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

Gas market reforms demonstrated no significant dynamics during the reporting period. Despite some progress in arranging and systematizing processes to meet the required preconditions, no important legislative decisions were made. Hence, the reform in this sector has not yet left the starting point.

In the electricity sector, the Parliament’s failure to consider the draft law on the electricity market in the first reading was followed by adopting some disputable decisions which require additional clarifications on the part of the government. Developments in the nuclear security sector resulted from routine inspections by the International Atomic Energy Agency, cooperation with foreign specialists within the framework of various events, as well as legislators’ steps towards acknowledging the legal status of the territories affected by the Chornobyl accident.

Despite the focus on energy efficiency and the dedicated meeting of the National Reform Council, the reforms in this area have not progressed much. The Energy Community criticized Ukraine’s progress in the sector, first of all due to the lack of necessary legislative decisions. However, the process of drafting the necessary decisions continues.

Though environmental issues have been reflected in the key public documents (Government’s Action Plan, etc.) they were poorly detailed which potentially erodes their scope. In the renewable energy sector, the government announced a series of plans and legislative initiatives to be approved and implemented in the future.

In view of poor progress in the sector of oil and oil products, there have been attempts to reiterate the earlier achievements.

No necessary decisions were agreed on with regard to business climate either. A number of initiatives have been developed in this area waiting to be officially approved.

Abbreviations

RES — renewable energy sources SNF — spent nuclear fuel GDS — gas distribution system GTS — gas transportation system DSTU — state standard of Ukraine EITI — Extractive Industries Transparency Initiative VOC — volatile organic compounds IAEA — International Atomic Energy Agency NEPURC — National Energy and Public Utilities Regulatory Commission WMP — wholesale market price PHLG — Permanent High Level Group (Energy Community) FES — fuel and energy sector WTO — World Trade Organization FNF — fresh nuclear fuel TPP — thermal power plant AA — Association Agreement

Gas In June, not even the preparatory stage of the gas market reform has been completed, i.e. the relevant legal framework reform. Full adaptation of the legislation to the new market conditions still needs the adoption of a range of legal acts to regulate the ownership issues relating to gas distribution systems, creation of the independent market regulator, harmonization of Ukrainian legislation with the Law “On Natural Gas Market”, and unbundling of Naftogaz of Ukraine NJSC which preserves its dominant position on the market. To settle the issue of further gas market liberalization, the Ministry of Energy and Coal Industry created a working group on 13 June1,2, the NEPURC identified priority measures to be taken3, and MPs registered a number of legislative initiatives in June. 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 The draft Law No. 47564 of 2 June 2016 on the introduction of amendments to the Law of Ukraine “On Providing for Commercial Natural Gas Metering” suggests, without amending the existing provisions on the sources of financing works and obligations of distribution companies, transition to individual gas metering by giving up the idea of using metering units for multi-family houses. No relevant plan was agreed on in the course of the consultations concerning the unbundling of Naftogaz of Ukraine NJSC with the view to unbundling gas transportation, storage and supply under the EU Third Energy Package that took place on 09 June with the participation of representatives of the Cabinet of Ministers, including Minister Mr. Ihor Nasalyk, and members of the Company’s Supervisory Board5. According to the Monitoring Report of the Energy Community Secretariat of 20 June 2016 on Ukraine’s execution of the Gas Market Reform Implementation Plan6, the key issue is significant delay in adopting the law on the independent regulator and amending the secondary legislation to ensure the alignment thereof with the Law of Ukraine “On the Natural Gas Market”. The Report also underlines that the Cabinet of Ministers not only failed to adopt a decision on the NJSC unbundling, but also delayed the submission of the draft action plan for restructuring of Naftogaz of Ukraine NJSC to be assessed by the Energy Community. The draft Law “On the Introduction of Amendments to Some Legislative Acts of Ukraine (Aiming at Bringing Them in Compliance with the Law of Ukraine “On the Natural Gas Market”)” (reg. No. 4868)7 submitted to the Parliament on 24 June actually replaced the government’s draft Law No. 4503 that had failed in May. It provides for the introduction of amendments to over ten laws, however, suggests no provision that could regulate payment of DGS fee. 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 matters (Articles 269–274 of the AA) The draft Law “On the Introduction of Amendments to Some Laws of Ukraine (Regarding Consumer Protection in Case of Using Natural Property Owned by the Ukrainian People)” (reg. No. 4749)8 aims to improve access to DGSs by reducing connection fees. This draft Law would bind DGS operators to provide for internal gas supply networks design and construction and delivering connection services at their own expense.

