the end of the first
half of this year, 1,635 households had installed solar panels, 100
up almost fourfold compared to 2016. It is
worth noting that as little as 121 MW of "green" capacities was installed for the whole past year. In general,
experts estimate that approximately USD 130 million was invested in renewable energy over the six
months.
However, it should be noted that almost all such projects are implemented by domestic investors. Foreign
business is still indecisive despite the numerous negotiations held by the State Agency on Energy Efficiency
and Energy Saving. In particular, Denmark is yet not contemplating any serious investments in renewable
energy projects in Ukraine but ready to help Ukraine improve its legislative framework in this field101
. Also,
the Danish company Rambøll Group will develop mechanisms for Ukraine to encourage non-gas-based heat
production and mechanisms accelerating the pace of development of the domestic biomass market102
.
Meanwhile, the Swiss startup Designergy is considering the possibility of setting up in Ukraine 103
the
manufacture of unique solar panels integrated into the roofing of buildings.
98 http://www.president.gov.ua/news/prezident-pidpisav-zakon-pro-posilennya-vidpovidalnosti-za-n-43014
99 http://w1.c1.rada.gov.ua/pls/radan_gs09/ns_golos?g_id=12509
103 http://www.kmu.gov.ua/control/publish/article?art_id=250187636

Environment and Renewable Energy Sources
In August 2017, the Official Journal of the European Union (L 212/1) published Commission Implementing Decision
(EU) 2017/1442 of July 31, 2017 establishing best available techniques (BAT) conclusions, under Directive
2010/75/EU of the European Parliament and of the Council, for large combustion plants.

Oil
If it were not for the Energy Strategy adopted identifying the development priorities and target state of
the oil sector of Ukraine by 2035, one could say that August has passed in vain for the government. The
development deadline for the new Subsoil Code was again postponed. The implementation is delayed of
Directive 98/70/EC relating to the quality of gasoline and diesel fuel and Directive 94/63/EC on the
control of volatile compound emissions resulting from the storage of petrol and its distribution from
terminals. For unknown reasons, the issuance of special permits for subsoil use has been suspended,
which has already affected outputs. Despite a rather high spot given to Ukraine in the RGI 2017 rating,
experts believe the country does not have or have still underdeveloped the legal instruments needed for
effective hydrocarbon production.
The results achieved by the government increasingly less correlate with the officially declared plans.
More frequent become reports of adopted government decisions that are actually still under
development. The published financial audit reports on enterprises responsible for the fulfillment of
Ukraine's international obligations unexpectedly prove facts of wound up work on projects loudly
announced previously. The Ministry of Energy and Coal Industry, Ministry of Ecology and Natural
Resources, and State Service for Geology and Mineral Resources consider completed a number of tasks in
the oil sector, though the draft documents they have worked out have long been returned for revision
because of their failure to comply with the requirements of the regulation.
Directive 2009/119/EC Imposing an Obligation on Member States to Maintain Minimum Stocks of Crude
Oil and/or Petroleum Products (Article 338 of the Association Agreement)
The updated implementation plan for Directive 2009/119/EC was not approved as of September 5, 2017,
developed by the State Reserve Agency to replace the currently effective one104
, and the implementation
terms of most of the tasks set therein expired in 2015-2016. The document proposes to105
the Cabinet of
Ministers to assign the State Reserve Agency the responsibility for "organizing the work to implement the
action plan," releasing the Ministry of Energy and Coal Industry of this responsibility, and reschedule:
– the adoption of the regulatory act of the Cabinet of Ministers regarding the model of minimum security
stocks of oil and petroleum products from December 2015 to December 2017;
– the adoption of the Law "On Minimum Security Stocks of Oil and Petroleum Products" from December
2016 to December 2017;
– the implementation of all the organizational measures set in the action plan for a period following the
enactment of the law "On Minimum Security Stocks of Oil and Petroleum Products."
At the same time, the State Reserve Agency has not yet selected a date for the roundtable that is expected
to see a presentation of the first fruits of efforts of the European and Ukrainian experts working in the EU
technical support project "Assisting Ukraine in Implementing Energy Sector Reform to Meet Its
International Obligations."106
Directive 2009/28/EC on the Promotion of the Use of Energy from Renewable Sources and Amending and
Subsequently Repealing Directives 2001/77/EC and 2003/30/EC
On August 18, 2017, the government approved the Energy Strategy of Ukraine by 2035 titled "Security,
Energy Efficiency, Competitiveness."107
The document, in particular, provides for:
- increased share of renewable energy in the final consumption to up to 11 percent by 2020 due to the
development of a stable and predictable policy for encouraging the use of such energy and investment
attraction;
- encouragement of increased use of environment-friendly types of motor fuel, increased share of
environment-friendly types of fuel in the consumption balance, and creation of incentives to promote
growth in this share;
- support for the implementation of energy-saving , efficient, and environmentally friendly technologies
throughout the entire chain from production to supply of petroleum products to end users.
104 http://zakon0.rada.gov.ua/laws/show/346-2015-%D1%80
105 http://civic.kmu.gov.ua/consult_mvc_kmu/uploads/attach-3346-490347147.pdf
106 http://rezerv.gov.ua/u-derzhrezervi-tryvae-robota-po-implementacii-dyrektyvy2009119ec/

