This publication was prepared with the support of the European Union. 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.

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 October, in the natural gas sector, there is an ongoing trend of progress in the legislative field. In

particular, special attention is to be focused on the efforts aimed at ongoing work on launching the

respective market at full capacity. However, apart from the generally positive law-making activities, there is

a number of unsettled issues and initiatives, which could affect the dynamics of pro-European reform

implementation in the sector.

The electricity sector, despite large amounts of information and activities, including those connected with

the start of the heating season, demonstrates little progress, namely in legislation, towards meeting

Ukraine’s commitments under the Association Agreement. Along with that, ongoing preparatory works give

hope for future progress.

Progress in the energy efficiency sector is characterised by large inconsistencies. The sector-specific “voting

day” at the Verkhovna Rada of Ukraine ended up with the passing of only some of the draft laws in the first

reading. The national support programme, despite so many efforts taken for the purpose of its publicity

campaign and confidence building, has been jeopardised. The mechanism of further support through the

Energy Efficiency Fund leaves open some issues, such as a realistic date of its launch.

In the area of environment, the key issue was passing and subsequent vetoing of the draft laws on

environmental impact assessment and on strategic environmental assessment. In the context of other draft

legislative acts adopted by the Parliament, these underline the importance of proper cooperation of all

stakeholders, including both law-makers, executive officials and experts, and of advocating its results.

Delays in the implementation of the targets and plans are characteristic for the oil and oil products’ sector.

The experts emphasize that, despite the preparatory work made, no measures aimed at the

implementation of direct objectives have been taken, which puts timely compliance with the commitments

in danger.

Despite significant law-making work made, the issues proposed to be resolved through that process can

hardly be called crucial for the significant improvement of business climate. Stability of legislation,

investment security, rule of law, investment promotion by way of introducing clear and transparent

procedures remain still unresolved, although some separate attempts are reflected in the law-makers’

activity.

Abbreviations:

NAK — Naftogaz of Ukraine NJSC

VRU — Verkhovna Rada of Ukraine

Commission — European Commission

FEC — fuel and energy complex

GTS — gas transportation system

CMU — Cabinet of Ministers of Ukraine

OPP — Odessa Port Plant

LNG — liquefied natural gas

DHP — district heating provider

NBU — National Bank of Ukraine

SFSU — State Fiscal Service of Ukraine

SRT — supplier at regulated tariff

SSTC NRS — State Scientific and Technical Centre for Nuclear

and Radiation Safety

SESU — State Emergency Service of Ukraine

SAEZM — State Agency of Ukraine for Exclusion Zone

Management

INSC — Instruments for Nuclear Safety Co-operation

WANO — World Association of Nuclear Operators

TPP — thermal power plant

AA — Association Agreement

GDN — gas distribution network

SNRIU — State Nuclear Regulatory Inspectorate of Ukraine

МЕCI — Ministry of Energy and Coal Industry of Ukraine

NEPURC — National Energy and Public Utilities Regulatory

Commission

CERN — European Organization for Nuclear Research

CSNFSF — centralised spent nuclear fuel storage facility

CFLTSDSIR — centralised facility for long-term storage of

disused sources of ionizing radiation

UES — Unified Energy System of Ukraine

RW — radioactive waste

DSIR — disused sources of ionizing radiation

SNF — spent nuclear fuel

Gas

On Ukraine’s way towards meeting its commitments under the AA, legal regulation of the natural gas market is gradually improving. Being published in October1, the approved amendments to the Law "On the Natural Gas Market” will become effective on November 1, with regard to ensuring equal conditions for the creation of the insurance reserve for all suppliers (no more than 10% of monthly gas supply), yet the best option to resolve the problem would be, in our opinion, drafting and putting into effect the legislation on strategic gas stocks.

A new draft law was registered in October, on amending 13 legislative acts of Ukraine with the view of bringing them in line with the Law "On the Natural Gas Market”. In addition to the draft resolution of the Government on approval of the action plan for introduction of gas metering in energy units2 as proposed by Naftogaz, the NEPURC published a draft resolution providing for some amendments to the Regulator’s resolutions for the purpose of the phased transition to using energy units3.

Following the repeal of the Ministry of Economy order on approval of the new Articles of Association of Ukrtransgaz PJSC, the process of Naftogaz restructuring resumed, and is now going under the auspices of the governmental work group established on the Prime Minister’s initiative4. In the framework of this process, in October, control over Naftogaz was transferred to the Cabinet of Ministers and it was decided to coordinate, until the end of the month, the proposed amendments to the Articles of Association of both Naftogaz and Ukrtransgaz with the view of improving management of the GTS operator.

The only thing out of tune with those trends is that the new law (No. 2966-d) on energy regulator — the NEPURC — adopted in September did not enter into force in October, as it was not signed by the President.

In general, as it was emphasized during the discussions at the 2nd Ukrainian Gas Forum held on 12–13 October, and as the European partners point out5, despite numerous problems, the Ukrainian gas market moves forward, towards demonopolisation. Thus, in the segment of natural gas supply to industrial consumers, the share of Naftogaz during the last 9 months was only 8%. Truth be told, supplying natural gas to households and DHPs so far lags behind those trends.

Directive 2009/73/EC concerning common rules for the internal market in natural gas and repealing Directive 2003/55/EC (AA: Articles 338, 341, Annex XXVII) pursuant to Article 278 of the AA

Two draft laws on amending the Law of Ukraine "On the Natural Gas Market” were registered in October. The first (No. 52896) suggests elimination of inconsistencies between this particular law and a number of other legal acts (such as the Laws of Ukraine “On Oil and Gas”, “On Pipeline Transport”, “On Production Sharing Agreements”, “On Natural Monopolies” etc.), and proposes amendments to the Law of Ukraine "On the Natural Gas Market” only in terms of elaboration of the notion of “natural gas” and the procedure for opening of accounts by GDN operators for receiving payments for gas distribution services.

The other initiative (No. 52907) provides for changes in substance: 1) making supply of domestic gas to households a priority; 2) limiting net profit margin of gas suppliers to a maximum value of 10%; 3) fixing gas price components legislatively. The same drafter proposes to exempt from taxation operations related to supply of domestic gas to households, including extraction and transmission operations (draft Law No. 53218). In our opinion, such proposals do not contain comprehensive forecast of social and economic effects.

1 Vidomosti Verkhovnoi Rady Ukrainy, 2016, No. 44, p. 749 2 http://www.naftogaz.com/www/3/nakweb.nsf/0/BF19A453140F7596C225803B00270D7E?OpenDocument&year=2016&month=09&nt=%D0%9D%D0%BE%D0%B2%D0%B8%D0%BD%D0%B8& 3 http://www.nerc.gov.ua/?news=5488 4 http://www.kmu.gov.ua/control/uk/publish/article?art_id=249329740&cat_id=244276429 5 http://europa.eu/rapid/press-release_IP-16-3574_en.htm 6 http://w1.c1.rada.gov.ua/pls/zweb2/webproc4_1?pf3511=60296 7 http://w1.c1.rada.gov.ua/pls/zweb2/webproc4_1?pf3511=60298 8 http://w1.c1.rada.gov.ua/pls/zweb2/webproc4_1?pf3511=60364

Gas

A draft Resolution (No. 4664/П9) has been registered with the Parliament by which members of the Parliamentary Committee on Economic Policy recommend the VRU to reject a draft Law included in the agenda of the current parliamentary session, on listing Ukrgazvydobuvannia PJSC among the entities not subject to privatisation10. Moreover, a draft Law on redistribution of revenues from oil and gas rent between the national and local budgets (No. 303811) was pending consideration in October. As discussion of the above draft Law in the relevant Parliamentary Committee on Fuel and Energy Complex shows, gas producers take a favourable view of such changes, noting, however, that in order to ensure stable revenues from rent, it’s advisable to reduce the rent rate at least to the average European level.

With the view of execution of the already approved amendments12 to the Law of Ukraine "On the Natural Gas Market" binding all suppliers to establish insurance reserve in volumes not exceeding 10% of supplies for the following month, on October 27, the Ministry of Energy and Coal Industry published a draft Resolution 13 on approval of the volume of the insurance reserve. In accordance with the above draft document, absent an emergency in the gas market, it is proposed to fix a zero insurance reserve for 2016 and 2017. Should there be a crisis in the market that could be qualified as an emergency – under the criteria identified in the Action Plan approved by the Ministry of Energy and Coal Industry14, – suppliers will be bound to create a gas insurance reserve of 10% of the monthly supplies planned.

At the present time, a working group chaired by Deputy Prime Minister Mr. Kistion, is responsible for the process of speeding up Naftogaz restructuring. Apart from representatives of Naftogaz and Ukrtransgaz, this working group also includes specialists from the World Bank, the EBRD, as well as Ms. Yovanovitch, Ambassador Extraordinary and Plenipotentiary of the United States of America to Ukraine. Process milestones in October: The Ministry of Economic Development and Trade, pursuant to the Government’s Resolution No. 67515, placed 100% of shares of Naftogaz of Ukraine NJSC under the CMU’s management; a moratorium in respect of any staff changes in top management of those two core sectoral public companies was introduced16; on the basis of consideration of an optimal management model for Ukrtransgas PJSC, the Deputy Prime Minister ordered that, no later than on November 1, the agreed proposals on amending the Articles of Association of Naftogaz and Ukrtransgaz17 be submitted to the Government.

Further, according to Naftogaz18, on October 11 in Stockholm, oral hearing in the consolidated arbitration case dealing with Naftogaz’s and Gazprom’s lawsuits over natural gas supply contracts came to an end. The parties to the proceedings reported on their positions, conducted cross-examinations of the witnesses and experts. However, the hearings in litigation over the transit contract are expected to start in late November.

Due to being reinstated as OPP’s supplier (in accordance with the KMU Resolution No. 65819 in force), and despite OPP’s heavy debts for the gas consumed earlier20, Naftogaz, on October 4, resumed supplies21 and will continue them until 31 December 2016 at a price which corresponds to the prices for the same consumer category. OPP’s past due debt, in accordance with the privatisation conditions, is to be paid off by the purchaser of 99.6% of the company’s shares (CMU Ordinance No. 746-р of 19 October 201622).

9 http://w1.c1.rada.gov.ua/pls/zweb2/webproc4_1?pf3511=60333 10 http://w1.c1.rada.gov.ua/pls/zweb2/webproc4_1?pf3511=59090 11 http://w1.c1.rada.gov.ua/pls/zweb2/webproc4_1?pf3511=56386 12 http://zakon2.rada.gov.ua/laws/show/1541-viii 13 http://mpe.kmu.gov.ua/minugol/control/uk/publish/article?art_id=245153269&cat_id=35082 14 http://zakon2.rada.gov.ua/laws/show/z1458-15 15 http://www.kmu.gov.ua/control/uk/cardnpd?docid=249369692 16 http://www.epravda.com.ua/news/2016/10/13/607980/ 17 http://www.kmu.gov.ua/control/uk/publish/article?art_id=24940642&4cat_id=244276429 18 http://www.naftogaz.com/www/3/nakweb.nsf/0/1E3E64706CE94E9DC225804F0029A51E 19 http://zakon2.rada.gov.ua/laws/show/658-2016-%D0%BF 20 http://www.epravda.com.ua/news/2016/09/13/605224/ 21 http://www.spfu.gov.ua/ua/news/%C2%ABOPZ%C2%BB-znovu-rozpochav-robotu-1707.html 22 http://www.kmu.gov.ua/control/uk/cardnpd?docid=249417678

Gas

According to Naftogaz’s price list23, on November 1, the gas price has been raised compared to the October prices: for industrial consumers — by UAH 1,036.8, or 16% (up to UAH 7,380 for 1,000 cubic metres), for other consumers not covered by provisions on imposing special obligations — by UAH 1,082.8 or 15% (up to UAH 8,182 for 1,000 cubic metres).

In October, NEPURC published two draft resolutions: on amending the Gas Distribution System Code and the Standard Natural Gas Transmission Contract 24 and on approving amendments to certain NEPURC’s resolutions as regards the introduction of energy units on the natural gas market25. Amendments as provided for in the first resolution aim at improving the process of charging additional payments for gas of which the parameters are not in conformity with the GTS Code, for the purpose of reducing expenditures of the gas extracting companies. Introduction of the second act proposed by the Regulator will make it possible to supplement NEPURC’s effective resolutions with the provisions on the procedure for conversion of gas volumes expressed in volume units into the volume of transmitted (consumed) energy, and consumers’ payment documents — with the data on the volume of consumed gas expressed in energy units. Transition of the gas market to payments in energy units is not provided for at this stage.

Based on the results of the monitoring of prices for natural gas conducted by the NEPURC on a monthly basis, the Regulator reported on the maximum price in September 2016 for consumers not covered by provisions on imposing special obligations being UAH 8,135.52 for 1,000 cubic meters, inclusive of VAT.26

Regulation (EU) No. 715/2009 on conditions for access to the natural gas transmission networks and repealing Regulation (EC) No. 1775/2005 (AA: Articles 338, 341, Annex XXVII) pursuant to Article 278 of the AA, trade-related issues (Articles 269–274 of the AA)

Ukraine has a reason to hope for co-operation with the EU in using the Ukrainian underground gas storage facilities: the Report on EU strategy for liquefied natural gas and gas storage27 approved by the European Parliament underlines the importance of Ukraine’s underground gas storage capacity, noting that gas imports from Russia to the EU are directly dependent on that storage capacity during peak demand. As an alternative to the growth of dependency from the imported pipeline gas, the Report refers to enhancing efficiency of the LNG infrastructure. In particular, it suggests that the EU has to support Ukraine, which is going to be forced to import additional gas in the short-term perspective, in transition from dependency on Russian natural gas to LNG.

Based on the conclusions of the Permanent High Level Group and the Ministerial Council of the Energy Community (October 13–14, Sarajevo), projects of construction of gas interconnections between Poland and Ukraine (creation of capacity), Hungary and Ukraine (development of capacity) were included in the list of projects of Energy Community interest (PECIs)28.