1 http://mpe.kmu.gov.ua/minugol/doccatalog/document?id=245122142 2 Its tasks include elaboration of solutions aiming at the gas market liberalization, creating conditions for the development of the gas extraction industry, providing for gas exchange trade and operation of Ukraine’s gas hub. 3 http://www.nerc.gov.ua/index.php?news=5177 4 http://w1.c1.rada.gov.ua/pls/zweb2/webproc4_1?pf3511=59286 5 http://mpe.kmu.gov.ua/minugol/control/uk/publish/article?art_id=245119046&cat_id=35109 6 http://www.energy-community.org/portal/page/portal/ENC_HOME/DOCS/4204380/35EEC5A192E3640BE053C92FA8C01AA6.pdf 7 http://w1.c1.rada.gov.ua/pls/zweb2/webproc4_1?pf3511=59497 8 http://w1.c1.rada.gov.ua/pls/zweb2/webproc4_1?pf3511=59276

Gas On June 7, in the course of the roundtable discussion at the NEPURC, international experts presented their recommendations for the regulator on improving the tariff and operational performance systems for DGS operators, developed based on the results of the study and comparative analysis of the existing systems in Ukraine and the EU Member States9. On June 14, the draft Resolution of the NEPURC “On Approval of Amendments to Some Resolutions of the NEPURC”10 was published. These amendments were developed to regulate the legal relations between GTS and DGS operators, between DGS operators and consumers, taking account of the comments of the Energy Community Secretariat to certain regulatory documents. In particular, amendments to the DGS Code provide for a possibility for consumer to pay for the actual gas consumed instead of the nominal (i.e. maximum) gas transmission hub capacity. The Permanent High Level Group (PHLG) of the Energy Community met on June 22 and presented the Concept for implementation of gas Network Codes (EC/ECS)11. It sets indicators and terms for the step-by-step implementation of the four types of gas transportation codes, the interoperability code in particular. A special focus was on the implementation of these codes at interconnection points of Ukraine’s GTS and the systems of the neighbouring EU Member States. Experts insist that the price formula suggested by p. 2 of the Resolution of the Cabinet of Ministers No. 315 of 27 April 2016 makes any further development of a competitive natural gas market impossible12. Directive 2004/67/EC concerning measures to safeguard security of natural gas supply (AA: Articles 338, 341, Annex XXVII), early warning mechanism (Annex XXVI to the AA), emergency response (Articles 275, 276, 309, 314) On June 7, Naftogaz of Ukraine NJSC sent a proposal to Gazprom to sign an addendum to the gas supply contract within the next three quarters provided that Gazprom’s price would be lower than that offered by the European suppliers13. Meanwhile, natural gas stored underground remains much fewer than in 201514. Ukraine prepared and submitted a Non-Paper to the Energy Community PHLG at the meeting on June 22 with the title Nord Stream-2 pipeline project shutters European energy security and solidarity with Ukraine15. The document invites to ensure that the Third Energy Package is fully applicable to the project and to support Ukraine’s GTS. Also, Naftogaz published a notice explaining economic benefits of the operation of Ukraine’s GTS as compared to the Nord Stream-216.

9 http://www.nerc.gov.ua/index.php?news=5176 10 http://www.nerc.gov.ua/index.php?news=5201 11 https://www.energy-community.org/portal/page/portal/ENC_HOME/DOCS/4200388/35C8ECAA59427264E053C92FA8C0A8CB.pdf 12 http://gazeta.zn.ua/energy_market/rynok-gaza-ukrainy-normalnye-geroi-vsegda-idut-v-obhod-_.html 13 http://www.naftogaz.com/www/3/nakweb.nsf/0/440F478438A778CFC2257FCB003C2E64?OpenDocument&year=2016&month=06&nt=%D0%9D%D0%BE%D0%B2%D0%B8%D0%BD%D0%B8& 14 http://utg.ua/utg/media/news/2016/07/ukrana-v-potochnomu-rocz-zakachala-v-sxovishha-xx-mlrd.kub.m-prirodnogo-gazu.html 15 https://www.energy-community.org/portal/page/portal/ENC_HOME/DOCS/4206392/36059955F4707049E053C92FA8C018FA.pdf 16http://www.naftogaz.com/www/3/nakweb.nsf/0/B37FA3AED5E519CFC2257FD500214420?OpenDocument&year=2016&month=06&nt=%D0%9D%D0%BE%D0%B2%D0%B8%D0%BD%D0%B8&