Oil
On August 28, 2017, while reporting on his three years in the office of head of the State Agency on Energy
Efficiency and Energy Saving, Serhii Savchuk once again announced the draft "On Amendments to Certain
Legislative Acts of Ukraine Regarding Fostering the Production of Liquid Biofuels" (p. 30 of the
presentation108
). It requires the addition of bioethanol and biodiesel to all petroleum products marketed
within the customs territory of Ukraine and introduction of administrative liability for failure to comply with
this requirement.
The State Agency on Energy Efficiency and Energy Saving maintains that such steps are intended to
implement Directive 2009/28/EC, though all consumers in the EU Member States are guaranteed retention
of the supply of traditional petroleum products for non-flexible fuel vehicles. The forced, under penalty,
addition of bio-components discriminates not only against market participants, but also against 60 percent
of Ukrainian motorists whose vehicles are not adapted to mixed fuels.
It should be noted that the requirements of the draft law contradict Article 18-3 of the Commercial Code of
Ukraine, which prohibits state authorities from "any actions that eliminate competition or unreasonably
facilitate business for select competitors" and are subject to Article 166-3 of the Administrative Code of
Ukraine as imposing restrictions on "the production of specific goods in order to limit competition";
restricting "the right of entrepreneurs to purchase and sell goods"; and imposing "prohibitions or
restrictions on certain entrepreneurs or groups of entrepreneurs."
Although the Ministry of Energy and Coal Industry, the Ministry of Economic Development and Trade, the
State Agency on Energy Efficiency and Energy Saving have have not approved the draft law, the State
Agency on Energy Efficiency and Energy Saving keeps insisting on the need to adopt it, a fact evidenced by a
document under the same title included in the Government's Priority Action Plan for 2017 (Clause 187,
Section I109
).
Directive 99/32/ЕС on Reducing the Sulfur Content of Certain Liquid Fuels and Amending Directive
93/12/EC as Amended and Supplemented by Regulation (EC) 1882/2003 and Directive 2005/33/EC
In pursuance of the requirements of Directive 99/32/EC as regards the authorized body, the Ministry of
Energy and Coal Industry published on February 11, 2016 the draft CMU resolution "On Amendments to
Cabinet of Ministers Resolutions No. 573 dated June 1, 2011 and No. 927 dated August 1, 2013."110
. This
draft law ascribes motor gasolines, diesel, marine, and boiler fuels to the purview of the State Service for
Food Safety and Consumer Protection as a state market supervision body. Although, the said draft
resolution was declined by Decision No. 604 of the State Regulatory Service, dated December 29, 2016, as
developed without adherence to the key principles of state regulatory policy111
, it is not being revised as
the document has been removed from the checklist.
Directive 98/70/ЄC Regarding the Quality of Gasoline and Diesel Fuel and Amending and Supplementing
Directive 93/12/EЕС Supplemented by Directives 2000/71/EC, 2003/17/EC, and 2009/30/EC, and
Regulation (EC) 1882/2003 (Annex ХХХ, Articles 360-363, 365, and 366 of the AA)
According to the Directive 98/70/EC implementation plan (Articles 7 and 8, Clause 1.3), the Ministry of
Energy and Coal Industry has undertaken to report from December 2015 on the operation of the petroleum
products quality and safety monitoring system in Ukraine112
. However, as of September 5, 2017, no
document was released. Only the draft resolution of the Cabinet of Ministers "On Amendments to Cabinet
of Ministers Resolutions No. 573 dated June 1, 2011 and No. 927 of August 1, 2013" was published113
. It
provides that compliance control authorities must report twice a year to the Ministry of Energy and Coal
Industry on the activity of checking conformity of fuels with the Technical Regulation requirements.
Although, the said draft resolution was declined by Decision No. 604 of the State Regulatory Service, dated
108 http://saee.gov.ua/sites/default/files/REPORT_29_08_2017.pdf
109 http://zakon2.rada.gov.ua/laws/file/text/54/f466691n20.zip
111 http://www.drs.gov.ua/wp-content/uploads/2016/11/7994-29-12-2016.pdf
112 http://www.kmu.gov.ua/document/248091869/Dir_98_70.pdf