In the framework of Ukraine-France economic forum (October 28, Paris), Ukrainian GTS operator — Ukrtransgaz PJSC — and ENGIE (France), as well as its subsidiary established in Ukraine — ENGIE Energy Management Ukraine Ltd — signed gas transmission and storage agreements29. Signing of the above framework agreements will enable ENGIE to independently supply gas to Ukraine by selling gas not only to traders but also to end consumers. This signing demonstrates that the largest gas traders in the EU take into account a new business model of Ukrtransgaz30, results of the gas market reform in Ukraine, and are

23 http://www.naftogaz.com/files/Information/Naftogaz-gas-prices-November-2016.pdf 24 http://www.nerc.gov.ua/?id=21784 25 http://www.nerc.gov.ua/?id=21852 26 http://www.nerc.gov.ua/?news=5475 27 http://www.europarl.europa.eu/news/en/news-room/20161020IPR47881/gas-use-eu-storage-capacity-efficiently-and-forge-trade-partnerships-urge-meps 28 https://www.energy-community.org/portal/page/portal/ENC_HOME/DOCS/4364459/3F10145B34697000E053C92FA8C08EFF.pdf 29 http://utg.ua/utg/media/news/2016/10/ukrtransgaz-and-engie-signed-agreement-on-gas-transmission-and-storage.html 30 http://utg.ua/utg/media/news/2016/10/ukrtransgaz-presented-new-opportuninies-for-european-traders.html

Gas

willing to take part in its further development. The fact that the European suppliers enter the Ukrainian market is very important in terms of development of competition.

Directive 2004/67/EC concerning measures to safeguard security of natural gas supply (AA: Articles 338, 341, Annex XXVII), Early Warning Mechanism (AA: Annex XXVI), reacting to an emergency situation (Articles 275–276, 309, 314)

In the Report on EU strategy for liquefied natural gas and gas storage31 as approved by the European Parliament, a Gazprom project of construction of the Nord Stream 2 pipeline was named among the major threats to security of supply, other than growth of imports from the RF. The above project, if completed, also poses a threat to Ukraine in terms of substantial reduction (down to complete shutdown) of gas transit through Ukraine. Members of the European Parliament insist on the above pipeline’s not benefiting from EU financial support and on its compliance with the Third Energy Package. They came to a conclusion that doubling the capacity of the Nord Stream pipeline, if the project is completed, may have negative effects on energy security, diversification of supply sources and will go against the principle of solidarity and trust among Member States.

Expecting a European Commission’s decision on handing over capacities of the OPAL pipeline which is connected to the Nord Stream gas pipeline constructed for supplying Russian gas to consumers in Central Europe, to be used by Gazprom, Naftogaz published forecast of Ukraine’s possible losses resulting from possible reduction in transits and revenues from those transits32. Should Gazprom get access to additional 30% of OPAL’s capacity, transit through Ukraine are going to be reduced by 10–11 billion cubic meters annually, and revenues will therefore drop by 290–320 million USD (under the previous tariff), should it get access to additional 40% of capacity, then transit losses will drop by another 13.5–14.5 billion cubic meters annually, and Ukraine’s income will accordingly drop by 395–425 million USD.

It follows from the European Commission press release of October 2833 that, by agreeing to make an exemption for the OPAL pipeline and potentially enabling Gazprom to expand, up to 2033, the use of 50% of OPAL’s capacity, for which it was allowed, up to 90%, the European Commission in fact exempted the OPAL pipeline from the requirements of the Third Energy Package. The EU has reserved 10% of the OPAL pipeline’s capacity, and under demand from the third parties it may increase that reserve up to 20%. The European Commission has also reserved the right to review parameters of access to the OPAL capacities subject to growth in demand for transportation of gas through that pipeline from the third parties.

According to the estimations of the Ukrainian experts, the adopted decision which potentially enables Gazprom to use additional OPAL’s capacities (up to 25.6 billion cubic meters in total)34, will have an extremely adverse effect on transit flows through Ukraine. Before the adoption of the above decision the Polish state-owned gas company PGNiG threatened to sue the Commission over the OPAL decision, claiming that it jeopardised the security of its own supplies35. According to Euronews36, in deciding on letting Gazprom expand its access to OPAL, the Commission was at the same time seeking guarantees that the gas is kept being transited via Ukraine after its contract expires in 2019, and also wanted to resume trilateral talks with Kyiv over "winter package". It is unknown, however, whether those targets have been achieved.

On the eve of the heating season, which started on October 15, the Government additionally imposed special obligations on Naftogaz as regards gas supplies to state-financed organisations for heat generation (CMU Resolution of October 5 No. 70437). By its another decision, the Government cancelled normative

31 http://www.europarl.europa.eu/sides/getDoc.do?pubRef=-//EP//TEXT+REPORT+A8-2016-0278+0+DOC+XML+V0//EN 32 http://zakon5.rada.gov.ua/laws/show/704-2016-%D0%BF 33 http://europa.eu/rapid/press-release_IP-16-3562_en.htm 34 http://www.epravda.com.ua/news/2016/10/28/609399/ 35 http://uk.reuters.com/article/uk-eu-gazprom-opal-decision-idUKKCN12S222 36 http://www.euronews.com/2016/10/28/eu-confirms-to-lift-cap-on-gazproms-use-of-russias-nord-stream-pipeline-link 37 http://zakon5.rada.gov.ua/laws/show/704-2016-%D0%BF

Gas

standards regarding funds transfers onto current accounts of thermal power companies in order to enable them to make settlements with Naftogaz as a supplier with special obligations (Resolution No. 706)38.

Completing preparations for the successful living through the 2016–2017 heating season, the CMU took measures to ensure uninterrupted gas supplies to thermal power generators (Ordinance of October 5 No. 742-р39). For that purpose, the Government, before the start of the season, bound upon Naftogaz and other suppliers to issue entitlements to DHPs for volumes of gas supplies, in accordance with the contracts 40concluded in line with the CMU Resolution No. 357, in compliance with the non-discrimination principle; GDN operators to have gas supplied to DHP sources; regional state administrations to ensure availability of utilities and equipment, and round-the-clock operation of emergency dispatch services.

On October 19, with the entry into force of the Resolution No. 704, Naftogaz began to secure gas supplies for generating heat for state-financed organisations41. The company has agreed to also supply gas to those DHPs which have debts, subject to timely and due finalisation of contracts with them. The MEDT, however, has drafted amendments to the respective procedure and standard contract42 in order to settle issues arising during the conclusion and performance of contracts on gas supplies to heat generators. In particular, these amendments propose clarifications on the month to transfer funds in.

At the same time, a Government’s decision regarding possibility to pay for the heating services in instalments (Resolution No. 744) may pose substantial financial risks43. 50% first instalment becomes possible for solvent consumers who do not receive subsidies; secondly, no sources were identified capable of covering cash deficiencies certainly to arise. In a wider context, it may result in debt accumulation, breach of investment conditions for private thermal power suppliers, abating market attractiveness for competing gas suppliers.

Meanwhile, on October 17, the VRU passed the draft Law No. 527344 in the first reading which will enable heat supplying and heat generating companies to restructure their debts for consumed energy carriers for a period of five years by signing restructuring schedules, and to further attract investments they need etc.

38 http://www.kmu.gov.ua/control/uk/cardnpd?docid=249408771 39 http://www.kmu.gov.ua/control/uk/cardnpd?docid=249408662 40 In accordance with the CMU Resolution of 29 April 2016 No. 357 41 http://www.naftogaz.com/www/3/nakweb.nsf/0/5F694A035FA0C9BDC2258052005F12F8?OpenDocument&year=2016&month=10&nt=%D0%9D%D0%BE%D0%B2%D0%B8%D0%BD%D0%B8& 42 http://me.gov.ua/Documents/Detail?lang=uk-UA&id=a3d53f5d-ce5f-4d34-9c5d-65420a4ec57d 43 http://www.kmu.gov.ua/control/uk/cardnpd?docid=249440835 44 http://w1.c1.rada.gov.ua/pls/zweb2/webproc4_2?pf3516=5273&skl=9

Electricity and Nuclear Security

Approval of the forecasted electricity balance of the UES of Ukraine for 2017 by the Ministry of Energy and Coal Industry (MECI) that suggests potential increase of electricity consumption by 1.3 %; publishing by the NEPURC of a number of draft resolutions on introducting RAB regulation in the area of electricity transmission via main and cross-border transmission lines; and certain progress on the part of Ukrenergo as regards preparations for the introduction and holding of joint coordinated auctions with the view of allocation of interconnections’ capacities, may be considered the major events in October. A draft Code of Commercial Metering of Electricity was also published.

The heating season started, and the Government tried to urgently resolve the problems that concerned lagging behind the plan’s schedule and imbalance with the rate of coal accumulation. In the framework of reforming the coal sector, the draft CMU Ordinance “On certain issues of further operation of coal-mining companies” and a draft Programme for the coal sector reform were prepared. In accordance with the Law of Ukraine “On Authorising Nuclear Energy Use”, the draft CMU Resolution “On changing criteria of exemption of the use of sources of ionising radiation from licensing” was published. Also, free access was opened to the automated radiation monitoring system in the control area of all nuclear power plants of Ukraine. The CMU Ordinance No. 721-р “On redemption and provision of parcels of land for permanent use and change of their designated use” was approved. Further, in October, a great deal of attention was paid to the Governmental initiatives relating to the increase in electricity generation by NPPs, and introduction of a load following regime at NPP units.

Directive 2009/72/EC of 13 July 2009 concerning common rules for the internal market in electricity and repealing Directive 2003/54/EC (AA: Article 269, Chapter 11, Title IV)

The Committee on Fuel and Energy Complex, Nuclear Policy and Nuclear Safety is still working on preparing the draft Law “On the Electricity Market of Ukraine” (No. 4493) for the second reading. On October 13, the Law of Ukraine “On the National Energy and Public Utilities Regulatory Commission” (No. 2966-д) was submitted to the President for signature.45 As of November 1, the Law has not yet been signed by the President.

Directive 2009/72/EC of 13 July 2009 concerning common rules for the internal market in electricity and repealing Directive 2003/54/EC (AA: Article 273, Chapter 11, Title IV)

On September 10, the NEPURC published the draft Resolution “On approval of the Procedure for ensuring compliance with electricity supply service quality standards” wherein it partly took into account comments and proposals from the civil society and market participants.46

On October 11, the NEPURC published the draft Resolution “On approval of amendments to the Procedure for calculating payments to current accounts of suppliers of electricity at a regulated tariff and to the special current account of the wholesale electricity supplier”.47 That draft document authorises recovering funds from debtors’ (regional power distribution companies) current accounts as a penalty for underpayments under debt restructuring contracts between the SRTs and Energorynok SE. The above draft document caused a number of objections on the part of regional power distribution companies.

On October 13, the NEPURC launched a procedure of considering 2017 investment programmes for the Commission’s licensees in the areas of electricity transmission via backbone and interstate transmission lines, electricity distribution (electricity transmission via local power networks) and electricity supplies at a regulated tariff.48 The hearings will go on until the end of the year.

On October 18, the NEPURC published 8 draft resolutions that provide for, where electricity transmission via backbone and interstate transmission lines is concerned, the introduction of a stimulating tariff (RAB-tariff) insofar as it concerns electricity transmission via backbone and interstate transmission lines and separate cost-plus pricing for the dispatching services of the UES of Ukraine, particularly:

45 http://w1.c1.rada.gov.ua/pls/zweb2/webproc4_1?pf3511=58234 46 http://www.nerc.gov.ua/index.php?news=5444 47 http://www.nerc.gov.ua/index.php?news=5447 48 http://www.nerc.gov.ua/index.php?news=5453

Electricity and Nuclear Security

“On setting long-term parameters of regulation for the purpose of incentive regulation in the area of transmission of electricity via backbone and interstate power grids”49;

“On applying incentive regulation in the area of transmission of electricity via backbone and interstate power grids”50;

“On approval of the Procedure for determining the regulatory asset base for the licensees operating in the area of transmission of electricity via backbone and interstate power grids”51;

“On approval of the Procedure for setting a tariff for a licensee operating in the area of transmission of electricity via backbone and interstate power grids where incentive regulation applies”52;

“On approval of the Procedure for determining the required income and tariff for electricity transmission resulting from activities of transmission of electricity via backbone and interstate power grids where incentive regulation applies”53;

“On approval of the Procedure for setting a tariff for the service of centralised dispatching of the Unified Energy System of Ukraine”54;

“On approval of the Procedure for determining the required income and tariff for the service of centralised dispatching of the Unified Energy System of Ukraine”55;

“On approval of the Procedure for distribution of assets, expenditures and income between the business activities of a licensee operating in the area of transmission of electricity via backbone and interstate power grids”56.

On October 18, the NEPURC adopted the Procedure for ensuring compliance with electricity supply services quality standards (Resolution of 18.10.2016 No. 1841).57

On October 25, the NEPURC published the draft Resolution “On approval of the Procedure for commercial metering of electricity generated by the power facilities from alternate sources of energy (other than blast furnace gas and coke-oven gas, and where hydropower is concerned — generated only by micro-, mini- and small hydropower plants)”.58 That draft document sets up a mechanism of generating data on release of electricity produced by RES facilities in the Wholesale Electricity Market, for the purpose of making settlements, with consumption of electricity for satisfying such facilities’ own needs taken into account.

On October 29, the NEPURC, in the open meeting, supported the Timetable for the introduction of a new model of the electricity market and reported on its implementation from July to October 2016.59

On October 31, Ukrenergo NEC published the draft Code of Commercial Metering of Electricity for public discussion.60

Directive 2009/72/EC of 13 July 2009 concerning common rules for the internal market in electricity and repealing Directive 2003/54/EC (AA: Article 274, Chapter 11, Title IV)

During the round table in the office of Ukraine Crisis Media Centre held on October 4, the Counsellor of the MECI Minister Mr.Ushchapovskyi informed that the respective methodology of the country’s energy balance development was being drafted in the framework of updating the Energy Strategy of Ukraine. According to him, the key stakeholders participating in developing the Energy Strategy, apart from the

49 http://www.nerc.gov.ua/index.php?news=5459 50 http://www.nerc.gov.ua/index.php?news=5460 51 http://www.nerc.gov.ua/index.php?news=5461 52 http://www.nerc.gov.ua/index.php?news=5463 53 http://www.nerc.gov.ua/index.php?news=5464 54 http://www.nerc.gov.ua/index.php?news=5465 55 http://www.nerc.gov.ua/index.php?news=5466 56 http://www.nerc.gov.ua/?id=21742 57 http://www.nerc.gov.ua/?news=5467 58 http://www.nerc.gov.ua/index.php?news=5479 59 http://www.nerc.gov.ua/?news=5492 60 http://www.ukrenergo.energy.gov.ua/Pages/ua/DetailsNew.aspx?nID=3221

Electricity and Nuclear Security

MECI, were the NEPURC and the National Institute for Strategic Studies, and therefore, they are now working on finalizing the updated draft Energy Strategy of Ukraine until the end of the year.61

On October 31, the MECI approved the Forecast Electricity Balance of the UES of Ukraine for 2017. Consumption of electricity in the 2017 forecast balance reaches 148 billion kWh, with the projected growth of 1.3% up to the expected level in 2016 owing to increase in consumption by industries by 1.6% and by households by 1.7%. Electricity imports in 2017 have not been provided for.62The Forecast Balance increases NPP’s share in electricity generation and reduces that of the RES.