Electricity and Nuclear Security The market and politicians continued to discuss and expect adoption in the first reading of the draft Law “On Electricity Market” which is key for the reform. Meanwhile, the regulator passed several decisions to prepare the market for the coming changes, in particular gradual transition to market tariffs and repayment of debts in the wholesale electricity market. As electricity consumption increases and nuclear power generation decreases, the market operator warned consumers of the need to save resources. Discussions around coal pricing intensified. This issue has been considered at the meetings chaired by the Prime Minister Mr. Volodymyr Groysman. In the nuclear sector, the IAEA conducted a series of inspections of Ukrainian facilities, a series of trainings for personnel was arranged within the framework of certain EU-funded projects, and the Parliament approved in first reading the draft Law regulating certain aspects of the legal status of the territories affected by the Chornobyl accident (reg No. 4437). This law is expected to regulate issues relating to scientific, environmental activities within the Chornobyl exclusion zone. 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) On 3 June 2016, representatives of the working group of the Committee of the Verkhovna Rada on Fuel and Energy Complex, Nuclear Policy and Nuclear Security, the Ministry of Energy and Coal Industry, the NEPURC and Energorynok State Enterprise during the meeting that was held in the office of the Parliament Committee discussed the issue of creating a new electricity market model according to the draft Law “On the Electricity Market of Ukraine” (reg. No. 4493)17. The NEPURC announced that Energorynok State Enterprise was going to elaborate a simplified new market model under its supervision18. The draft Law “On the Electricity Market of Ukraine”19 was included in the agenda of the fourth session of the VIII convocation of the Verkhovna Rada for 31 May and 16 June 2016, however, it hasn’t been considered. During the Ukraine Energy Conference on June 30, Prime Minister of Ukraine Mr. Volodymyr Groysman said that the Parliament would pass the electricity market law in autumn20. On June 13, during an open meeting, the NEPURC adopted the Resolution “On approval of the Procedure of market-based retail electricity tariff setting”.21 The NEPURC believes that this Procedure will allow gradual transition to market-based retail electricity tariffs for consumers and cancellation of cross-subsidies for regional energy companies. The document was forwarded to the Ministry of Justice for registration. On June 13, the NEPURC published draft Laws of Ukraine “On Stabilization of Settlements in the Wholesale Electricity Market of Ukraine” and “On the Introduction of Amendments to the Tax Code of Ukraine”. These draft laws aim to facilitate repayment of outstanding debts in the wholesale electricity market, introduce measures to stabilize current settlements for electricity and create conditions for opening a full-scale electricity market. In March, the NEPURC approved the Resolution No. 289 “On approval of the Procedure of formation of anticipated wholesale market price for electricity”22 which set the formula of thermal coal price23 to be used in calculating the wholesale market electricity price (WMP) based on the average АРІ2 index + delivery. On June 14, a round table was held in the office of the Parliament Committee of Fuel and Energy Complex during which the Chairman of the NEPURC presented a WMP formation mechanism24, procedure of consideration and specific aspects of marginal coal pricing. Some politicians and officials disagreed with the proposed pricing mechanism, in particular Minister of Energy and Coal Industry Mr. Ihor Nasalyk suggested

17 http://kompek.rada.gov.ua/kompek/control/uk/publish/article?art_id=52435&cat_id=52434 18 http://www.nerc.gov.ua/?news=5203 19 http://w1.c1.rada.gov.ua/pls/zweb2/webproc2_5_1_J?ses=10009&num_s=2&num=4493&date1=&date2=&name_zp=&out_type=&id= 20 http://www.kmu.gov.ua/control/uk/publish/article?art_id=249151396 21 http://www.nerc.gov.ua/?news=5199 22 http://www.nerc.gov.ua/?id=19380 23 http://zakon3.rada.gov.ua/laws/show/z0428-16 24 http://www.nerc.gov.ua/?news=5203