Oil
December 29, 2016, as developed without adherence to the key principles of state regulatory policy114
, it is
not being revised as the document has been removed from the checklist.
The national standardization program for 2017115
as amended as of July 25, 2017 provides for the adoption
by the end of 2017 of 32 standards to implement Directive 98/70/EC. Three of them were approved as of
September 5, 2017, nine being in the editing phase, 15 returned for revision, and five being in the initial
development phase116
. On the whole, of the 36 national standards for motor fuels and testing methods,
which are needed to enable the application of the Technical Regulation Regarding the Requirements for
Motor Gasolines, Diesel, Marine, and Boiler Fuels117
, only twelve have actually been approved.
The Ministry of Energy and Coal Industry is obligated to develop by January 1, 2018 the Technical
Regulation Regarding the Requirements for Aviation Gasolines and Jet Fuel in compliance with the
requirements of Directive 98/70/EC (Clause 32 of the 2017 Plan to Develop Technical Regulations118
).
However, the implementation of this and the above-mentioned tasks in full is unlikely due to a lack of
funding.
Directive 94/63/EC on the Control of Volatile Organic Compound Emissions from Storages of Petroleum
Products and Their Transportation from Oil Terminals to Service Stations, as Amended by Regulation (EC)
1882/2003 (Annex ХХХ, Articles 360-363, 365, and 366 of the AA):
In November 2016, the tasks set in Clauses 1.1.1, 1.1.2, and 1.2.1 of the Directive 94/63/EC implementation
plan became overdue119
. Despite this, as of September 05, 2017, the Cabinet of Ministers had failed to
adopt the resolution "On Approving the Technical Regulation of the Requirements for Storage,
Transportation, and Transshipment of Fuel, Equipment and Service Stations," and the Ministry of Ecology
and Natural Resources failed to approve the recommendations for controlling operation of filling stations
and to take inventory of oil tank farms.
Directive 94/22/EC on the Conditions for Granting and Using Authorizations for the Prospecting,
Exploration and Production of Hydrocarbons (Annex XXVII, Articles 279, 280, and 341 of the AA)
According to the Implementation Plan of Directive 94/22/EC, a new version of the Subsoil Code of Ukraine
should have been adopted by the end of 2016120
. It is known that amendments to the document are under
development by the working group under the Ministry of Ecology and Natural Resources of Ukraine121
,
whose latest scheduled meeting took place on July 18, 2017122
. The Cabinet of Ministers said that as of
June 20, 2017, the draft of updated Subsoil Code of Ukraine was "under review by concerned
authorities",123
since its submission to the Verkhovna Rada had been postponed to the fourth quarter of
2017 (Objective I, Task 202124
).
Unclear remains the progress in the preparation of draft government resolutions amending the Regulation
of Geological Information Disposal Procedure125
(Objective I, Task 206126
), Methodology for the Valuation of
the Mineral Resource Potential and Mineral Reserves of a Conceded Field or Subsoil Block127
, and
Methodology for Determining the Initial Auction Price for the Special Permit for Subsoil Use128
(Objective І,
114 http://www.drs.gov.ua/wp-content/uploads/2016/11/7994-29-12-2016.pdf
115 http://uas.org.ua/wp-content/uploads/2017/04/Program_2017_nakaz_N64_2017-04-03.xlsx
116 http://uas.org.ua/ua/messages/dodatok-1-do-programi-robit-z-natsionalnoyi-standartizatsiyi-na-2017-rik/
117 http://zakon.rada.gov.ua/go/927-2013-п
118 http://www.me.gov.ua/Documents/Download?id=d8571d0b-53a6-4ade-88c1-75579be0cb39
121 https://menr.gov.ua/content/sklad-robochoi-grupi.html
122 https://menr.gov.ua/news/31593.html
123 http://www.drs.gov.ua/deregulation/plan-deregulyatsiyi-2016-2017-rr/
124 http://www.kmu.gov.ua/document/249935381/R0275.doc