Regulation (EC) No. 714/2009 of 13 July 2009 on conditions for access to the network for cross-border exchanges in electricity and repealing Regulation (EC) No. 1228/2003 (AA: Article 270, Chapter 11, Title IV)

On October 28, the NEPURC, with the participation of the NBU, SFSU, Ukrenergo NEC and market participants, held an interdepartmental conference to discuss preparation and launching of joint coordinated auctions with the view of allocation of interconnections’ transmission capacities and creation of the regulatory framework (in particular, as regards currency control, taxation and customs) that would facilitate joint auctions with transmission system operators from the neighbouring countries.63

Based on the results of that conference, it was decided to phase the work as follows: phase I — launch of the electronic platform of Ukrenergo’s auction office with the view of allocation of transmission capacities, and preparation of respective legislative amendments to that end until the end of 2016; phase II (in a short-term perspective — until the launch of the full-scale electricity market) — holding joint (bilateral) coordinated auctions on Ukrenergo’s auction platform with the neighbouring transmission system operators (when so agreed on with the neighbouring TS operators); phase III (in a long-term perspective) –– allocation of interconnections’ transmission capacities on the JAO platform. The joint working group will work on a permanent basis.

Regulation (EC) No. 714/2009 of 13 July 2009 on conditions for access to the network for cross-border exchanges in electricity and repealing Regulation (EC) No. 1228/2003 (AA: Article 271, Chapter 11, Title IV)

Ukrenergo NEC plans to reconstruct four transformer sub-stations located in Kharkiv and Dnipropetrovsk oblasts (two 750 kV sub-stations — Zaporizka and Dniprovska, and two 330 kV sub-stations — Artema and Zaliutyno). Increase of transforming capacity will make it possible to eliminate the existing performance problems, ensure reliable electricity supplies to Kharkiv, Zaporizhia, Dnipropetrovsk, Luhansk and Donetsk oblasts, creation of preconditions for infrastructure development in the eastern regions of Ukraine.

Article 338, Chapter 1, Title V of the AA, Cooperation Agreements with IFIs

On October 4, the IMF published the Memorandum of Economic and Financial Policies signed by Ukraine within the framework of review of the co-operation programme. This year, Ukraine expects to receive the fourth tranche from the IMF in the amount of 1.3 billion US dollars64 but to that end, it has to meet the commitments it has taken, in particular, in the energy sector, including full liberalisation of tariffs for housing and utility services by April 1.65

On October 10, the CMU and the German government-owned development bank KfW concluded a EUR 150 million loan agreement 66 for the implementation of the project of reconstruction of sub-stations in eastern

61 http://mpe.kmu.gov.ua/minugol/control/uk/publish/article;jsessionid=8679670711A16BC4D3A0B5797922B3AF.app1?art_id=245147852&cat_id=244895180 62 http://mpe.kmu.gov.ua/minugol/control/uk/publish/article?art_id=245154268&cat_id=35109 63 http://www.nerc.gov.ua/index.php?news=5490 64 https://daily.rbc.ua/ukr/show/mvf-ukraina-usloviya-obyazatelstva-mayaki--1475613665.html 65 https://www.rbc.ua/ukr/news/memorandum-mvf-ukraina-dolzhna-monetizirovat-1475651990.html 66 http://www.kmu.gov.ua/control/uk/publish/article?art_id=249390826&cat_id=244276429

Electricity and Nuclear Security

Ukraine. The loan was agreed upon under the Memorandum of Joint Intent between the governments of Ukraine and Germany on the Untied Financial Loan totalling EUR 500 million to finance measures relating to rehabilitation and modernisation of the infrastructure of the eastern part of Ukraine.67 Moreover, on October 11, State Secretary at the Federal Ministry for Economic Affairs and Energy, Matthias Machnig, stated that Germany intended to invest another EUR 50 million with the view of modernisation of the energy infrastructure of Ukraine and implementation of regional projects.68

On October 13–14, the Ukrainian delegation took part in the meetings of the Permanent High Level Group and the Energy Community Ministerial Council. Based on the results of those meetings, the Ministerial Council decided, among other things, to add reconstruction of the 400 kV aerial electric power transmission line between Mukacheve and Veľké Kapušany on the list of Projects of Mutual Interest (PMIs). The conclusions also included Ukraine’s proposal on the implementation of Ukraine–EU Energy Bridge project with the support from the European Commission and participation of EU Member States.69

In October 2016, Ukraine has become the associated CERN member state. And already on October 1, R&D institutions and companies of Ukraine may take part in the CERN’s procurement procedures and get orders for manufacturing hi-tech equipment70.

In October, SNRIU and the Norwegian Radiation Protection Authority discussed the implementation of bilateral co-operation projects between Norway and Ukraine in the areas of nuclear and radiation safety and considered the status of the projects Ukraine’s regulation of radiation protection in the uranium industry, Ukraine’s regulation of radiation safety in medicine, Development of general safety provisions on radioactive waste management in Ukraine.71 Further, representatives of the SAEZM participated in the conference “Nuclear safety in Ukraine — information exchange, experience and management analysis” and in the meeting of the Steering Committee for Ukraine on INSC programmes. A substantial achievement in the implementation of the projects is development of a technically safe and economically sound concept of RW disposal aimed at ensuring radiological safety of personnel and population as well as at prevention of adverse impact on the environment. The next step will be launch and implementation of projects on drafting the plan of geological disposal of RW in Ukraine and draft technological procedure of RW processing on the basis of the Vektor complex.72

Article 339, Chapter 1, Title V of the EU–Ukraine Association Agreement, coal market

First cold came in October, and the heating season started. This month brought heated dispute on the plan and status of the coal stocks. As of the beginning of the heating season, according to the approved calculations of the MECI, the coal stocks at power plants had to be 2.2 million tons.73 But, in fact, Ukraine started the current heating season with minimum coal stocks; instead of the necessary minimum of 2–2.5 million tons of coal, as of October 12, the stocks totalled only 1 million tons.74 Further, in accordance with the Government’s plan, by November 1, TPPs’ storage facilities had to contain no less than 2.8 tons of coal.75 However, by October 28 , the storage facilities of Ukrainian TPPs had accumulated about 1.9 million tons of coal, which amounted to 68% of volumes approved by the CMU.76

67 http://mpe.kmu.gov.ua/minugol/control/uk/publish/article?art_id=245149497&cat_id=35109 68 http://www.unn.com.ua/uk/news/1608911-nimechchina-zbirayetsya-investuvati-v-energetichnu-infrastrukturu-ukrayini 69 http://mpe.kmu.gov.ua/minugol/control/uk/publish/article?art_id=245150611&cat_id=35109 70 http://www.snrc.gov.ua/nuclear/uk/publish/article/338387 71 http://www.snrc.gov.ua/nuclear/uk/publish/article/336273 72 http://dazv.gov.ua/novini-ta-media/vsi-novyny/evrokomisiya-zadovolena-stanom-vikonannya-proektiv-z-yadernoji-bezpeki-v-ukrajini.html 73 http://mpe.kmu.gov.ua/minugol/control/uk/publish/article?art_id=245147903&cat_id=35109 74http://espreso.tv/news/2016/10/12/ukrayina_vkhodyt_v_opalyuvalnyy_sezon_z_minimalnymy_zapasamy_vugillya_plachkov 75 https://daily.rbc.ua/ukr/show/teplitsya-nadezhda-ukraine-nachalsya-novyy-1476131970.html 76 http://economics.unian.ua/energetics/1596191-zapasi-vugillya-na-ukrajinskih-tes-i-tets-zrosli-do-68-vid-planu.html

Electricity and Nuclear Security

Lagging behind the schedule and imbalance with the rate of coal accumulation are primarily explained by two reasons. First — lagging behind the schedule is a result of operation of Ukrzaliznytsia that fails to transport the contracted batches of coal in time due to the shortage of freight cars.77 Mr. Nasalyk has already officially addresses Ukrzaliznytsia’s Director General with the request to make every effort to secure transportation of coal to Ukrainian TPPs’ storage facilities. The Minister does not rule out, however, that problems with shipments may arise as a result of logistical problems.78 The other reason causing imbalance with the rate of coal accumulation is related to depletion of coal stocks as a result of the increased load on TPPs in summer due to prolonged repairs at NPP units, in particular, with the view of increasing their lifespan. According to the Minister, coal shortages affect private companies.79

Therefore, the issue of accumulation of sufficient coal stocks at TPPs’ storage facilities is still pretty severe and ambiguous. The Government is trying to resolve the problem but is influenced by a number of factors not directly dependent on the MECI. There was a substantial lagging behind the approved schedule of accumulation of coal stocks in October. However, in the opinion of Mr. Kotko, the President of the Energy Association of Ukraine, this situation is not disastrous although the such coal stocks can hardly be characterised as comfortable. At the same time, should severe frost hit, problems may arise.80

Even now, the MECI’s 2017 forecast balance of fuels includes coal demand for heat power generation in Ukraine at the level of 24.5 million tons, of which 9.5 million tons would be anthracite, and the rest — gas flame coals. According to the information from the Director of the Electric Power Complex Department Ms. Buslavets, the MECI also predicts circumstances under which the coal mining industry of Ukraine may fail to provide the approved volumes of fuels. That is why the Ministry studies possibilities of coal imports and increase in production capacities of state-owned mines enabled by loans.81

As to the issue of the coal sector reform, Deputy Minister Mr. Korzun said that the MECI had drawn up a draft CMU Ordinance “Certain issues of further operation of coal-mining companies”.82 Also, according to the MECI, a draft Programme of the coal sector reform will be presented with the participation of directors of companies and trade union leaders representing the industry.83 According to the Minister, restructuring of the mines has been suspended. The developed Programme consists of three parts. The first part specified eight mines to be invested in. Loans — totalling about UAH 500 million — to be issued to prevent volumes of coal mining from decreasing have already been negotiated. The second part provides for liquidation, for which UAH 800 million have been included in the 2017 budget. Prior to the liquidation, however, a plan for the miners’ adaptation in other sectors will be drawn up. The third part has to do with the so called mines in the middle. They will be put up for privatisation.84

On October 25, talking on the planned reforms in the coal sector, the Minister emphasised that no reform was possible without paying salaries to workers. Already by the end of October, the miners should have received UAH 199.5 million from the budget and about UAH 90 million as sales proceeds that were supposed to be used to pay off 70% of the debt for September. The next tranche in the amount of over UAH 200 million is scheduled for November85. Furthermore, the Minister noted that the 2017 budget provides for sufficient funds to cover the difference with the production cost of the ready-made commercial coal products, support state-owned mines, restructure coal-mining companies.86

Discussion as to the pricing formula as regards Rotterdam+ coal never ended. The Minister himself opined that the system is not suitable for Ukraine and will not work here. In his opinion, Ukraine could use a coal

77 http://economics.unian.ua/energetics/1596191-zapasi-vugillya-na-ukrajinskih-tes-i-tets-zrosli-do-68-vid-planu.html 78 https://www.rbc.ua/ukr/news/nasalik-prosit-balchuna-obespechit-dostavku-1477382609.html 79 http://www.epravda.com.ua/rus/publications/2016/10/20/608470/ 80 https://focus.ua/money/359354/ 81 http://economics.unian.ua/energetics/1595776-u-kabmini-pidrahuvali-skilki-vugillya-potribno-ukrajini-nastupnogo-roku.html 82 http://mpe.kmu.gov.ua/minugol/control/uk/publish/article?art_id=245152604&cat_id=35109 83 http://mpe.kmu.gov.ua/minugol/control/uk/publish/article?art_id=245152628&cat_id=35109 84 http://www.epravda.com.ua/rus/publications/2016/10/20/608470/ 85 http://www.kmu.gov.ua/control/uk/publish/article?art_id=249428522&cat_id=244277212 86 http://mpe.kmu.gov.ua/minugol/control/uk/publish/article?art_id=245148798&cat_id=35109

Electricity and Nuclear Security

pricing formula set in accordance with the Polish stock exchange quotations because, firstly, it closer to us, it doesn’t include transportation costs; secondly, the mines subordinated to the Ministry extract only gas flame coal.87 Some experts have already submitted claims to court complaining about overpriced tariffs for electricity calculated on the basis of the API2+ formula.88

Cooperation in the nuclear safety sector, Council Directive 2014/87/Euratom, Council Directive 2013/59/Euratom, Council Directive 2006/117/Euratom (АА: Article 342, Chapter 1, Title V)

In pursuance of commitments as to harmonisation of Ukraine’s legislation with the EU acquis, on October 10, the draft CMU Resolution “On changing criteria of exemption of the use of sources of ionising radiation from licensing” was published; it had been prepared in accordance with the Law of Ukraine “On Authorising Nuclear Energy Use”.89

The actual positive progress in providing free access of the public to radiological information was demonstrated on October 19 when the SNRIU made it possible for anyone to monitor real-time information from the automated radiation monitoring system in the control area of all NPPs of Ukraine on the main page of its official website.90 Furthermore, with the purpose to improve radiation safety and bringing it in line with the EU standards, the Government is taking measures to detect and register radioactive materials which, due to various reasons, have not been registered with the national system. For that purpose, on October 4, the VRU decriminalised Article 265 of the Criminal Code of Ukraine as regards voluntary handover of radioactive materials by adopting the draft Law No. 4612 as a whole. This measure will facilitate voluntary handover, registration and examination of RW, registration thereof with the national accounting system and their transfer for controlled storage. At the moment, within the framework of US technical assistance, preparation for a launch and implementation of a pilot project Social Campaign to Collect Orphan Radioactive Sources from the Population was commenced.91

To resolve a problem of SNF management in the Ukrainian NPPs, on October 5, the CMU approved its Ordinance No. 721-р “On redemption and provision of parcels of land for permanent and change of their designated use”92 by which it changed designated use of land plots situated in the Chernobyl zone with the purpose of construction of the CSNFSF93 and allotted land plots with the total area of 54.2 ha for its construction.94 On October 17, the President of Energoatom NNEGC, Mr. Nedashkovskyi and the President of the US-based company Holtec International, Mr. Singh held a meeting to discuss the status of the project of the CSNFSF construction. Beginning of an active construction phase on the CSNFSF construction site is scheduled for March 2107, and load of the first batch of SNF into the container systems HI-STORM is to take place in the end of 2018.95 Also, on October 11, representatives of the МЕCI and of the Australian Safeguards and Non-proliferation Office signed an additional agreement to the contract for supplying equipment for the CSNFSF.96

