The document discusses Ukraine's implementation of reforms under the Energy Community Treaty. It notes that while Ukraine has transposed much of the common legal framework, implementation is lagging in key areas like unbundling of the gas company Naftogaz and opening the retail gas market. It highlights several ongoing disputes against Ukraine and priorities for improving compliance, such as adopting legislation on renewable energy and energy efficiency in line with EU directives. Implementation in the electricity sector also needs acceleration, including removing regulated prices and cross-subsidies to establish a competitive market.

1. Energy Community SecretariatEnergy Community Secretariat
Verkhovna Rada of Ukraine, 8 November 2017
Reforms under the Energy
Community Treaty
29
Janez Kopač, Director 1

2. Energy Community SecretariatEnergy Community Secretariat 2
The common legal framework
► Gas (Third package) (2 Directives, 1 Regulations)
► Electricity (Third package) (2 Directives, 3 Regulations)
► Environment (7 Directives)
► Climate (1 Regulation)
► Competition (some provisions of the Treaty)
► Renewable energy sources (RES Directive)
► Energy efficiency (4 Framework Directives, 12 Technical Regulations)
► Antitrust and state aid (some provisions of the Treaty)
► Statistics (1 Directive, 1 Regulation)
► Oil (1 Directive)
► Infrastructure (1 Regulation)
► Climate (1 Recommendation)

3. Energy Community SecretariatEnergy Community Secretariat 3
Annual Implementation Report 2017
Download the report
https://www.energy-
community.org/dam/jcr:b03950a0-9367-
4618-961b-
3efad53b79fd/EnC_IR2017.pdf

4. Energy Community SecretariatEnergy Community Secretariat
► Third Energy Package for electricity and gas now
transposed, but implementation (unbundling of Naftogaz
and Ukrenergo, retail market opening, de-monopolization
etc.) not taking place at the required pace or not at all
► Legislation transposing partly the Energy Performance of
Buildings Directive, transposition of the Environmental
Impact Assessment Directive and the submission of the
National Emission Reduction Plan were adopted, but much
more needs to be done in the area of energy efficiency
► Four dispute settlement cases currently opened against
Ukraine (non-compliance with capacity allocation rules on
electricity interconnectors and for the purpose of transit of
electricity; non-compliance with Sulphur in Fuels Directive;
and lack of state aid legislation)
Verkhovna Rada, 8 Nov 2017
Implementation of acquis – Key messages
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5. Energy Community SecretariatEnergy Community Secretariat Verkhovna Rada, 8 Nov 2017
State of compliance (1)
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6. Energy Community SecretariatEnergy Community Secretariat Verkhovna Rada, 8 Nov 2017
State of compliance (2)
6

7. Energy Community SecretariatEnergy Community Secretariat
State of play:
 The electricity market is still organized on a “single buyer” model operated by Energorynok, bilateral
contracts are applied only for small producers (20 MW) – Electricity Market Law envisages a two-year delay
in the new wholesale market implementation (July 2019) for deregulation of prices, market-based balancing
and trading mechanisms (bilateral, day-ahead and intraday)
 Requirements for unbundling (TSO, DSO) are fully transposed, however the current ownership structure is
incompliant with the Third Package. Ukrenergo corporatized and Ministry doesn’t even think on unbundling
 Electronic auctions have started in May 2017 (both for imports and exports) – the rules for cross-border
allocation of capacity are still not in full compliance (not based on joint auctions)
 The eligibility criteria have not been applied in practice, only non-household customers can change the
regulated supplier – under the Electricity Market Law new switching rules must be applied (9 months) and
all customers to become eligible (18 months)
 Regulated prices are still applied for state-owned generators and distribution companies (set below the
market price) supporting a large chain of cross-subsidization of RES, gas-fired CHP and regulated supply
 Currently applied balancing system is based on centrally dispatched model and bundled prices – no
adequate treatment of costs of imbalances and no balancing market or mechanism to define the relevant
costs of balancing
Implementation Status – Electricity
7

8. Energy Community SecretariatEnergy Community Secretariat
State of play:
 Customer protection is based on subsidies from the State Budget covering certain percentage of the bills
for some categories of customers - not compliant, not transparent or sustainable
 Data transparency requirements are not transposed in the Electricity Market Law, Ukrenergo is testing an
electronic platform for submission of data to ENTSO-E
 The only market element in the existing law (dispatching of cheaper electricity) was dismissed last month
Priorities:
 Development and approval of the secondary legislation compliant with the Third Package as foreseen by
the Electricity Market Law is a prerequisite for implementation of the market structure and TSO certification
 Ownership unbundling of Energorynok and transfer of control over generation and supply companies to
another ministry (9 months after entry into force) – DSO to be legally unbundled from supply (18 months)
 Measures to be taken as imposed under the Electricity Market Law with a view to removing regulated
prices (generation, supply) and cross-subsidies – introduce cost-reflective tariffs and market-based prices
 Introduce joint capacity auctions on all borders (both for Burstin Island and the border with Moldova)
 develop trading platforms and software for system balancing, day-ahead and intraday trading, and
settlement
Implementation Status – Electricity
8