Electricity and Nuclear Security opening a coal exchange instead of using a formula25. On 24 June 2016, Prime Minister of Ukraine Mr. Groysman authorized the Ministry of Energy and Coal Industry to settle the issue of coal price formation. The NEPURC developed the draft Resolution 26“On the introduction of amendments to the Resolution of the National Commission for State Regulation of Energy and Public Utilities of 23 July 2013 No. 1009” proposing to increase the allowed rate of return on assets created as of the date of transition to incentive-based regulation, and the allowed rate of return on assets created after the transition on incentive-based regulation up to the margin approved by the Ministry of Economic Development and Trade. This draft Resolution was published on June 29on the NEPURC’s website. It provides for the introduction of the same allowed rate of return on both “old” and “new” assets (i.e. created before and after the introduction of incentive-based regulation). On June 29, the NEPURC announced the development of a new Concept of the Procedure of connecting electrical installations (facilities) to electricity networks27 with the support of the Ministry of Energy and Coal Industry and experts. According to the NEPURC, the introduction of this Concept would allow achieving the following strategic objectives:

• maximum simplification of the procedure of connecting electrical installations to electricity networks and reduction in the number of procedures from five to one;

• rooting out and prevention of corruption in the market of services of connection of electrical installations to electricity networks;

• improving Ukraine’s position in the World Bank Doing Business ranking in terms of getting electricity subindex.

In particular, the Concept establishes the principle of connection on a turnkey basis and the introduction of two-component connection fee — line and contracted capacity. Fee for connecting to electricity networks of a distribution system operator is suggested to be calculated according to the method (procedure) of formation of fee for connecting to transmission and distribution systems approved by the Regulator that must be non-discriminating and transparent. The NEPURC accepted proposals to the Concept before 11 July 2016. That means all stakeholders could submit their proposals to the NEPURC before July 11. 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 June 1, Ukrenergo’s Auction Office reported28 that DTEK Pavlohradvuhillia PJSC had transferred and Ukrinterenergo State Enterprise of Foreign Economic Activity had received transmission capacity required to arrange supply of200 MW through the cross-border flow Ukraine’s UES → Belarus’s UES in June. On June 7, Ukrenergo’s Auction Office announced transition to a reserve auction mechanism29 for the period 01 July 2016 through 31 July 2016 pursuant to Section XI of the Procedure of holding e-auction for distributing transmission capacity of inter-state electricity networks approved by the NEPURC on 12 February 2015 under the No. 176. A similar notice was published on June 24 that announced an auction30 for the import of 500 MW of electricity from Ukraine’s UES to Moldova’s Energy System in July. Ukrenergo National Energy Company reported increased consumption 31 and invited consumers to save electricity because of the heat. Consumption peaked on June 22-23 with about 17.5 GW as compared to 17.1 GW on June 21 and 16 GW on June 20 caused by the increase of the average daily temperature. On these days, electricity consumption increased by 11.6% to 381.7 million kWh, and generation by 11.4% to 405.1 million kWh. At the same time, a number of nuclear blocks are being repaired, TPP’s anthracite coal 25 http://economics.unian.ua/energetics/1381881-nasalik-proti-formuli-rotterdam-plyus-transport-i-proponue-zapustiti-birju-vugillya.html 26 http://www.nerc.gov.ua/?id=20544 27 http://www.nerc.gov.ua/?news=5229 28 http://www.ukrenergo.energy.gov.ua/Pages/ua/DetailsNew.aspx?nID=2745 29 http://www.ukrenergo.energy.gov.ua/Pages/ua/DetailsNew.aspx?nID=2762 30 http://www.ukrenergo.energy.gov.ua/Pages/ua/DetailsNew.aspx?nID=2814 31 http://www.ukrenergo.energy.gov.ua/Pages/ua/DetailsNew.aspx?nID=2813