On October 5–6, the SNRIU and the SESU took part in the IAEA International training held under the Convention on Early Notification of a Nuclear Accident and the Convention on Assistance in the Case of a

87 http://www.epravda.com.ua/rus/publications/2016/10/20/608470/ 88 http://tsn.ua/groshi/okruzhnogo-adminsudu-kiyeva-viznachit-dolyu-cin-na-elektroenergiyu-dlya-promislovosti-796924.html 89 http://www.snrc.gov.ua/nuclear/uk/publish/article/337135 90https://www.facebook.com/171734492888296/photos/a.413769242018152.96129.171734492888296/1199684440093291/?type=3&theater 91 http://dazv.gov.ua/novini-ta-media/vsi-novyny/verkhovna-rada-ukrajini-prijnyala-zakonoproekt-yakij-zvilnyae-vid-kriminalnoji-vidpovidalnosti-za-dobrovilnu-zdachu-radioaktivnikh-materialiv.html 92 http://zakon0.rada.gov.ua/laws/show/721-2016-%D1%80 93 http://www.energoatom.kiev.ua/ua/press/nnegc/45930-pravitelstvo_izmenilo_tcelevoe_ispolzovanie_zemelnyh_uchastkov_dlya_soorujeniya_tchoyat/ 94 http://mpe.kmu.gov.ua/minugol/control/uk/publish/article?art_id=245150772&cat_id=245070653 95 http://www.energoatom.kiev.ua/ua/press/nngc/45975-energoatom_ta_holtec_vdoskonalyuyut_tehnolog_povodjennya_z_vdpratcovanim_yadernim_palivom_na_ukranskih_aes/ 96 http://mpe.kmu.gov.ua/minugol/control/uk/publish/article?art_id=245150192&cat_id=35109

Electricity and Nuclear Security

Nuclear Accident or Radiological Emergency. Based on the results of participation in the training, the SNRIU will develop and implement corrective actions with the view of raising of the level of emergency preparedness and response, and of improvement of procedures of interdepartmental and international cooperation.97

During October, WANO experts carried out peer review at Zaporizhia NPP (ZNPP)98 and Rivne NPP99. ZNPP has become the first NPP in Ukraine, where project-informed review took place. Furthermore, on October 17-21, under the TACIS International Assistance Programme, a commission from the SNRIU conducted a scheduled inspection of a site at South-Ukraine NPP. The commission included experts from the SSTC NRS and Riskaudit international organisation (Germany, Italy, France). The results of the review were laid out in the final report with instructions.100

On October 6, ZNPP’s unit was connected to the power grid based on the license on the extension of the power unit 2’s lifespan until 19 February 2026 issued by the SNRIU.101

During October, the major topics discussed in the sector of nuclear energy were increase in electricity generation by NPPs and possibilities of introduction of a load following regime at NPP units. Prime Minister Volodymyr Groysman stated that one of the Government’s priorities was scaling up of electric power generation by NPPs102 since it was the objective of the national security strategy.103Even now, the Government is making every effort to scale up generation capacities104.

Unstable supplies and deficit of anthracite coal jeopardises stable functioning of the UES in peak hours when electricity consumption is high. That is why, in order to resolve the UES’s complex problems and with the view of saving coal and compensation of the deficit thereof, the Government is considering the issue of operation of NPPs in the load following regime. Thus, the МЕCI has already applied the load following regime at Ukrainian NPPs.105The previous МЕCI management also introduced a paragraph to the CMU Action Plan, stating that NPPs will be switched over to the load following as early as late 2016 – early 2017.106 That decision provoked acute debates among both experts and the public, and even a concern lest “another Chernobyl” happen, especially with regard to short transition period and reliability of operation of all systems.107 That was why Energoatom responded to the Government’s plans and immediately warned that for the transition of the power units of Ukrainian NPPs to the load following regime, no less than two years of thorough preparation would be necessary. 108Furthermore, the President of Energoatom NNEGC, Mr.Nedashkovskyi assured that in case of switching over to a new regime, load-shedding or loading of power units of Ukrainian NPPs will be made in compliance with all rules and standards of nuclear and

97 http://www.snrc.gov.ua/nuclear/uk/publish/article/336747 98 http://www.energoatom.kiev.ua/ua/press/nngc/45943-eksperti_vao_aes_rozpochali_perevrku_zaporzko_aes/ 99 http://www.energoatom.kiev.ua/ua/press/nngc/46007-na_rvnenskyi_aes_triva_partnerska_perevrka_parizkogo_tcentru_vao_aes/ 100 http://www.energoatom.kiev.ua/ua/press/nngc/46000-na_yuuaes_zdyisneno_kompleksnu_nspektcyinu_perevrku_komsyu_dyaru/ 101 http://www.energoatom.kiev.ua/ua/press/nngc/45932-energoblok__zaporzko_aes_pdklyucheno_do_energomerej_pslya_prodovjennya_termnu_yiogo_ekspluatatc/ 102 http://www.energoatom.kiev.ua/ua/press/nnegc/45940-groyisman_v_nashih_planah_naraschivanie_moschnosteyi_atomnoyi_elektroenergetiki_budem_ih_uvelichivat_i_vvodit_novye/ 103 http://economics.unian.ua/energetics/1579047-ukrajina-naroschuvatime-potujnosti-atomnoji-ta-gidroenergetiki-groysman.html 104 http://www.kmu.gov.ua/control/uk/publish/article?art_id=249384066&cat_id=244276429 105 http://www.unn.com.ua/uk/news/1613192-dlya-bezpechnogo-manevruvannya-aes-ukrayini-potribni-roki-pidgotovki-energoatom 106 http://mpe.kmu.gov.ua/minugol/control/uk/publish/article?art_id=245150321&cat_id=245070653 107 http://www.energoatom.kiev.ua/ua/press/nngc/45216-perehd_energoblokv_ukranskih_aes_tipu_vver_na_manevroviyi_rejim_roboti_potrebuvatime_ne_menshe_dvoh_rokv_retelno_pdgotovki/ 108 http://www.unn.com.ua/uk/news/1613192-dlya-bezpechnogo-manevruvannya-aes-ukrayini-potribni-roki-pidgotovki-energoatom

Electricity and Nuclear Security

radiation safety, accompanied by the safety analysis109 and upon completion of all state examinations, studies and necessary modernisation of the power units. 110 Additionally, Mr.Nedashkovskyi considers that the issue, however pressing it might be for Energoatom, needs to be substantiated not only from the angle of safety but also from the point of view of economic feasibility.111 Even now, Energoatom NNEGC intends to have the power unit 2 of Khmelnytskyi NPP switched to the possibility to operate in the load following regime by 2020, with the cost of preparation measures for that regime amounting to 300 million UAH.112

The subject of switching NPPs to the load following regime has not been raised by the Ukrainian Government for the first time. But all previous times, the idea was received poorly by the specialists in the nuclear sector because of the technological context. On one hand, transition of NPPs to operation in the load following regime is a world practice113. The load following of nuclear power units, however, is very complicated in terms of the technological process, and that is why not so many countries actually employ such a regime.114 So, it, therefore, requires a serious and balanced approach.

Cooperation in the nuclear safety sector. The cooperation shall address the problems which have arisen as a consequence of the Chernobyl disaster, as well as the decommissioning of the Chernobyl NPP (АА: Article 342, Chapter 1, Title V)

On October 5, a meeting took place between the First Deputy Head of the Committee on Environmental Policy, Nature Resources Utilization and Elimination of the Consequences of Chernobyl Catastrophe, Mr. Dyriv, the Director of the EBRD’s Nuclear Safety Department, Mr. Novak, representative of the Chernobyl Shelter Fund and Nuclear Safety Account, Mr. Slavis, with the view of discussion of the status of the projects on transformation of the Shelter on the site of the ChNPP into an environmentally safe system. Mr. Novak informed that the sliding of the New Safe Confinement Arch over the Shelter was scheduled for November 29. The project provides that this new facility will be functional for the next 100 years. Completion of construction works at SFSF-2 is scheduled for the first half of 2017. Overall testing of the facility is planned for March 2017, and extraction of fuels from SFSF-1 is planned for September. In his turn, Mr. Dyriv assures that the Committee will make every effort to facilitate allocation of funds in the 2017 State Budget that will be necessary to ensure that Ukraine complies with its commitments and contributing to the Chernobyl Shelter Fund with the view of ensuring safe and qualified performance of works relating to the construction of the New Safe Confinement and a new waste storage facility.115

On October 19, the CMU decided to additionally allocate UAH 93,577.4 thousand for 2016 under the budgetary programme KPKV (Code under the program-based classification of budget) 2408110 “Maintaining ab environmentally safe situation in the exclusion and compulsory evacuation zones”.116

109 http://mpe.kmu.gov.ua/minugol/control/uk/publish/article?art_id=245150321&cat_id=245070653 110 http://economics.unian.ua/energetics/1566796-energoatom-mae-namir-do-2020-roku-perevesti-energoblok-2-hmelnitskoji-aes-na-mojlivist-roboti-v-manevrovomu-rejimi.html 111 http://mpe.kmu.gov.ua/minugol/control/uk/publish/article?art_id=245150321&cat_id=245070653 112 http://economics.unian.ua/energetics/1566796-energoatom-mae-namir-do-2020-roku-perevesti-energoblok-2-hmelnitskoji-aes-na-mojlivist-roboti-v-manevrovomu-rejimi.html 113 http://www.energoatom.kiev.ua/ua/press/nngc/45216-perehd_energoblokv_ukranskih_aes_tipu_vver_na_manevroviyi_rejim_roboti_potrebuvatime_ne_menshe_dvoh_rokv_retelno_pdgotovki/ 114 http://www.unn.com.ua/uk/exclusive/1610115-manevruvannya-atomnikh-blokiv-dlya-zaoschadzhennya-elektroenergiyi-ye-skorishe-vinyatkom-nizh-svitovoyu-praktikoyu-ekspert 115 http://dazv.gov.ua/novini-ta-media/vsi-novyny/pro-obgovorennya-stanu-realizatsiji-mizhnarodnikh-proektiv-na-majdanchiku-chaes-ta-pitan-pov-yazanikh-iz-zakonodavchim-zabezpechennyam-bezpechnoji-ekspluatatsiji-yadernikh-ob-ektiv.html 116 http://dazv.gov.ua/novini-ta-media/vsi-novyny/ostap-semerak-uryad-vidiliv-dodatkovikh-93-6-miljona-griven-na-virishennya-potochnikh-problem-u-zoni-vidchuzhennya.html

Energy Efficiency and Social Issues

During the first month of the heating season, the issue of energy efficiency faded into insignificance. Despite the declared Energy Efficiency Day in the Verkhovna Rada, MPs adopted only one of three vital draft laws listed on the agenda. The situation with funding of the existing programmes is even worse: in the published draft State Budget for the next year, funds for the Government’s programme of so called “warm loans” have not been provided for. Only UAH 800 million has been provided for financing of the Energy Efficiency Fund. In view of the insufficient funding, the status of the respective draft law which has not been even registered with the Verkhovna Rada, and mechanisms of the functioning of the Energy Efficiency Fund remaining undeveloped, its launch in April 2017 – as announced optimistically by the Ministry of Regional Development – is obviously unrealistic.

At the same time, the state pays significant attention to social support programmes (the draft State Budget provides for about UAH 52 billion of allowances and subsidies for utility services) but still delays with improvement of that activity, and instead puzzles with its unexpected steps. In particular, Ukraine’s commitment in respect of monetising the subsidies has stalled at the stage of a concept choice, instead, the Government unexpectedly permitted the customers who don’t receive subsidies, to pay for utility services in instalments during the subsequent periods.

Directive 2012/27/EU on energy efficiency

Energy audits and energy management systems (Article 8)

According to the insider information, the draft Cabinet of Ministers of Ukraine’s Ordinance “On approval of the Action Plan on the introduction of energy management systems in state-financed organisations” is being prepared for submission to the Ministry of Justice of Ukraine with the view of legal appraisal. In accordance with the regulatory requirements, that draft document, following its legal appraisal, will be submitted to the Cabinet of Ministers of Ukraine for approval.

Metering (Article 9)

A draft Law “On Commercial Metering in the Public Utilities Sector” (reg. No. 4901 of 06.07.2016), initiated by MPs, on 18 October 2016 during the Energy Efficiency Day, was adopted by the Verkhovna Rada of Ukraine in the first reading. The draft Law proposes to establish the principles ensuring commercial metering in the public utilities sector relating to the heat power supply, hot water supply, district water supply and provision of consumers with relevant metering information.

Energy Efficiency National Fund, Financing and Technical Support (Article 20)

On 18 October 2016, the forum “Energy Independence. Creation of the Energy Efficiency Fund” took place with the participation of Hennadii Zubko, the Vice Prime Minister of Ukraine, Minister of Regional Development, Building and Housing and Communal Services of Ukraine, Cihan Sultanoğlu, UN Assistant Administrator and Director of the Regional Bureau for Europe and the Commonwealth of Independent States, and public officials, MPs, representatives of international financial organisations, international donors, members of the diplomatic corps, experts. During the event, Hennadii Zubko presented the draft law “On the Energy Efficiency Fund” and spoke of the necessary steps to be taken for promotion of the energy efficiency reform in Ukraine. Mr. Zubko stated that the first loan is going to be provided to the Energy Efficiency Fund in April 2017. This term, however, seems pretty unlikely because the process of approval of the draft law with the interested executive authorities has only started recently. Besides, the draft law provides for drawing up of a number of regulations for the purposes of the law, and that also will take certain time.117

The state policy on energy saving and energy efficiency is pretty incoherent. Politicians declare that there is necessity to reduce consumption of the heat power by the population but fail to create legislative preconditions to that effect. The existing Programme of “worm credits” ends in 2016, and no relevant expenditures have been provided for in the draft State Budget for 2017, and this will lead to a situation where politicians calling for savings, will, at the same time, deprive the population of their right to avail themselves of the public assistance regarding energy efficiency measures.

117 http://www.minregion.gov.ua/press/video-press/forum-energonezalezhnist-stvorennya-fondu-energoefektivnosti/

Energy Efficiency and Social Issues

At present, the respective draft resolution on prolongation of the Programme of “warm” credits to 2017 is pending agreement with the central executive authorities. For the purpose of prolongation of the Programme, however, that draft document provides for reimbursement of a principal of the loan by the state only to condominiums in the amount of UAH 33.2 million.

Directive 2010/31/EU on the energy performance of buildings

Consideration of the Governmental draft Law “On the Energy Performance of Buildings” (reg. No. 4941 of 11.07.2016) was planned for October 18, the Energy Efficiency Day in the Verkhovna Rada of Ukraine, but MPs failed to consider it. Expectations as to the adoption of the draft Law in the first reading turned out to be vain. According to preliminary information available at the present moment, the draft Law will be submitted for consideration thereof by the Verkhovna Rada of Ukraine on 3 November 2016.