Oil
Targets 203 and 204129
). Harmonization of the present methodologies with applicable legislative norms and
the requirements of the UN Framework Classification of 2009 will:
– simplify commercial, feasibility, and geological study, as well as taxation operations, in particular at the
time of implementation of production-sharing agreements;
– introduce a differentiated assessment approach depending on the intended purpose of the works
(exploration or production), reliability degree of the geological material (resources or reserves), and
type of deposits in terms of extraction complexity (traditional or non-traditional methods).
At the same time, the Ministry of Social Policy delays developing a draft Cabinet of Ministers act amending
the Regulation of the Mining Allotment Granting Procedure 130
in the part related to revoking a mining
allotment for the oil and gas industry (the implementation deadline is the first quarter of 2017131
).
Despite a rather high spot given to Ukraine in the RGI 2017 rating132
, experts point to the lack or
underdevelopment of a number of legal instruments related to hydrocarbon development in the country133
.
In particular, they emphasize the following points:
- the impossibility of distributing risks among several partners in the same project to be able to attract
new investors to existing subsoil projects;
- too lengthy a process of negotiating and approving production-sharing agreements and increased risk
of default on them due to the government of Ukraine being a mandatory party to them;
- the impossibility to build flexible joint asset management tools due to the compulsory participation in a
company that holds a special permit, which means the need to acquire all its assets and liabilities;
- doubtfulness of service agreements concluded within Ukraine's legal environment, as well as the
requirement of the international financial reporting rules to reflect stocks in the contractor's balance
sheet;
- the ban on the alienation of right to use subsoil plots and wells, and the lack of guarantees of smooth
transition hydrocarbon production for an investor that has completed the geological exploration work.
The issue by the State Service for Geology and Mineral Resources of special permits for subsoil use remains
unresolved as well. With this in mind, Ministry of Ecology and Natural Resources of Ukraine Head Ostap
Semerak initiated on August 7, 2017 a second review of the membership of the Subsoil Use Commission
under the State Service for Geology and Mineral Resources. The reason for this decision is the impossibility
of meetings due to the lack of a quorum. According to the minister, "the State Service for Geology and
Mineral Resources needs a serious reform" that should not be limited to changing the leadership of this
body.134
Meanwhile, the Ukrnafta PJSC board instructed the appropriate people on August 21, 2017 to prepare by
the end of the current month a plan of action to wind up a number of projects and cut the investment
program by at least UAH 500 million due to a delay in prolonging the hydrocarbon production licenses for
the Zavodivske, Korzhivske, Koziivske, Pivdenno-Panasivske, Anastasiivske, Artyukhivske, Rybalske,
Kachalivske, and Lypovodolynske fields135
. The possibility of cutting the staff to up to 1,500 employees is
also under consideration. On August 3, 2017, the decision of the Circuit Administrative Court of Kyiv came
into effect, binding the State Service for Geology and Mineral Resources to extend for 20 years and issue
licenses for the Zavodivske, Korzhivske, and Koziivske fields. On August 11, 2017, the State Enforcement
Service opened proceedings to implement this decision. The claim by Ukrnafta PJSC seeking extension of
the other six licenses has also been allowed by a court of first instance. As of September 05, 2017, there
was no date set for the case consideration in an appellate court.
131 http://zakon2.rada.gov.ua/laws/show/1079-2016-%D1%80/paran146#n146
132 http://resourcegovernanceindex.org/system/documents/documents/000/000/046/original/2017_Resource_Governance_
Index.pdf?1498599435
133 https://focus.ua/opinions/378207/
134 https://www.facebook.com/os.semerak?hc_ref=ARRoOvtdDCEbK6jt57sckggmvVU-6qn6YB9de9fzv3NM-
X5Z9qi_3eKOaLPtQYTCmUc&fref=nf&pnref=story
135 https://www.ukrnafta.com/ukrnafta-skorotit-investiczijnu-programu-ta-personal