Electricity and Nuclear Security supplies reduced to a critical level (as of 01 July, TPP’s warehouses contained 1,232 thousand tons of coal, including 328 thousand tons of anthracite). Article 338, Chapter 1, Title V of the AA On May 26, during his speech at the Energy Congress: EnergySpring 2016, Minister of Energy Mr. Ihor Nasalyk spoke of the key strategic objective of the Ministry for 2016: conduct general audit of the industry aimed at identifying debts; unblock the operation of Energoatom National Nuclear Energy Generating Company; implement reforms; implement the Extractive Industries Transparency Initiative; reform the coal industry; introduce energy efficiency and energy security measures; resume electricity export and implement EU–Ukraine Energy Bridge project (restore Khmelnytskyi NPP – Rzeszów 750 kW electricity line, increase export through one of the existing Khmelnytskyi NPP energy blocks and completion of construction of Blocks 3 and 4); support the implementation of the project of construction of a central spent nuclear fuel storage facility together with the American company Holtec; support RES development, bioenergy in particular.32 Within the framework of a project under the European Commission’s cooperative support program the Instrument for Nuclear Safety Cooperation, on June 7-9 a training was held at Khmelnytskyi NPP33 on development and implementation of security-oriented maintenance strategy with the participation of representatives of AREVA and Energoatom. On June 17, a meeting of the working group of the NPP’s Automated Configuration Management System took place34 within the framework of the European Commission’s cooperative support program in the area of nuclear security. On June 21-24, within the framework of the Facilitating Improvement of Maintenance and Repair Procedures and Support to NPP Security Management System project, Energoatom NJSEC held a workshop at the South Ukraine NPP on the analysis of the underlying causes and personnel reliability in the context of investigation of accidents35. The project is a part of the EU soft support program Instrument for Nuclear Safety Cooperation (INSC). Within the framework of the Twinning project36 Support the National Energy and Public Utilities Regulatory Commission (NEPURC) of Ukraine in the Process of Electricity Market Reform, on 08 June the first meeting of the Steering Committee was held during which Project Leader representing the Slovak regulator Mr. Miroslav Luptak presented the first quarterly report. Article 339, Chapter 1, Title V of the AA, coal market On June 9, Minister of Energy Mr. Ihor Nasalyk held a meeting of the Collegium of the Ministry of Energy and Coal Industry of Ukraine37 during which a decision was taken to create a working group for the development of the State program of coal industry reform until 2020, introduce monitoring of paying salary to employees of coal mining enterprises, find solutions to solve the problem of arrears in payments for electricity, etc. Decisions of the Collegium were approved by the Order of the38 Ministry No. 416 of 30 June 2016. The Ministry of Energy and Coal Industry held a meeting with the delegation of the China Development Bank39 during which the parties discussed prospects of bilateral cooperation in the area of modernization and technical re-equipment of state-financed coal mining enterprises of Ukraine.

32 http://mpe.kmu.gov.ua/minugol/control/uk/publish/article?art_id=245114897&cat_id=35109 33 http://www.energoatom.kiev.ua/ua/press/nngc/45489-na_hmelnitckyi_aes_provedeno_navchannya_v_ramkah_spvpratc_v_sfer_yaderno_bezpeki_z_vropeyiskoyu_komsyu/ 34 http://www.energoatom.kiev.ua/ua/press/nngc/45520-na_raes_u_spvpratc_z_vrokomsyu_triva_rozrobka_novo_nformatcyino_sistemi/ 35 http://www.energoatom.kiev.ua/ua/press/nngc/45536-na_yuuaes_prohodit_navchalniyi_semnar_u_ramkah_proektu_myako_dopomogi_vrosoyuzu/ 36 http://www.nerc.gov.ua/?news=5180 37 http://mpe.kmu.gov.ua/minugol/control/uk/publish/article?art_id=245119252&cat_id=35109 38 http://mpe.kmu.gov.ua/minugol/doccatalog/document?id=245125772 39 http://mpe.kmu.gov.ua/minugol/control/uk/publish/article?art_id=245122331&cat_id=35109