The Parliament turned out to be more effective when considered amendments to the Law No. 327-VIII of 09.04.2015 “On Introduction of New Investment Possibilities for Securing Rights and Lawful Interests of Undertakings for Large-scale Modernisation of the Energy Sector” which is a basic law for energy services in state-financed organisations. Amendments adopted on October 2 in the first reading not only bring a system of energy services procurement in line with the general regime of procurement via the PROZORRO system but also improve it in many ways, following the results of the public discussion with the market participants, which was held by the relevant Parliamentary Committee on Construction, Urban Development, Housing and Communal Services, with the participation of Mr. Riabchyn, MP.

Social Issues

In the end of October, on the initiative, among others, of Dmytro Vovk, the Chairman of the NEPURC, the Cabinet of Ministers of Ukraine amended the Rules of providing district heating, hot and cold water supply and water discharge services, which made it possible for the consumers of utility services (other than beneficiaries of subsidies) to pay only 50% of the actual bills during the heating season, paying off the rest in instalments before the start of the next heating season. By its supplementary regulations, the Government transferred the respective debt liabilities of DHPs to Naftogaz of Ukraine NJSC as the major supplier and producer of natural gas.118 The CMU’s decision is a rather unexpected step but experts already suggest that during its implementation throughout the heating season, Naftogaz of Ukraine NJSC may incur additional expenditures and cash deficiencies to be covered, as expected, from the state budget. Such steps may downplay all positive results of the rise in tariffs for heat power for the population by making the calculations less transparent, and activities in the market would become less market-oriented.

Kyiv City State Administration, with the assistance of the USAID Municipal Energy Reform Project in Ukraine and the State Agency on Energy Efficiency and Energy Saving of Ukraine, have created an energy efficiency hot line. Specialists will consult the population on the issues of rationalisation of consumption of energy resources, creation of the condominiums, taking measures to improve energy efficiency.

118 http://www.kmu.gov.ua/control/uk/publish/article?art_id=249449009&cat_id=244276429

Environment and Renewable Energy Sources

The Verkhovna Rada of Ukraine has adopted three European integration laws: on environmental impact assessment, on strategic environmental assessment, and on basin management of water resources. However, the two first laws adopted with the view of introduction of horizontal environmental legislation in Ukraine, has been vetoed by the President of Ukraine. President’s observations are very general and in order to take them into account, consultations need to be held with the stakeholders, and the draft laws have to be duly finalised and considered by the Parliament as soon as possible.

A number of draft laws on flora and fauna protection and certain aspects of the Nature Conservation Fund approved by the Verkhovna Rada of Ukraine on October 4, if enforced, will have a positive impact on protection of wild birds but will not enable full implementation of the Directive on the conservation of wild birds.

Reform of the state environmental control launched by the Ministry of Ecology and Natural Resources of Ukraine is combined with the launch of the effective monitoring system but at the initial stage of the reform planning, it is hard to say whether it will take into account basic requirements of the respective European environmental legislation.

What concerns alternate energy sources, here, despite official declarations about its support and necessity to have ambitious targets achieved by 2020 in accordance with the National Renewable Energy Action Plan, the Government’s policy demonstrates support of other generation sources, and slow pace of the process shows that the implementation of the National Action Plan may be foiled.

Directive 2011/92/EU on the assessment of the effects of certain public and private projects on the environment (codification) (Article 363 of the AA):

On October 4, the Verkhovna Rada of Ukraine adopted the Law of Ukraine “On Environmental Impact Assessment” (No. 2009а-д) in the second reading and as a whole.119 259 MPs voted for the respective decision.

Despite that, on October 28, the President vetoed the draft law and, in accordance with Article 94(2) of the Constitution of Ukraine, returned it to the Verkhovna Rada with his observations. The Observations, among other things, stated: “Being generally in favour of improvement of the legislative regulation of the assessment of the environmental impact of economic activities in accordance with Ukraine’s international commitments, ensuring that the proposals of general public are taken into account when respective decisions are taken, I cannot agree with the way of achieving the objective set as proposed by the Law.”

The President’s observations are laid down in general terms and mainly concern the need for assessment “for particular types of economic activities aimed at satisfying the needs of the national security and defence, activities in the exclusion zone..., and the need in immediate implementation of large-scale... infrastructure projects, including those on construction”. The attention is also turned to possible corruption risks, especially because the Law doesn’t set forth an exhaustive list of reasons for refusal to issue a decision on environment impact assessment, and criteria of defining environmental conditions in such a decision. The President also turns attention to incompleteness of the mechanisms of consideration, generalisation and taking into account the proposals from the general public. Insufficient clearness and comprehensibility of certain provisions are also stated, which is contrary to the principle of legal certainty.

Directive 2001/42/EC on the assessment of the effects of certain plans and programmes on the environment

On 4 October 2016, the Verkhovna Rada of Ukraine adopted the Law of Ukraine “On Strategic Environmental Assessment” (No. 3259) in the second reading.120 231 MPs voted for the respective decision.

Despite that, on October 28, the President vetoed the draft law and, in accordance with Article 94(2) of the Constitution of Ukraine, returned it to the Verkhovna Rada with his observations. The President’s observations are couched in general terms. The Observations, among other things, point to the fact that

119 http://w1.c1.rada.gov.ua/pls/zweb2/webproc4_1?pf3511=58257 120 http://w1.c1.rada.gov.ua/pls/zweb2/webproc4_1?pf3511=56730

Environment and Renewable Energy Sources

the law does not set forth clear criteria for subsuming national planning documents to the category of those which do not require strategic environmental assessment for their approval; neither does it contain any effective mechanisms for taking account by such national planning documents of observations and proposals of the general public. The Observations further lay down that “major part of the Law’s provisions are of declarative nature, vague, incoherent and not fully conform to other legislative acts, which would discourage effective implementation of the state policy as regards strategic environmental assessment”.

Directive 2008/50/EC on ambient air quality and cleaner air for Europe (Article 363 of the AA)

On October 13, Ostap Semerak, the Minister of Ecology and Natural Resources, presented a political proposal of the Concept of reforming the nature conservation monitoring system, which provides for liquidation of the State Environmental Inspectorate and establishment of a new nature conservation authority.121 The Minister closely associates the issue of reforming the monitoring system with the introduction of effective monitoring of emissions and discharges. “We want to have generally accessible, accurate and full environmental monitoring in Ukraine. Undertakings that are actually the major contaminators of the environment, are to be bound to have an automated system of monitoring of emissions and discharges. Monitoring results must be accessible for each Ukrainian national or a tourist from outside Ukraine. Modern technologies, and particularly, the Internet make it possible to do it properly and quickly. Human interference with such system must be minimised”, said Ostap Semerak.122

Directive 2009/147/EC on the conservation of wild birds (Article 4.2) (Article 363 of the AA)

On the Environmental Day (4 October 2016) at the Verkhovna Rada of Ukraine, MPs adopted in the first reading a number of draft laws on various issues of flora and fauna protection and the Nature Conservation Fund, and particularly:

- draft Law “On the Introduction of Amendments to the Law of Ukraine “On the Nature Conservation Fund of Ukraine” (as regards the powers in the area of environmental protection” (No. 4551).123 The key objective of the draft Law “On the Introduction of Amendments to the Law of Ukraine “On the Nature Conservation Fund of Ukraine” is resolving the issue of delegation of powers from local bodies of the central executive authority in the area of environmental protection to the regional (oblast) State Administrations and to Kyiv and Sevastopol City State Administrations.

- draft Law “On the Introduction of Amendments to Certain Legislative Acts of Ukraine (as regards reinforcement of ecological network protection)” (No. 1769).124 This draft law is aimed at development of an ecological network and improvement of its protection. The draft law proposes to amend the Laws of Ukraine “On Ecological Network of Ukraine”, “On Game Management and Hunting” and “On the Nature Conservation Fund of Ukraine”, which define, in particular, powers of the local executive authorities on establishing legal principles and operation of the areas and facilities of the Nature Conservation Fund, specialised use of natural resources within their boundaries; specify procedures for establishment or designation of such areas and facilities.

- draft Law “On the Introduction of Amendments to Certain Legislative Acts of Ukraine (on implementation of the Convention on the Conservation of European Wildlife and Natural Habitats (1979)) (No. 2023).125 The draft Law’s objectives are protection of habitats of rare species included in the Bern Convention, and primarily, the forest habitats and those within state natural reserves; strengthening of the measures on protection of the bottle-nose dolphins, brown bears, bats, black storks, ospreys; prohibition of non-selective methods of hunting — steel traps; strengthening of fight against poaching.

121 http://menr.gov.ua/press-center/news/123-news1/5360-ostap-semerak-prezentuvav-kontseptsiiu-reformuvannia-systemy-pryrodookhoronnoho-kontroliu 122 http://menr.gov.ua/press-center/news/123-news1/5363-ostap-semerak-systema-monitorynhu-maie-fiksuvaty-ta-poperedzhaty-ekolohichni-pravoporushennia 123 http://w1.c1.rada.gov.ua/pls/zweb2/webproc4_1?pf3511=58936 124 http://w1.c1.rada.gov.ua/pls/zweb2/webproc4_1?pf3511=53595 125 http://w1.c1.rada.gov.ua/pls/zweb2/webproc4_1?pf3511=53825

Environment and Renewable Energy Sources

- draft Law “On the Introduction of Amendments to Certain Legislative Acts of Ukraine (as regards flora and fauna protection in accordance with international agreements)” (No. 3445).126 The objective of the Law is strengthening of fauna protection in accordance with international agreements. Among other things, for the purpose of implementation of the Agreement on the Conservation of African-Eurasian Migratory Waterbirds, it is proposed to supplement Article 20 of the Law of Ukraine “On Game Management and Hunting”, whereby hunting with lead pellets in all belts of special regime of the drinking water protective areas is to be prohibited (hunting with metal pellets is permitted). The draft Law also provides for prohibition of gas, poison for wild animals, protection of wild animals’ habitats (as required by Bern Convention) in the laws “On Wild Life” and “On Protection of Animals from Ill-treatment”. The draft Law introduces respective amendments to Article 20 of the Law of Ukraine “On Game Management and Hunting” and to Article 52-1 of the Law “On Wild Life” as regards prohibition of traps, missile weapons etc.

- draft Law “On the Introduction of Amendments to Certain Legislative Acts of Ukraine (as regards the implementation of European environmental standards on protection of habitats of rare animal and plant species)” (No. 2604).127 The objective of the Law is implementation of European environmental standards on protection of habitats of rare animal and plant species. Its target is protection of habitats and nurseries of rare animal and plant species listed in the Red Book of Ukraine.

Directive 2010/75/EU on industrial emissions (integrated pollution prevention and control) (Article 363 of the AA)

On 4 October 2016, the Verkhovna Rada of Ukraine adopted in the first reading the draft Law of Ukraine “On Amending Certain Legislative Acts of Ukraine Regulating Relations in Respect of Obtaining Authorizations (as regards special water use)” (No. 3323).128 The draft law proposes to simplify the procedure of issuing permits for special water use, and particularly, confer powers for issuing permits for special water use to the central executive authority implementing the state policy in the area of water management (State Water Resources Agency of Ukraine), at the same time divesting Kyiv and Sevastopol State Administrations, the Council of Ministers of the Autonomous Republic of Crimea of such powers; not to qualify water consumers, other than producers of beverages and packed water, whose daily use is less than 5 cubic metres of water, as those covered by special water use regime; shorten and define an exhaustive list of documents to be submitted by a water consumer for obtaining the right to special water use; determine exhaustive grounds for termination of the right to special water use and define the procedure for termination of such right.

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 (Article 338 of the AA)

Despite the need to achieve the goal of 11% of total energy generated from renewable sources by 2020, that process shows an extremely slow progress. According to an analytic note presented during VIII International Sustainable Energy Forum and Exhibition SEF-2016, in the first half of 2016 only 14 new renewable energy generation facilities had been built in Ukraine, and their total capacity was a little bit less than 39 MW129. Only EUR 42 million was invested in “green” projects during that period. It’s worth mentioning that the major contribution in the development of the sector was made by the solar power companies which constructed 12 new power plants with the total capacity of 37 MW during the period from January to June. No new wind power plants and small hydropower facilities were constructed in Ukraine in the first half of 2016.

126 http://w1.c1.rada.gov.ua/pls/zweb2/webproc4_1?pf3511=57014 127 http://w1.c1.rada.gov.ua/pls/zweb2/webproc4_1?pf3511=54723 128 http://w1.c1.rada.gov.ua/pls/zweb2/webproc4_1?pf3511=56820 129 http://ua-energy.org/post/63173

Environment and Renewable Energy Sources

The positive signal is that, despite the imperfect legislative framework and political instability, investors all the same show interest in “green” projects in Ukraine. In particular, according to the SEF 2016 KYIV report, before the end of the year, Ukrainian and foreign investors plan to construct 34 new solar power plants in Ukraine, with the total capacity of over 120 MW. The foreign investors are considering now 11 investment projects in the biomass and wind power generation segments130. In particular, investors from China and South Korea showed their interest in the biomass market.

In October, participants in the round table “RES and energy efficiency in the new Energy Strategy of Ukraine — imitation of changes or a basis for energy sector reform?” signed a Memorandum131 with the view of reducing energy consumption by 25% by 2035, RES share in final energy consumption at the level of 25% and reduction of greenhouse gases emissions by 35% (compared to 1990).

130 http://ua-energy.org/post/63173 131 http://uwea.com.ua/ru/news/entry/vie-i-energosberezhenie-v-novoj-energeticheskoj-strategii-ukrainy-imitaciya/

Oil

The Government still demonstrates little efforts in fulfilling Ukraine’s commitments in the sector. Despite creating a number of working groups, which had to develop detailed instructions on resolving the existing problems, no priority objectives in the oil sector for 2015–2016 have been fulfilled. It has been confirmed in the latest report of the Energy Community Secretariat. The report states that determination of the model and approval of the action plan for the creation of minimum reserves of oil and oil products, adoption of regulatory acts to that effect, and development of the system of management thereof, have to become Ukraine’s priorities.

Despite clear objectives, plans drawn up and support from the European partners, rather insufficient work of the Government, reorganisation and probable changes in the leadership of the authorities responsible for the implementation of Ukraine’s commitments in the oil sector are likely to result in the failure to achieve the 2016 targets within the previously set deadlines.