9. Energy Community SecretariatEnergy Community Secretariat
State of play
Natural Gas Market Law drafted together with the Secretariat transposes the majority of Third
Energy Package provisions;
Failure to amend the relevant primary legal acts (e.g. Law on the Cabinet of Ministers, Law on
Pipeline Transport, Law on Oil and Gas, etc.) without which the Natural Gas Market Law
cannot be fully implemented;
Biggest challenge for Ukraine continues to be unbundling of the natural gas transmission
system operator Naftogaz and opening of the retail market;
Priorities:
 Amend the relevant outdated laws and in particular those which would enable the
correct unbundling of Naftogaz;
 Amend the Public Service Obligation Resolution to allow full market opening and the
package of old laws standing in the way of effective reforms and proceed with
monetization of subsidies while fading out regulated prices;
 Adopt missing gas transmission and distribution codes and tariff methodologies;
Verkhovna Rada, 8 Nov 2017
Implementation Status – Gas
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10. Energy Community SecretariatEnergy Community Secretariat
State of play
Since the adoption of the new Law on the National Commission for the Regulation of Energy and Utilities in 2016, the regulator’s
competences, organisation and level of independence are theoretically well aligned with the Energy Community acquis.
Priorities
 In practical terms, full implementation of the newly gained powers and autonomy of NEURC still requires adjustment of other
legislation but also acceptance of de facto independence by other public bodies – both threatened many times, e.g.:
 Introducing budgetary autonomy stipulated in the 2016 Law requires amendments of the Budget Code. NEURC’s
management is not in a position yet to set staff salaries at a level comparable to the regulated industry, and the entry into
force of decisions of NEURC is delayed due to financial constraints of the office in charge of publication in the Official
Gazette.
 NEURC will lose its decision-making quorum later this month - two board members’ mandates expire under the rotation
scheme, their replacement is crucial for the functioning of NEURC
 Political intervention in the regulator’s activities was recently proven by suspension of the entry-exit gas tariff methodology
adopted by the regulator for national entry/exit points in March 2017 following a request of the President and Prime
Minister.
 The Secretariat agreed with the regulator to perform an in-depth analysis of the adequacy of its legal framework, independence
and practical performance. This process is currently ongoing - envisaged to be finalised by end of the year.
Verkhovna Rada, 8 Nov 2017
Implementation Status – Regulator
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11. Energy Community SecretariatEnergy Community Secretariat Verkhovna Rada, 8 Nov 2017
Implementation Report – Renewable energy
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State of play
 Ukraine has to step up its efforts to create a comprehensive framework for the
promotion of energy from renewable sources and to bring it in compliance
with the State aid legislation.
 In July 2017, Secretariat submitted a compliant draft Renewable Energy Law.
Priorities:
 Conduct stakeholder consultations for the finalisation of draft RES Law and
submit it for adoption;
 Introduce technology neutral auctions for granting the support to renewable
energy producers – it will allow the country to be on the trajectory in the most
cost-effective way;
 A revised National Renewable Energy Action Plan (NREAP) would be needed
to ensure that new policy measures will bring Ukraine on track to meet the
11% target in 2020;
 Statistical data on biomass still an issue – new consumption surveys needed;
 Transpose the sustainability criteria and establish a certification system for
biofuels and bioliquids;