Electricity and Nuclear Security On June 30, the Government held a meeting40 with the participation of the Vice Prime Ministers, Ministers and the NEPURC’s Chairman to discuss coal prices, modernization of TPPs equipment, coal supply to generating companies taking account of the situation in the East of Ukraine. However, no clear decisions were communicated. Article 342, Chapter 1, Title V of the AA, cooperation in the nuclear safety sector, Directive 96/29/Euratom, Council Directive 2006/117/Euratom, Council Directive 2003/122/Euratom On June 1, by its Ordinance No. 403-р41, the Cabinet of Ministers approved the draft Agreement between the Government of Ukraine and the European Atomic Energy Community on scientific and technological cooperation and associated participation of Ukraine in the Euratom Research and Training Programme (2014–2018). On May 31 and June 1, IAEA’s inspectors conducted a scheduled inspection of42 Blocks 1 and 2 at Rivne NNP. IAEA’s inspectors checked the spent fuel pool and new fuel storage facility after the completion of preventive maintenance at Block 2 of Rivne NPP. According to NPP’s representatives, the inspection was completed successfully and within the term scheduled by the IAEA. On 04–07 June 2016, IAEA’s inspectors conducted a scheduled inspection of Block 3 of Zaporizhzhia NPP43 which is now in the process of regular overhaul. IAEA’s inspectors made physical inventory of nuclear materials, completed maintenance of IAEA surveillance and storage systems. According to NPP’s representatives, the inspection was completed successfully with no defects found. By its Resolution No. 358, the Government liquidated inter-regional territorial bodies of the State Nuclear Regulatory Inspectorate as legal entities of public law44 which are now operating as structural subdivisions of the Inspectorate. The State Nuclear Regulatory Inspectorate approved the decision of Energoatom NJSEC State Enterprise45 on loading the first batch of fuel supplied by Westinghouse into the reactor of Block 5 of Zaporizhzhia NPP. On June 30, in the framework of analysing feasibility of completion of Blocks 3 and 4 of Khmelnytskyi NPP, Ukrainian experts and representatives of the Czech company UJV Rez46 discussed a possibility to introduce new advanced beyond-design basis severe accident management system at the new blocks. Article 342, Chapter 1, Title V of the AA, cooperation in the nuclear safety sector. Cooperation aims at resolving problems caused by the Chornobyl accident and putting Chornobyl NPP out of operation On June 2, by its Resolution No. 1408-VIII, the Verkhovna Rada approved in principle the draft Law of Ukraine regulating certain aspects of the legal status of the territories affected by the Chornobyl accident (reg No. 4437)47. This law is expected to regulate issues relating to scientific, environmental activities within the exclusion zone. June 6 saw completion of unloading of spent fuel from Block 1 of Chornobyl NPP48. As of today, spent nuclear fuel has been removed from all Chornobyl NPP Blocks. On June 8, employees of Chornobyl NPP and other enterprises within the exclusion zone organized a street protest in Kyiv49. According to the participants in the protest, the Government fails to fulfil its obligation to resume paying bonuses for work with ionizing radiation. Representatives of the Government who came out to talk to the protesters promised to solve the problem within the next two weeks.

40 http://www.kmu.gov.ua/control/uk/publish/article?art_id=249151717&cat_id=244277212 41 http://zakon3.rada.gov.ua/laws/show/403-2016-%D1%80 42 http://www.energoatom.kiev.ua/ua/press/nngc/45454-na_raes_provedeno_planovu_nspektcyu_magate/ 43 http://www.energoatom.kiev.ua/ua/press/nngc/45473-na_zaporzkyi_aes_provedeno_chergovu_planovu_nspektcyu_magate/ 44 http://www.kmu.gov.ua/control/uk/cardnpd?docid=249107664 45 http://www.snrc.gov.ua/nuclear/uk/publish/article/326374 46 http://www.energoatom.kiev.ua/ua/press/nngc/45565-na_hmelnitckyi_aes_proyishla_robocha_narada_z_pitan_vprovadjennya_novo_sistemi_bezpeki_na_energoblokah_haes/ 47 http://zakon3.rada.gov.ua/laws/show/1408-19 48 http://www.snrc.gov.ua/nuclear/uk/publish/article/325801 49 http://www.golos.com.ua/article/270523