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 AA)

In accordance with paragraph 1.1.2 of the Implementation Plan for Directive 2009/119/EC, the Ministry of Energy and Coal Industry of Ukraine has to draw up a draft law on support of minimal reserves of oil and oil products132, and the Verkhovna Rada is to pass that act as a whole in December 2016. However, as of 1 November 2016, no information about the progress with that document was published. Another Cabinet of Ministers’ act concerning the model of minimal reserves of oil and/or oil products, chosen by Ukraine hasn’t been adopted by the present moment (activity 1.1.1, deadline — December 2015).

On 3 October 2016, Vadym Mosiychuk, the Head of the State Agency of Reserve of Ukraine, informed about his meeting with Janez Kopacz, the Director of the Energy Community Secretariat, where the parties emphasised on the need of submission by the Ukrainian partners of the “renewed road map” on creation of stocks of oil and oil products. According to Vadym Mosiychuk, experts from the European Energy Community had accepted the invitation to visit our country and he expected the visit to take place “as early as in November”133. It’s telling that on 30 September 2016, the Head of the State Agency of Reserve of Ukraine contended that he expected the visit to take place “as early as in October”134.

The State Agency of Reserve of Ukraine contends that of 2 million tons of stocks to be formed in the oil equivalent, “the SARU may ensure storage of about 1 million tons”, for which purpose it plans to establish the state enterprise Naftoreserv135. It is unclear, however, when and who has taken inventory of the existing capacities. In view of the above, the information that the SARU can store 1 million tons of oil products is unsubstantiated.

Contention on the necessity of “the phased rise in petroleum products excise tax (annually, on average, by 35–42 kopecks for a litre of an oil product during 2017–2022, and by 8 kopecks for a litre in 2023)” is also doubtful. It goes contrary to previous conclusions of the working group at the SARU, whose members stated that the expenditures necessary for the creation of stocks would not be placed on the end-consumers136.

According to the SARU, “a plan for emergency accumulation of stocks of oil and oil products is to be launched” in 2017. According to a previously published plan, the SARU plans to purchase 103 thousand tons of diesel fuel, 51 thousand tons of motor petrol and 580 thousand tons of crude oil in 2017137. However, to make those purchases, at least UAH 8.8 billion are needed, meanwhile the draft State Budget of Ukraine for

132 http://www.kmu.gov.ua/document/248091904/Dir_2009_119.pdf 133 http://www.gosrezerv.gov.ua/reserv/control/uk/publish/article?art_id=167729&cat_id=45334 134 http://www.gosrezerv.gov.ua/reserv/control/uk/publish/article?art_id=167641&cat_id=45334 135 http://www.gosrezerv.gov.ua/reserv/control/uk/publish/article?art_id=167780&cat_id=158724 136 http://www.unn.com.ua/uk/news/1578792-vid-efektivnosti-modeli-formuvannya-naftorezervu-zalezhatimut-i-tsini-na-palne-ekspert 137 http://www.gosrezerv.gov.ua/reserv/control/uk/publish/article?art_id=167629&cat_id=45334

Oil

2017 (Annex 3) provides only UAH 0.2 billion for accumulation (increase) of material values of the state material reserve138.

In view of the above, the Energy Community Secretariat’s report of 1 September 2016 states that “no progress can be reported so far” in creation of stocks in Ukraine, and that “none of last year’s priorities were taken up, being delayed for an unspecified period of time”139.

A number of questions to the Head of the State Agency of Reserve of Ukraine, including on the implementation of Directive 2009/119/EC, made the Head of the National Agency of Ukraine on Civil Service adopt the Order “On setting up of the Commission on Internal Investigation into the facts of misconduct on the part of the Head of the State Agency of Reserve, V.A. Mosiichuk” on 27 September 2016.

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 10 October 2016, a draft Law “On Amending Certain Legislative Acts Concerning Development of Rare Biofuels Production”140 as drawn up by the State Agency on Energy Efficiency and Energy Saving was submitted to the Ministry of Energy and Coal Industry of Ukraine for agreement. That draft Law provided for mandatory addition of bioethanol and biodiesel in oil products marketed within the customs area of Ukraine and introduction of administrative liability for the failure to comply with that requirement.

While the law drafters contend that such measures aim at the implementation of Directive 2009/28/EC, the EU Member States, nonetheless, guarantee to all consumers that supplies of traditional fuels for unadapted vehicles will continue. Whereas compulsory requirement as to addition of biocomponents under pain of punishment discriminates not only market participants but also 60% of Ukrainian road-users whose vehicles are not adapted to use mixed fuels. Moreover, the draft Law’s requirements go contrary to Article 18(3) of the Economic Code of Ukraine, which prohibits the public authorities “from... taking actions that eliminate competition or unreasonably support certain competitors in business activity” and thus fall into the ambit of Article 166-3 of the Code of Ukraine on Administrative Offences since they restrict “manufacturing of certain types of goods with the view of imposing restrictions on competition”; restrict “entrepreneurs’ rights to purchasing and selling of goods; impose “prohibitions or restrictions on certain entrepreneurs or groups thereof”141.

Directive 98/70/EC relating to the quality of petrol and diesel fuels and amending Council Directive 93/12/EEC as amended by the Directives 2000/71/EC, 2003/17/EC and 2009/30/EC and Regulation (EC) 1882/2003 (Annex ХХХ, Article 360–363, 365, 366 of the AA)

In accordance with the Implementation plan for Directive 98/70/EC (Articles 7 and 8, point 1.3), the Ministry of Energy and Coal Industry of Ukraine was bound, as from December 2015, to submit reports on functioning of the system of monitoring of quality and safety of oil products142. However, as of 01 November 2016, no document to that effect was published. At the same time, after liquidation of the State enterprise “Ukrainian Scientific and Research Institute for Crude Oil Processing Industry “MASMA”, the chief executor of all tasks as provided for in the plan, further work on the implementation of Directive 98/70/EC in Ukraine was actually suspended.

Certain optimism as to the above issue may arise only from the fact of signature by the undertaking operating in the oil products market, of the Rules of Professional Ethics in Competition in Respect of

138 http://w1.c1.rada.gov.ua/pls/zweb2/webproc4_1?pf3511=60032 139 https://www.energy-community.org/portal/page/portal/ENC_HOME/DOCS/4332394/3D790302C9FD5024E053C92FA8C0D492.pdf 140 http://saee.gov.ua/sites/default/files/Draft_BE.doc 141 http://oilreview.kiev.ua/2016/10/24/lobbiruya-interesy-budushhix-vladelcev-ukrspirta-gaee-soznatelno-obmanyvaet-rukovodstvo-strany/ 142 http://www.kmu.gov.ua/document/248091869/Dir_98_70.pdf

Oil

Fairness and Transparency of the Retail Fuel Market in Ukraine143. Those Rules, in particular, provide for voluntary establishment of the non-governmental system of monitoring of quality and safety of oil products by those undertakings.

Upon agreeing on the above document, the Antimonopoly Committee of Ukraine addressed the Cabinet of Ministers of Ukraine with the letter of 28 October 2016 No. 128-08.4/01-11469 in which it emphasised on the necessity of implementation of the Action Plan for the application of the Technical Regulation on Requirements to Automobile Gasoline, Diesel, Marine and Boiler Fuels as approved by the Resolution of the Cabinet of Ministers of Ukraine of 1 August 2013 No. 927 (including by way of drawing up and adoption of respective regulatory acts to that effect)” (point 3.3)144.

Directive 94/22/EC on the conditions for granting and using authorizations for the prospection, exploration and production of hydrocarbons (Annex XXVII, Articles 279, 280, 341 of the AA)

According to the Implementation Plan for Directive 94/22/EC, a new wording of the Natural Resources Code of Ukraine is to be adopted before the end of 2016145. On October 21, the State Service of Geology and Mineral Resources of Ukraine informed that it “was working” on that document146. However, implementation of the TAIEX project referred to in that notice, in whose framework “experts from European countries which already have got positive experience in implementing such directives, will visit Ukraine” is scheduled no earlier than for January 2017. In the light of that, one may expect that the objective of paragraph 1.1.1 of the Implementation Plan is not going to be met.

Article 337 of the Association Agreement with regard to information and protection of customers from unfair selling practices, and access to petroleum products for consumers, and particularly, to liquefied oil gas, including for the most vulnerable citizens

On 27 October 2016, the Antimonopoly Committee of Ukraine agreed on the Rules of Professional Ethics in Competition in Respect of Fairness and Transparency of the Retail Fuel Market in Ukraine147. Those Rules provide for, among other things, “informing the consumers about actual retail prices for fuels and factors which affect them, as well as full, accurate and truthful information on motor petrols’ markings (including markings in respect of emission standard and bioethanol content) and markings of diesel fuels (including letter denotation of a climatic belt, markings of emission standard and of fatty acid methyl/ethyl esters)” (point I.6).

On October 28, the Antimonopoly Committee of Ukraine addressed the Cabinet of Ministers of Ukraine with the letter No. 128-08.4/01-11469 in which it, in particular, called for taking measures with the view of “introduction of regular checks of fuel quality” (point 3.2) and “strengthening of control over lawfulness of installation of gas skids” (point 3.4)148.

Article 338 of the Association Agreement in terms of continuing and enhancing cooperation in the energy sector

In pursuance of Article 338(a) concerning improvement of the statistical recording system, on 17 October 2016, the State Service of Geology and Mineral Resources of Ukraine signed the Memorandum on Co-operation with the Canadian Department of Natural Resources. The goal of that co-operation is creation of web-services for geology maps of Ukraine by the end of 2017.

143 http://www.amc.gov.ua/amku/doccatalog/document?id=130996&schema=main 144 http://www.amc.gov.ua/amku/doccatalog/document?id=130997&schema=main 145 http://www.kmu.gov.ua/document/248102926/Dir_94_22.pdf 146 http://www.geo.gov.ua/novyna/derzhgeonadra-pracyuye-nad-novoyu-redakciyeyu-kodeksu-pro-nadra-ukrayiny 147 www.amc.gov.ua/amku/control/main/uk/publish/article/130989 148 http://www.amc.gov.ua/amku/doccatalog/document?id=130997&schema=main

Oil

In pursuance of Article 338(c) concerning establishment of new energy infrastructures of common interest, a project of Brody-Adamovo oil pipeline was presented on 28-29 September 2016 in the 8th Oil Forum held in Belgrade. In the designers’ opinion, its completion “will play a strategic role in diversifying sources and ways of oil supplies to Ukraine and further transits to the EU Member states”149. However, despite the fact of listing the Brody-Adamovo oil pipeline among the Projects of Common Interest, European experts are sceptical about possibilities of its implementation not only at present but in 2013.150

149 http://www.gosrezerv.gov.ua/reserv/control/uk/publish/article?art_id=167641&cat_id=45334 150 http://ipress.ua/news/naftoprovid_brodyadamovo_prymarni_shansy_popry_priorytetnyy_status_31446.html

Business Climate

The Verkhovna Rada of Ukraine’s activity resulted in adoption of a number of draft laws regarding the implementation by Ukraine of its commitments under the Association Agreement on procurement of energy services, environmental impact assessment, gas market in terms of bringing in line with other laws and specification of work conditions. Respective legislative acts were summarised in the topic sections of the present report. Some of their components affect business climate as well, including the issues of transparency, procedural logic etc.

Further on, adoption by the Government of the Concept of promotion of Ukraine’s interests in the world was among the positive developments. Its objective was the creation of a positive image of our country in order to attract new players to the Ukrainian markets. It is planned to regularly inform, via mass media, about existing opportunities and investment proposals, which will generally have a positive impact on business climate in the country. The Concept, so far, contains general provisions and does not provide for any particular sector-specific action plan, but development of a detail plan is among the planned activities.

Articles 29 of the AA on elimination of customs duties, fees and other charges

The Parliament adopted in the first reading the draft Law No. 2554а-д on amending the Section “Transitional Provisions” of the Tax Code of Ukraine as regards development of domestic production by way of promoting investments in the real sector of economy through industrial parks151. These changes aim at enhancing the investment attractiveness of the industrial parks through abolishing duties. In particular, the changes are supposed to abolish duties on energy goods defined in the Association Agreement.

Articles 97–102 of the AA on the temporary presence of natural persons for the purposes of economic activities

The Parliament adopted in the first reading the draft Law No. 4541152 on amending certain legislative acts of Ukraine concerning reducing barriers to foreign investments (cancelling registration of foreign investments and amending rules of employment and temporary accommodation for foreign nationals). That draft Law’s objective is cancelling registration of foreign investments, simplification of the procedure of issuing permits for employment of foreign nationals and for certificates of temporary residence in Ukraine.

Article 255 of the AA in terms of clarification of the principles of imposing sanctions

The draft Law No. 2431 on amending legislation on protection of economic competition was included in the Verkhovna Rada’s agenda for the sixth time, to be adopted in the second reading153. Those amendments concern penalties for violation of the respective law by companies. It also sets forth that the Antimonopoly Committee of Ukraine must calculate the amount of a penalty in accordance with the methodology which will take into account the nature of the violation committed, its duration, repetition of a breach, damage it caused to competition, circumstances of a violation, real financial standing of infringer and impact of the penalty on competitiveness and competition conditions in the market.

Articles 262–267 of the AA on the state aid

A draft Law No. 5105 on amending the Law of Ukraine “On Investment Activities”154 concerning public investment projects was passed by the Verkhovna Rada in the first reading. Adoption of that draft Law would bring provisions of the Law of Ukraine “On Investment Activities” in line with the Law of Ukraine “On Amending the Budgetary Code of Ukraine in Terms of the Public Investment Projects”. The draft Law

151 http://w1.c1.rada.gov.ua/pls/zweb2/webproc4_2?id=&pf3516=2555%E0-%E4&skl=9 152 http://w1.c1.rada.gov.ua/pls/zweb2/webproc4_1?pf3511=58915 153 http://w1.c1.rada.gov.ua/pls/zweb2/webproc4_2?id=&pf3516=2431&skl=9 154 http://w1.c1.rada.gov.ua/pls/zweb2/webproc4_2?pf3516=5105&skl=9

Business Climate

distinguishes between such notions as “state investment” and “state support”. The mechanism of state support of investment projects is being improved due to decentralisation of decision-making, simplification of the procedure for obtaining state support, listing of the projects that received state support on the State Register, which would ensure monitoring of investment projects implemented with the funds allocated from the state budget etc.

Directive 2009/73/EC concerning common rules for the internal market in natural gas

With the view of public discussion (until 22 November 2016), the NEPURC published the resolution on amending the code of gas distribution systems and to the standard natural gas transmission contract155. The NEPURC intends to reduce the companies’ expenditures related to transportation of extracted gas by reducing rates additionally included in the cost by the GTS operator because of non-conformity of the gas with the existing quality standards (as regards the parameters of the temperature of moisture and hydrocarbon dew point).