12. Energy Community SecretariatEnergy Community Secretariat
State of play:
 Still the most energy intensive economy in the Energy Community!
 The Law on Energy Conservation dated 1994 is obsolete – Secretariat supported drafting of
Energy Efficiency Law compliant with Energy Efficiency Directive 2012/27/EU;
 Good progress with adoption of the Law on Energy Efficiency Fund, the Law on Energy
Performance of Buildings and the Law on Commercial Metering of Heat Power and Water Supply;
Priorities:
 The adoption of the Energy Efficiency Law (transposition deadline for Energy Efficiency Directive
2012/27/EU expired on 15 October 2017);
 Annual report under Directive 2012/27/EU drafted, but should be finalized and submitted together with
2020/2030 targets (Secretariat/EU4Energy support);
 The Law on Energy Performance of Buildings was adopted, but only partially transposes Energy
Performance of Buildings Directive – this should be amended;
 Improve coordination between governmental authorities;
Implementation Status – Energy efficiency
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13. Energy Community SecretariatEnergy Community Secretariat
State of play:
 The case against Ukraine for the non-transposition of the Environmental
Impact Assessment (EIA) Directive was closed after the Presidential veto on
the new EIA Law was lifted.
 The case for the non-transposition of the Sulphur in Fuels Directive remains
open and was referred to the Ministerial Council under Art. 92.
Priorities:
 Under the Large Combustion Plants Directive, Ukraine has to proceed with
the adoption of its National Emissions Reduction Plan (NERP) immediately
(has to be adopted by the end of 2017).
 Operators of combustion plants that are on the opt-out list have to make a
final decision until end 2017 whether or not to start with the opt-out from 1
Jan 2018.
Implementation Status – Environment
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14. Energy Community SecretariatEnergy Community Secretariat
State of play:
 There is no legal framework in place for the establishment of emergency oil stocks.
 A legal act on a model for oil stocks was planned to be developed and approved in cooperation
with the Secretariat by the end of 2016. This deadline has not been met!
 A dedicated law on emergency oil stockholding, which would prescribe all relevant terms and
conditions for establishment, storage and maintenance of emergency stocks, was not prepared
by 2016 as originally foreseen.
Priorities:
 Approving the oil stockholding model and the action plan for building up emergency oil stocks to
90/61 days (expected in Nov/Dec 2017);
 Drafting of an emergency oil stockholding law and relevant secondary legislation by the end of
2017;
 Approval by Parliament and President of Ukraine of the Law on Emergency Oil Stocks in
compliance with the Oil Stock Directive Directive 2009/119/EC by Q2/2018;
 Approval of secondary legislation required under the Law by Q2/2018;
Implementation Status – Oil
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15. Energy Community SecretariatEnergy Community Secretariat
State of play
 Ukraine is yet to implement and transpose Regulation 347/2013 guidelines for trans-European energy infrastructure and is thus not
compliant with the Articles 3.1, 3.2 and 8.1 of the Regulation 347/2013, for which the deadlines have already expired.
Priorities
 Ukrainian authorities shall adopt a law, or by-law which will ensure implementation of Regulation 347/2013 into national legislation.
 The national competent authority shall be designated and become operational as soon as possible. It shall publish a manual of procedures
for the permit granting process, applicable for PECIs, following the minimum structure presented in Annex X of the Regulation, by 31
December 2017 as defined in Article 9.1.
Implementation Status – Infrastructure
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16. Energy Community SecretariatEnergy Community Secretariat
State of Play
 Climate change provisions scattered among several laws. National Center
for Greenhouse Gas Emission Inventory: in charge of the preparation of
national GHG inventories;
 Low Carbon-development Strategies: Resolution of the Cabinet of
Ministers on a Concept of the State Policy Implementation in the Field of
Climate Change for the Period up to 2030 of 7 December 2016
establishes main priorities of the state policy in the field of climate change
(capacity building, mitigation, adaptation);
 Policies, Measures, Projections: forecasting instrument regarding GHG is
the Energy Strategy of Ukraine until 2035. Legislation defining national
systems for policies, measures and projections has not been introduced
yet;
 Ukraine is not in full compliance with Regulation (EU) 525/2013 on a
mechanism for monitoring and reporting greenhouse gas emissions;
Priorities
 Low-carbon development strategy with priority actions and concrete
timeframe for implementation to be adopted with no delay;
 Ukraine should consider merging climate change provisions in one
legislative text;
Implementation Status – Climate
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17. Energy Community SecretariatEnergy Community Secretariat
State of play
Ukraine has transposed and implemented key obligations of
Regulation (EC) 1099/2008 on energy statistics, but is
currently in breach of Directive 2008/92/EC on transparency
of gas and electricity prices charged to industrial end-users.
Priorities
The reporting and compilation system for electricity and gas
prices has to be implemented without delay, not only in line
with Directive 2008/92/EC but also to reflect the expected
changes in the reporting requirements and disclose the key
cost drivers in the end user prices.
State Statistics Service of Ukraine (SSSU) to begin
transmitting monthly data to EUROSTAT and to complete
monthly collections in line with Annex D of Regulation
1099/2008/EC.
Implementation Status - Statistics
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18. Energy Community SecretariatEnergy Community Secretariat
www.energy-community.org
Thank you
for your attention!
Janez Kopač, Director 18