Energy Efficiency and Social Issues The implementation of the EU Energy Saving Directive is being slowed down by a number of barriers at the legislative and executive levels. According to Director of the Energy Community Secretariat Mr. Janez Kopač, Ukraine has made almost no progress in fulfilling its commitments relating to the implementation of the Energy Saving Directive50. The importance of creating organizational and legislative preconditions for the implementation of broad-scale energy modernization has been confirmed by the keen focus thereon on the part of the country’s top leaders. Thus, the third meeting of the National Reform Council in 2016 was held on 7 June chaired by the President of Ukraine. It was fully dedicated to energy efficiency issues. The key topics included approaches to monetization and optimization of subsidies (targeted social assistance) for households and the concept of a specialized fund aimed to institutionalize the state energy efficiency policy and bring together technical competition, financial products and transparent reporting mechanisms51. It should be noted that in June 2016, within the framework of cooperation with the Energy Community, the draft energy efficiency law was discussed which aims at the implementation of measures identified by Directive 2012/27/EU, and the Government committee approved the draft law on energy efficiency of buildings. Directive 2010/31/EU on the energy performance of buildings On 30 June 2016, the Government Committee on the European, Euro-Atlantic Integration, International Cooperation and Regional Development approved the draft Law of Ukraine “On the Energy Efficiency of Buildings”. This draft Law was developed by specialists of the State Agency on Energy Efficiency and Energy Saving of Ukraine, the Ministry of Regional Development and independent experts taking account of the comments and proposals of the Energy Community Secretariat. According to Chairman of the State Agency on Energy Efficiency and Energy Saving of Ukraine Mr. Serhii Savchuk, this decision was a big step towards improving energy efficiency of buildings in compliance with the updated EU law52. This draft Law establishes the fundamental principles of the state policy on energy performance of buildings, criteria of assessing their energy efficiency and minimum requirements to them. This draft Law indicates the need to develop national action plans for increasing the number of nearly zero-energy buildings. If passed, the law will require creation of a range of databases, in particular with energy performance certificates and information about certifiers, reports on the results of inspection of heating, hot water supply and air conditioning systems. Directive 2012/27/EU on energy efficiency On 08–10 June 2016, the Energy Community Secretariat held the second meeting of the working group for improvement of the draft Law of Ukraine on energy efficiency aimed at the implementation of measures required by Directive 2012/27/EU of the European Parliament and of the Council. During the discussion, the participants in the meeting presented a number of proposals to the draft Law, of which the most important concern state regulation in the area of energy efficiency, powers of public authorities in the area, strategy of thermal modernization of buildings, energy audit and energy management system, energy metering53. Ukraine has approved national standards (harmonized with international regulatory documents) on energy audit, introduction, effective operation and certification of energy management systems. These have been approved by the Order No. 125 of the National Certification Body of the State Enterprise Ukrainian

50 Director of Energy Community: In the area of energy efficiency Ukraine did almost nothing // Interfax.Ukraine, 23 May 2016 // www.interfax.com.ua/news/interview/345202.html 51 20th meeting of the National Reform Council http://reforms.in.ua/ua/session/20 52 Serhii Savchuk: The Government Committee approved an important draft Law on the energy efficiency of buildings: http://www.kmu.gov.ua/control/uk/publish/article?art_id=249154285&cat_id=244276429 53 https://www.facebook.com/daeeUA/photos/a.413454171999958.102624.399662430045799/1362403477105018/?type=3&theater

Energy Efficiency and Social Issues Scientific and Research and Training Centre for Standardization, Certification and Quality and enter into force on 01 September 201654, in particular: • ДСТУ ISO 50002:2016 (ISO 50002:2014, IDT) Energy audits. Requirements and guidelines • ДСТУ ISO 50003:2016 (ISO 50003:2014, IDT) Energy management systems. Requirements to bodies

responsible for the audit and certification of energy management systems • ДСТУ ISO 50004:2016 (ISO 50004:2014, IDT) Energy management systems. Guidelines for the

introduction, support and improvement of energy management systems • ДСТУ ISO 50006:2016 (ISO 50006:2014, IDT) Energy management systems. Measuring the

achieved/achievable energy performance based on the basic energy consumption levels and energy performance indicators. General provisions and guidelines

• ДСТУ ISO 50015:2016 (ISO 50015:2014, IDT) Energy management systems. Measuring and verification of achieved/achievable energy performance of organizations. General principles and guidelines

On 23 June 2016, the Ukrainian Energy Efficiency Forum 2016 — Energy Efficiency Fund: Ukraine’s Major Start-up. Laws, Investments, Production took place. The event was organized by the Ministry of Regional Development, Construction and Housing and Communal Services of Ukraine. The key objective of the forum was discussion of the creation of the national energy efficiency fund and possible sources of its financing55. However, it should be noted that the key provisions of the proposed concept do not fully comply with the requirements set by the Directive and need significant improvement by experts and specialists in energy saving and energy efficiency. Social issues In its report published on 20 June, the Energy Community Secretariat assessed Ukraine’s progress in fulfilling its commitments, inter alia, under Directive 2009/73/EC. Thus, in terms of the State’s securing consumer right to change gas supplier, the Secretariat concluded that both the primary and secondary legislation fully secure this principle, however, a permanent regulatory monitoring mechanism needs to be put in place.56 Implementation of the State’s social commitments to electricity consumers provided for by Directive 2009/73/EC significantly depends on the adoption of a respective law by the Parliament to introduce the principles and meet the electricity requirements of the Third Energy Package.