For the purpose of aligning the Law of Ukraine “On the Natural Gas Market”, the draft Law No. 5289 was registered; it provides for a number adjustments to be brought into the legislation in force156. In particular, the proposed amendments cover the Law of Ukraine “On Pipeline Transport” insofar as they concern operation of gas transmission and gas distribution systems, the Law of Ukraine “On Production Sharing Agreements” insofar as they concern performance of production sharing agreements, the Law of Ukraine “On Natural Monopolies” insofar as they concern imposing sanctions on companies by the regulator etc.

A draft Law No. 5290157 on amending the Law of Ukraine "On the Natural Gas Market” has been registered. Apart from the amendments as regards the priority of supplying gas to households (Article 3, point 11), it also proposes that the companies make supplies at the price comprised of expenditures relating to extraction, to bringing the product (gas) in line with respective quality standards and to transportation to end-consumer (Articles 12 and 15).

Directive 2009/72/EC concerning common rules for the internal market in electricity

In pursuance of the Directive, the NEPURC adopted the Resolution No. 1841 on quality standards in electricity supplies158. The time-limits were set for the provision of standard electricity supply services, such as connection to the electricity grid, installation of metering devices etc. In case of failure to comply with those time-limits, the companies will be bound to pay reimbursement to customers. Depending on the type of service, the amount of reimbursement would be UAH 50–200 since 1 January 2017, and UAH 100–400 since 1 January 2018. The Resolution was submitted to the Ministry of Justice and will enter into force upon its official publishing.

Directive 2011/92/EU on the assessment of the effects of certain public and private projects on the environment (codification)

A draft Law No. 2009а-д on environmental impact assessment159 (“EIA”) was adopted in the second reading and submitted to the President for signature. The Law lays down the list of details to be provided by a company and the procedure of impact assessment by the authorised authority (Articles 5 and 6). The Law covers companies planning to implement such projects (Article 3, points 2 and 3) as:

- construction of oil and gas processing plants;

- construction of TPPs, CHPPs and other capacities of ≥50 MW for electricity generation, production of steam and hot water;

- construction and decommissioning of NPPs;

155 http://www.nerc.gov.ua/?news=5474 156 http://w1.c1.rada.gov.ua/pls/zweb2/webproc4_1?pf3511=60296 157 http://w1.c1.rada.gov.ua/pls/zweb2/webproc4_1?pf3511=60298 158 http://www.nerc.gov.ua/?news=5467 159 http://w1.c1.rada.gov.ua/pls/zweb2/webproc4_2?id=&pf3516=2009%E0-%E4&skl=9

Business Climate

- construction of HPPs and PSPPs (irrespective of capacities);

- construction of wind farms with 2 wind power generators of ≥50 m height;

- oil and natural gas (and other mineral deposits) extraction on the continental shelf;

- construction of pipelines of ≥800 mm diameter and ≥40 km length for transportation of gas and oil;

- construction of facilities with the capacity of ≥200 thousand tons, for storage of oil and petrochemicals;

- construction of power transmission lines with the voltage of ≥220 kV and length of ≥15 km.

In case if the companies fail to comply with the requirements on the EIA, their activities would be fully prohibited or restricted (Article 16); respective penalties are also provided for.

On October 31, the President vetoed the Law and submitted his observations to the Verkhovna Rada. In his opinion, such activities as reconstruction, technical re-equipment, overhaul repair of the construction objects, enlargement and re-purposing would not necessarily mean increase of environmental impact. It means that the companies will incur additional expenditures.

Directive 2012/27/EU on energy efficiency

The draft Law No. 4549 “On Amending the Law of Ukraine “On Introduction of New Investment Opportunities, Securing Rights and Legitimate Interests of Undertakings for the Purposes of Large-scale Energy Modernization” was adopted in the first reading160. It proposes to expand ways of procuring energy services (Article 3) so they could be made not only based on negotiations (as provided for by the legislation in force) but also as a result of open tendering. At the same time, it is not specified in which cases one or another method of procurement of energy services must apply.

The draft Law on amending the Law of Ukraine “On Heat Supply” was included in the agenda but was never considered161. The companies generating thermal power from alternative sources of energy are proposed to conclude heat supply agreements with state-financed organisations for the period of at least 5 years (Article 19). The legislation in force does not specify the time-limits for such agreements.

160 http://w1.c1.rada.gov.ua/pls/zweb2/webproc4_2?id=&pf3516=4549&skl=9 161 http://w1.c1.rada.gov.ua/pls/zweb2/webproc4_2?id=&pf3516=4581&skl=9

Methodology

The Project is being implemented by five partners and two invited permanent experts. The Project is

being implemented by the following five partners: NGO “DIXI GROUP”, Resource & Analysis Center “Society

and Environment”, Civil Network “OPORA”, Association “European-Ukrainian Energy Agency”, and All-

Ukrainian NGO “Energy Association of Ukraine”. Among the project permanent members are L. Unigovskyi,

General Director of Naftogazbudinformatyka LLC, and G. Riabtsev, Social Program Director of Psycheа

Scientific and Technical Centre.

For the purpose of monitoring the implementation of the Association Agreement, the project

participants have been divided into six working groups. These are, in particular, Gas group: L. Unigovskyi

and R. Nitsovych (DiXi Group); Electricity group: S. Golikova (Energy Association of Ukraine) and O. Shumilo;

Energy Efficiency and Social Issues group: T. Boyko (OPORA) and D. Nazarenko (DiXi Group); Environment

and Renewable Energy Sources group: N. Andrusevych (Society and Environment) and N. Yermakova (DiXi

Group); Business Climate and Investments group: V. Beliakova (European-Ukrainian Energy Agency) and

A. Bilous (DiXi Group), Oil group: G. Riabtsev (Psychea) and T. Tkachuk (DiXi Group).

The Project participants identified the monitoring framework for each working group based on the

results of their analysis of the Association Agreement. This framework is described in Annex 1.

The main source of information for monitoring purposes is official information provided by public

authorities. These include, in particular, adopted regulatory and legal acts, statements by top officials,

information about meetings and events with the participation of representatives of public authorities. Also,

monitoring could be based on messages by key energy market players, their decisions and initiatives. Other

sources of information can include published articles, interviews, news, as well as results of bilateral

meetings between experts and energy market players.

The subject of monitoring is transposition and, if appropriate, implementation of Directives. The groups

and experts monitor, first of all, transposition of acquis into the Ukrainian legislation and compliance

therewith. If appropriate, but only as an option, the quality of implementation of acquis and the effect of

their implementation on the market and/or consumers can be subject to monitoring.

Methodology

ANNEX 1.

List of Articles of the Association Agreement and Acquis Subject to Monitoring

The group Electricity and Nuclear Security conducts monitoring and assessment of issues relating to electricity, nuclear energy, coal and elimination of consequences of the Chornobyl accident. Acquis concerned:

Article 269, Chapter 11, Title IV, Directive 2009/72/EC (market-related provisions)

Article 270, Chapter 11, Title IV, Regulation (EC) 714/2009

Article 271, Chapter 11, Title IV, Regulation (EC) 714/2009

Article 273, Chapter 11, Title IV, Regulation (EC) 714/2009, Directive 2009/72/EC

Article 274, Chapter 11, Title IV, Regulation (EC) 714/2009, Directive 2009/72/EC

Article 305, Chapter 14, Title IV, Directive 2009/72/EC, Directive 2005/89/EC

Article 338, Chapter 1, Title V

Article 338, Chapter 1, Title V, Cooperation Agreements with IFIs

Article 339, Chapter 1, Title V, coal market

Article 342, Chapter 1, Title V, cooperation in the nuclear safety sector, Council Directive 2014/87/Euratom, Council Directive 2013/59/Euratom, Council Directive 2006/117/Euratom

Article 342, Chapter 1, Title V, cooperation in the nuclear safety sector

The group Gas conducts monitoring and assessment of issues relating to gas, in particular, the implementation of the following acquis:

Articles 338, 341, Directive 2009/73/EC (market-related provisions)

Articles 338, 341, Regulation (EC) 715/2009

Articles 338, 341, Directive 2004/67/EC + Annex XXVI (Early Warning Mechanism), Articles 275 (Unauthorised taking of energy goods), 276 (Interruption), 309 and 314 (resolution of disputes) of the

Association Agreement

Chapter 11 Trade-related energy, in particular Articles 269 (Domestic regulated prices), 270 (Prohibition of dual pricing), 271 (Customs duties and quantitative restrictions), 272 (Transit) and 273–274 (Transport,

cooperation on infrastructure)

Annex XXVII to Chapter 1 Energy cooperation, including nuclear issues — Directive 94/22/EC + Articles 279–280 (Access to and exercise of the activities of prospecting, exploring for and producing hydrocarbons, and

licensing conditions)

The group Energy Efficiency and Social Issues conducts monitoring and assessment of the implementation of the following acquis:

Directive 2010/30/EU

Directive 2010/31/EU

Directive 2006/32/EU

Directive 2012/27/EU

Directive 2009/72/EC (social issues)

Articles 338, 341 of the Association Agreement

Directive 2009/73/EC (social issues)

Articles 338, 341 of the Association Agreement

Methodology

The group Environment and Renewable Energy Sources conducts monitoring and assessment of the implementation of the following acquis:

Article 363, Directive 2011/92/EU

Article 363, Directive 2001/42/EC

Article 363, Directive 2003/42/EC

Article 363, Directive 2003/35/EC

Directives 85/337/EEC and 96/61/EC

Article 363, Directive 2008/50/EC

Article 363, Directive 1999/32/EC

Article 363, Directive 94/63/EC

Article 363, Directive 2009/147/EC

Article 363, Directive 2010/75/EU

Article 338, Directive 2009/28/EC

The group Oil conducts monitoring and assessment of the implementation of the following acquis:

Directive 2009/119/EC

Directive 94/22/EC

Directive 98/70/EC

Articles 274, Chapter 11 of the Association Agreement (Trade-related energy)

Articles 275, Chapter 11 of the Association Agreement (Trade-related energy)

Articles 276, Chapter 11 of the Association Agreement (Trade-related energy)

Articles 279, Chapter 11 of the Association Agreement (Trade-related energy)

Articles 280, Chapter 11 of the Association Agreement (Trade-related energy)

Article 337 of the Association Agreement

Article 338 of the Association Agreement

Article 339 of the Association Agreement

The group Business Climate conducts monitoring and assessment of the implementation of the following acquis:

Articles 15 of the Association Agreement, Title III

Articles 22 of the Association Agreement, Title III

JUSTICE, FREEDOM AND SECURITY

Articles 29 of the Association Agreement, Title IV TRADE AND TRADE-RELATED MATTERS, Section 2 Elimination of customs duties, fees and other charges

Article 56 of the Association Agreement, Chapter 3 Technical barriers to trade

Article 88 of the Association Agreement, Section 2, Chapter 6 Establishment, trade in services and electronic commerce

Articles 93 of the Association Agreement, Section 3 Cross-border supply of services

Articles 97–102 of the Association Agreement, Section 4 Temporary presence of natural persons for business purposes

Articles 104–105 of the Association Agreement, Section 5 Regulatory framework, Sub-section 1 Domestic regulation

Article 127 of the Association Agreement, Sub-section 6 Financial services

Articles 144–147 of the Association Agreement, Chapter 7 Current payments and movement of capital

Methodology

Articles 150–156 of the Association Agreement, Chapter 8 Public procurement

Directive 2014/24/EC and Directive 2014/25/EC

Articles 255–260 of the Association Agreement, Chapter 10 Competition, Section 1 Antitrust and mergers

Articles 296–271 of the Association Agreement, Chapter 11 Trade-Related energy, Directives 2003/54/EC and 2003/55/EC

Articles 272 of the Association Agreement, Chapter 11 Trade-related energy,

Directives 2003/54/EC and 2003/55/EC

Articles 273 of the Association Agreement, Chapter 11 Trade-related energy, Directives 2003/54/EC and 2003/55/EC

Articles 274 of the Association Agreement, Chapter 11 Trade-related energy,

Directives 2003/54/EC and 2003/55/EC

Articles 275–276 of the Association Agreement, Chapter 11 Trade-related energy,

Directives 2003/54/EC and 2003/55/EC

Articles 277 of the Association Agreement, Chapter 11 Trade-related energy,

Directives 2003/54/EC and 2003/55/EC

Articles 279–280 of the Association Agreement, Chapter 11 Trade-related energy,

Directives 2003/54/EC and 2003/55/EC

Articles 337–342 of the Association Agreement, Title V ECONOMIC AND SECTOR COOPERATION, Chapter 1 Energy cooperation, including nuclear issues, Directives 2009/73/EC, 2009/72/EC and 2004/8/EC

Articles 378–379 of the Association Agreement, Chapter 10 Industrial and enterprise policy

Articles 381–382 of the Association Agreement, Chapter 11 Mining and metals

Articles 383–385 of the Association Agreement, Chapter 12 Financial services

Article 387 of the Association Agreement, Chapter 13 Company law, corporate governance, accounting and auditing

Glossary

ANNEX 2.

Glossary (Short Description) of EU Acquis Subject to Implementation Monitoring

Gas

Directive 2009/73/EC concerning common rules for the internal market in natural gas and repealing Directive 2003/55/EC

This Directive establishes common rules for the transmission, distribution, supply and storage of natural gas. The rules established by this Directive apply to natural gas, liquefied natural gas (LNG), biogas and gas from biomass. They aim to achieve a competitive, secure and environmentally sustainable market. This Directive provides for compulsory functional unbinding (supply) of transmission system operators (TSO) in vertically integrated undertakings. EU Member States must ensure that all customers are entitled to freely choose natural gas supplier and can easily change supplier within three weeks. At the same time, Member States may impose on suppliers selling gas to household customers obligations which may relate to security, including security of supply, regularity, quality and price of supplies, and environmental protection, including energy efficiency.

Regulation (EU) No. 715/2009 on conditions for access to the natural gas transmission networks and repealing Regulation (EC) No. 1775/2005

This Regulation sets common rules for access to gas transmission systems, LNG terminals and storage facilities taking into account the special characteristics of national and regional markets. The document establishes the procedures of certification of transmission system operators, as well as development, elaboration and implementation of network codes (with the participation of the European Network of Transmission System Operators — ENTSO — for Gas). The key objective of this Regulation is to ensure that all market participants have free and non-discriminatory access to relevant infrastructure and capacities.