Oil
Article 280 of the AA regarding transparency in licensing hydrocarbon prospecting, exploration, or
production
On August 17, 2017, the interagency commission for the conclusion and implementation of production-
sharing agreements created a working group to prepare draft resolutions of the Cabinet of Ministers on
tender competitions for three agreements on the distribution of the hydrocarbons to be produced within
the subsoil blocks Reshetylivska (Poltava Oblast), Berestyanska (Lviv, Kharkiv, and Dnipropetrovsk Oblasts),
and Varvynska (Poltava and Chernihiv Oblasts)136
.
Yet, the Ministry of Ecology and Natural Resources keeps delaying drafting a Cabinet of Ministers resolution
"On Amendments to Cabinet of Ministers Resolution No. 423 dated June 13, 1995" that simplifies digital
access to secondary geological information in real time (the task deadline is the first quarter of 2017137
).
Article 337 of the Association Agreement regarding informing and protecting consumers from unfair
pricing, and access to petroleum products, particularly to liquefied gas, for consumers, especially
consumers of the most vulnerable categories
In connection with a significant rise in prices for the liquefied petroleum gas used as motor fuel, the
Interagency Working Group for Issues of Functioning of the Oil and Petroleum Products Market and
Development the Oil Refining Industry held a meeting on August 31, 2017138
. Its results show arrangements
worked out to prepare "as soon as possible" proposals to create a backup stock of liquefied petroleum gas,
diversify its supply sources, and spur up the development of the infrastructure for the production and
storage of this resource, regulate its transport problems, operation of the liquefied petroleum gas market,
and improvement of interagency interaction on it.
Article 338 of the AA regarding continuation and intensification of the cooperation in the energy field
In pursuance of Item "a" of Article 338 regarding the implementation of energy strategies and policies,
development/elaboration of relevant projections and scenarios, the government approved on August 18,
2017 the Energy Strategy of Ukraine by 2035 titled "Security, Energy Efficiency, Competitiveness."139
. The
document, in particular, provides for:
– deepening of international cooperation in the full use of the oil transportation infrastructure potential,
implementation of projects to diversify sources and routes of oil supply to both Ukraine and European
countries from alternative sources through Ukraine, and formation and maintenance of the necessary
level of oil and petroleum products stocks in Ukraine; improvement of the efficiency of infrastructure
and development of a new oil infrastructure, which is of common interest, enhancing the energy
security of the region;
– encouragement of the sparing use of motor fuel and other resources through technological
development and use of high-tech equipment; encouragement of increased use of environment-friendly
types of motor fuel, increased share of environment-friendly types of fuel in the consumption balance,
and creation of incentives to promote growth in this share; support for the implementation of energy-
saving , efficient, and environmentally friendly technologies throughout the entire chain from
production to supply of petroleum products to end users.
- development of new oil and gas condensate fields, construction of new wells on existing fields to
increase oil and gas condensate outputs, identification of the locations of residual stocks of these
products on the basis of continually operating geological and technological models; improvement in the
transparency and publicity of the licensing process, ensuring its systematicness, shortening of the times
and list of bureaucratic procedures; promotion of the development of deposits with difficult-to-extract
and depleted oil reserves by setting reasonable rental rates for subsoil use; promotion of high-precision
3D seismic research, provision of services, drilling of exploration wells on new sites and fields; ensuring
non-discriminatory access to and exchange of quality geological information; promotion of advanced
137 http://zakon2.rada.gov.ua/laws/show/1079-2016-%D1%80/paran146#n146

Monitoring report on Ukraine's progress in the implementation of the association agreement with the European Union in the areas of energy and environment, August 2017

Monitoring report on Ukraine's progress in the implementation of the association agreement with the European Union in the areas of energy and environment, August 2017

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Monitoring report on Ukraine's progress in the implementation of the association agreement with the European Union in the areas of energy and environment, August 2017