Directive 2004/67/EC concerning measures to safeguard security of natural gas supply

This Directive establishes a common framework within which Member States must define general, transparent and non-discriminatory security of supply policies compatible with the requirements of a competitive market, and clarify the roles and responsibilities of market players (including in case of emergency). The government must specify minimum security of supply standards to be complied with by the market players, prepare and update national emergency measures, identify “vulnerable” customers and ensure adequate security for them, establish cooperation with the European Commission and other stakeholders.

Electricity and Nuclear Security

Council Directive 2014/87/Euratom of 8 July 2014 amending Directive 2009/71/Euratom establishing a Community framework for the nuclear safety of nuclear installations

The Directive establishes a European framework for maintaining and promoting consistent improvement of nuclear safety and its regulation. It sets an ambitious safety goal across the EU in order to prevent accidents and avoid radioactive waste from nuclear installations. The directive applies to any nuclear installation subject to licensing.

Council Directive 2013/59/Euratom laying down basic safety standards for protection against the dangers arising from exposure to ionising radiation

The Directive establishes basic safety standards to protect the health of employees, the general public, patients and others from the dangers of exposure to ionising radiation. The Directive applies to any

Glossary

planned, existing or emergency situation which involves a risk to ionising radiation. In particular, it applies to: the manufacture, production, processing, handling, disposal, use, storage, holding, transport, import to and export from the EU of radioactive material; the manufacture and operation of electrical equipment emitting ionising radiation; human activities withnatural radiation sources that could lead to a significant increase in the exposure of employees or the public, such as the exposure of space crew to cosmic radiation; domestic exposure to radon gas in indoor air and external exposure to gamma radiation from building materials; managing emergency exposure situations that require measures to protect the public and workers.

Directive 2009/72/EC concerning common rules for the internal market in electricity and repealing Directive 2003/54/EC

This Directive establishes common rules for the generation, transmission, distribution and supply of electricity. It also lays down universal service obligations and the rights of electricity consumers and clarifies competition requirements. Open internal market enables all consumers freely to choose their suppliers and all suppliers freely to deliver to their customers (free movement of goods, the freedom of establishment and the freedom to provide services). At the same time, this Directive sets stricter requirements to unbundling of transmission system operators (TSO) in vertically integrated undertakings. It also contains consumer rights provisions, reinforces and clarifies the functions and powers of regulatory authorities.

Regulation (EC) No. 714/2009 on conditions for access to the network for cross-border exchanges in electricity and repealing Regulation (EC) No. 1228/2003

This Regulation establishes the rules for cross-border exchanges of electricity with the view to enhancing competition and achieving harmonization within the internal market in electricity. Comparing to the previous Regulation No. 1228/2003, this Regulation contains additional provisions on certification of transmission system operators (TSO), introduction of network codes and publication of information by system operators. It also clarifies that the European Network of Transmission System Operators for Electricity (the ENTSO for Electricity) is responsible for the management of electricity transmission networks to allow trading and supplying electricity across borders within the EU.

Directive 2005/89/EC concerning measures to safeguard security of electricity supply and infrastructure investment

This Directive establishes measures aimed at safeguarding security of electricity supply so as to ensure the proper functioning of the internal market for electricity, an appropriate level of interconnection between Member States, an adequate level of generation capacity and an adequate balance between supply and demand. It establishes a framework within which Member States are to define general transparent and non-discriminatory policies on security of electricity supply compatible with the requirements of a competitive market for electricity. They must define and publish roles and responsibilities of competent authorities and all relevant market actors. In implementing these measures, Member States are supposed to guarantee continuity of electricity supplies, explore possibilities for cross-border cooperation in relation to security of electricity supply, reduce the long-term effects of the growth of electricity demand, ensure diversity in electricity generation, encourage energy efficiency and the adoption of new technologies, ensure regular renewal of networks.

Council Directive 2006/117/Euratom on the supervision and control of shipments of radioactive waste and spent fuel

This Directive authorizes transboundary shipments of spent fuel between Member States for processing, requires prior authorization for transboundary shipments of radioactive waste and spent fuel where such fuel is moved from, through the territory of or to a Member State. This Directive also requires return of radioactive waste to its country of origin.

Glossary

Energy Efficiency and Social Issues

Directive 2010/30/EU on the indication by labelling and standard product information of the consumption of energy and other resources by energy-related products

This Directive regulates labelling of energy-related products and provision of information to consumers relating to their consumption of electric energy. It applies to products which have a direct or indirect impact on the consumption of energy and on other resources during use. Suppliers placing products on the market must ensure that such products are labelled with the information about their consumption of energy and other resources. Suppliers must also produce technical documentation to include: a general description of the product; the results of design calculations carried out; test reports; the references allowing identification of similar models. The technical documentation must be available for inspection purposes for a period ending five years. Suppliers must provide the labels and product-related information free of charge to dealers, and the latter must display labels properly, in a visible and legible manner.

Directive 2010/31/EU on the energy performance of buildings

This Directive promotes the improvement of the energy performance of buildings within the Union, taking into account outdoor climatic and local conditions. It lays down minimum requirements, common general framework for a methodology and covers energy used for heating, hot water, cooling, ventilation and lighting. National authorities must establish reasonable minimum requirements to energy efficiency to be reviewed every five years. They also establish a system of certification of the energy efficiency. Such certificates provide information to prospective buyers or tenants on the energy performance of buildings, and advice on enhancing it.

Directive 2012/27/EU on energy efficiency, amending Directives 2009/125/EC and 2010/30/EU and repealing Directives 2004/8/EC and 2006/32/EC

This Directive establishes a common framework of measures for the promotion of energy efficiency within the Union in order to ensure the achievement of the Union’s 2020 20% headline target on energy efficiency. Such measures include:

annual 1.5% energy savings resulting from implementing energy efficiency measures by distribution network operators and suppliers;

enhancing energy performance of heating systems, installation of double-glazed windows and roof insulation;

purchase of buildings, products and services with high energy-efficiency performance by public bodies;

annual energy modernization of at least 3% of the total floor area of buildings owned and occupied by public bodies;

expanding rights and possibilities of consumers in the area of energy management which includes easy and free access to the metering data on the actual consumption;

national incentives for small and medium-sized enterprises to conduct energy audit that should be mandatory for all large enterprises;

monitoring of the energy performance of new energy generating capacities.

Environment and Renewable Energy Sources

Directive 2011/92/EU on the assessment of the effects of certain public and private projects on the environment (codification)

This Directive introduces an important instrument of the environmental policy — environmental impact assessment. Member States must ensure, first of all, that projects likely to have significant effects on the environment (by virtue, inter alia, of their nature, size or location) are made subject to a requirement for development consent and an assessment with regard to their effects. This Directive contains two lists of projects subject to environmental impact assessment (from nuclear power stations, gas pipelines, etc., to

Glossary

large pig farms). An important element is stricter publicity requirements, including to the public participation in the environmental impact assessment.

Directive 2001/42/EC on the assessment of the effects of certain plans and programmes on the environment

This Directive introduces an important instrument of environmental policy — strategic environmental assessment. An environmental assessment must be carried out of certain plans and programmes during their preparation. Such assessment includes preparation of the environmental report (that must contain detail information on the likely significant environmental effects and reasonable alternatives) and consultations with the relevant authorities and the public. Where a transboundary effect is possible, an assessment and consultations in a transboundary context must be carried out.

Directive 2003/4/EC on public access to environmental information and repealing Council Directive 90/313/EEC

This Directive implements the provisions of the Aarhus Conventions relating to public access to environmental information. It aims to guarantee public access to environmental information owned by public authorities — both upon request and through active dissemination thereof. Environmental information must be made available to an applicant within one month after the receipt by the public authority of the applicant’s request. A request for environmental information may be refused if the request is manifestly unreasonable, or formulated in too general a manner, concerns an unfinished document or internal communications.

Directive 2003/35/EC providing for public participation in respect of the drawing up of certain plans and programmes relating to the environment and amending with regard to public participation and access to justice Council Directives 85/337/EEC and 96/61/EC

This Directive addresses the implementation of the Aarhus Convention in respect of public participation and access to justice. It sets the requirements to the introduction of mechanisms of informing the public, holding consultations with the public and taking account of comments and proposals of the public in decision-making. Member States must ensure that the public is given early and effective opportunities to participate in the preparation and modification or review of the plans or programmes required to be drawn up under the provisions listed in Annex I of the Directive.

Directive 2008/50/EC on ambient air quality and cleaner air for Europe

This Directive establishes ambient air quality and ambient air quality management standards. For this purpose, it establishes upper and lower assessment thresholds, target and threshold values, sets objectives for the reduction of the effect of particulate matters, defines and classifies zones and agglomerations, introduces the systems of informing the public and ambient air quality assessment with respect to various pollutants. Where, in a given zone or agglomeration, there is a risk that the levels of pollutants will exceed the alert thresholds, short-term action plans must be drawn up.

Directive 1999/32/ЕС relating to a reduction in the sulphur content of certain liquid fuels and amending Directive 93/12/EEC, as amended by the Regulation (EC) No. 1882/2003 and Directive 2005/33/EC

The purpose of this Directive is to reduce the emissions of sulphur dioxide resulting from the combustion of certain types of liquid fuels and thereby to reduce the harmful effects of such emissions on man and the environment. It sets the maximum sulphur content in heavy fuel oil, gas oil and marine gas oils. It also specifies methods of sampling and analysis of sulphur content in fuel to check compliance with the requirements.

Glossary

Directive 2009/147/EC on the conservation of wild birds (Article 4.2)

This Directive relates to the conservation of all species of naturally occurring birds in the wild state in the European territory of the Member States. The mechanism of conservation of wild birds provides for the protection of their habitats; protection and use of birds; prevention of harm that can be caused by invasive species; research and reporting. According to Article 4.2, special protection areas need to be established based on ornitological criteria. Special measures also need to be taken to protect migratory species naturally occurring in the territory of a particular state, especially in wetlands.

Directive 2010/75/EU on industrial emissions (integrated pollution prevention and control)

This Directive lays down rules on integrated prevention and control of pollution arising from industrial activities. It requires using the integrated approach to activities referred to in Annex I thereto. All installations covered by this Directive must prevent or reduce pollution due to using best available techniques, efficient energy use, prevention and control of emissions. Transparency of the integrated approach is ensured by the public participation.

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

This Directive provides for setting mandatory national targets for the overall share of energy from renewable sources in the overall energy balance to take account of statistics and potential of each particular country. These targets include the achievement of a 20% share of energy from renewable sources in overall Energy Community energy consumption by 2020 and a 10% target to be achieved for the share of RES in the transport sector. This Directive, among other, establishes rules for joint green energy projects between Member States and third countries and access to the grid-system of electricity produced from renewable energy sources.

Oil

Directive 2009/119/EC imposing an obligation on Member States to maintain minimum stocks of crude oil and/or petroleum products

This Directive lays down rules aimed at ensuring a high level of security of oil supply in the Community through reliable and transparent mechanisms based on solidarity amongst Member States. It provides for the adoption of such laws, regulations or administrative provisions as may be appropriate in order to ensure that the total oil stocks maintained at all times within the Community for their benefit correspond, at the very least, to 90 days of average daily net imports or 61 days of average daily inland consumption, whichever of the two quantities is greater.

Directive 98/70/EC relating to the quality of petrol and diesel fuels

The EU introduced rules prohibiting leaded petrol and limiting the permitted sulphur content in diesel fuel with the view to improving air quality and reducing greenhouse gas emissions. This Directive sets technical specifications applicable to petrol, diesel fuels and biofuels used in vehicles, as well as to gas oils used in non-road mobile machinery. Apart from the prohibition of marketing leaded petrol, Member States must conduct assessment of national consumption of fuel, adopt laws and identify the authorized body (bodies) to introduce the fuel quality monitoring system.

Directive 94/63/EC on the control of volatile organic compound (VOC) emissions resulting from the storage of petrol and its distribution from terminals to service stations, as amended by Regulation No. 1882/2003 162

This Directive provides for the registration of all terminals used for storage, loading and unloading of oil products, installation of technical means allowing reduction of VOC emissions from mobile containers with

162 The official translation has a lot of mistakes resulting from inaccurate translation

Glossary

oil products, bringing all stationary tanks, rail, marine and motor vehicle tanks and loading installations in compliance with the established requirements.

Directive 94/22/EC on the conditions for granting and using authorizations for the prospection, exploration and production of hydrocarbons

This Directive establishes common rules to ensure the non-discriminatory access to and pursuit of activities relating to the prospection, exploration and production of hydrocarbons. These objective and transparent rules reinforce integration of the internal energy market, encourage greater competition and improve security of supply. The document provides for the implementation of measures to ensure:

equal access to all organizations possessing necessary resources for prospecting, exploring for and producing hydrocarbons;

granting authorizations on the basis of objective, published criteria;

communication of all necessary information to all organizations participating in the established procedures.

Business Climate

Directive 2014/25/EU on procurement by entities operating in the water, energy, transport and postal services sectors and repealing Directive 2004/17/EC

This Directive aims to ensure market openness, as well as fair procurements, in particular in the energy sector: extraction (production), transmission and distribution of gas, heat, electricity.

Directive 2014/24/EU on public procurement and repealing Directive 2004/18/EC

This Directive aims to ensure open public procurement market, fair competition in awarding public works contracts, public supply contracts and public service contracts between successful tenderers and the state. Public procurements must be published on official websites. The award is made to the tender most economically advantageous from the point of view of price, quality, technical merit, experience.

Directive 2009/72/EC concerning common rules for the internal market in electricity and repealing Directive 2003/54/EC

This Directive provides for the implementation of laws on the electricity market which defines electricity as an energy-related product to be purchased/sold/produced/transmitted/stored. These operations may be carried out by all licensed companies on equal competitive conditions. The state also ensures non-discriminatory access to the existing infrastructure, creates favourable conditions for electricity producers to invest in new forms of energy (wind, solar, etc.).

Directive 2009/73/EC concerning common rules for the internal market in natural gas and repealing Directive 2003/55/EC

This Directive provides for the implementation of laws on the gas market which defines gas as an energy-related product to be purchased/sold/produced/transmitted/stored. These operations may be carried out by all licensed companies on equal competitive conditions. The state also ensures that companies have non-discriminatory access to distribution networks, gas storage facilities and cross-border gas pipelines.

Directive 2012/27/EU on energy efficiency, amending Directives 2009/125/EC and 2010/30/EU and repealing Directives 2004/8/EC and 2006/32/EC

This Directive provides for the creation of favourable conditions for encouraging and development of high-efficiency cogeneration — provision of investment aid, tax exemptions or reductions, green certificates and direct price support schemes.

READ MORE ABOUT ENERGY AND ENVIRONMENTAL REFORMS IN UKRAINE ON “ENERGY REFORMS” WEBSITE www.enref.org