54 Ukraine has approved national standards on energy audit and energy management in compliance with the EU norms: http://saee.gov.ua/uk/news/1184 55 http://www.minregion.gov.ua/press/news/gennadiy-zubko-nazvav-dzherela-finansuvannya-fondu-energoefektivnosti/ 56 MONITORING OF THE GAS MARKET REFORM IMPLEMENTATION PLAN — STATUS QUO 1 YEAR LATER 20 June 2016, https://www.energy-community.org/portal/page/portal/ENC_HOME/DOCS/4204380/35EEC5A192E3640BE053C92FA8C01AA6.pdf

Environment and Renewable Energy Sources On 27 May 2016, the Cabinet of Ministers adopted the Government’s Priority Action Plan for 201657. As regards harmonization of national environmental legislation in 2016, the Plan sets 9 objectives covering a wide range of environmental issues from environmental impact assessment and strategic environmental assessment to conservation of wild birds and improvements in genetically modified organisms treatment. However, the targets, such as introduction of European environmental mechanism for strategic environmental assessment of planned activities, are unclear and immeasurable. By its Resolution of 08 June 2016 No. 33658, the Government amended the Procedure of using the state budgetary funds allocated for the implementation of measures to achieve priorities in environmental protection sector development, while the primary task should have been adoption of an updated Strategy of the State Environmental Policy and the relevant action plan for the next period. In its turn, the Government Office for European Integration released another Report on implementation of the Association Agenda and the Association Agreement between Ukraine and the EU59(January–May 2016). Among the achievements in the environmental sector, the Report mentions only the signing of the Paris Agreement and ratification of the Kiev Protocol to the Aarhus Convention. Therewith, the mentioned documents have no direct relation to Ukraine’s commitments under the Association Agreement. 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 19 May, the Europe Day was celebrated at the Verkhovna Rada with the view to adopting a set of draft laws focused on the fulfilment of Ukraine’s obligations under the Association Agreement with the EU, including the draft Law 2009а-д “On Environmental Impact Assessment”. However, the draft Law, again, did not get enough votes and was forwarded back to another first reading60. 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 (Article 363 of the AA) On 26 June 2016, MP Mr. Levchenko registered the draft law “On the Introduction of Amendments to Certain Laws of Ukraine as Regards Improvement of Urban Planning Activities”61 (No. 4733-2). The draft Law proposes, inter alia, to extend community rights in urban planning, providing for the inclusion of detailed provisions on public hearings in the Law “On Regulation of Urban Planning Activities”. According to the Explanatory Note, the reason for the introduction of such provisions is the need for the implementation of the Aarhus Convention. The draft Law proposes to hold public hearings concerning regional arrangements, master plans of settlements, land use plans, detailed land plans and project documentation for the construction of separate urban planning facilities, where it requires a construction permit. Moreover, where master plans of settlements are developed in two stages, the draft concept of the settlement planning and the draft master plan of settlement shall be subject to separate public hearings. In June, Minister of Ecology and Natural Resources Mr. Semerak also underlined that harmonization of Ukrainian legislation with the EU acquis, in particular development and implementation of the National Environmental Action Plan for 2016–2020, as well as execution of implementation plans for EU directives, is the top priorities for the Ministry62. For these purposes, the Minister, inter alia, met heads of leading business associations and exchanged his vision with them of the State regulation of environment and rational use of natural resources.

57 http://www.kmu.gov.ua/control/uk/cardnpd?docid=249104044 58 http://zakon4.rada.gov.ua/laws/show/366-2016-%D0%BF 59 http://www.kmu.gov.ua/kmu/control/uk/publish/article?art_id=248115804&cat_id=247749488 60 http://zakon2.rada.gov.ua/laws/show/1378-19 61 http://w1.c1.rada.gov.ua/pls/zweb2/webproc4_1?pf3511=59483 62 http://www.kmu.gov.ua/control/uk/publish/article?art_id=249111343&cat_id=244277212

Environment and Renewable Energy Sources Directive 2008/50/EC on ambient air quality and cleaner air for Europe (Article 363 of the AA) Ukraine joined other countries and supported the Batumi Action for Cleaner Air63 examined within the framework of the Eighth Environment for Europe Ministerial Conference (8–10 June 2016) that took place in Batumi. 44 countries which are members of the United Nations Economic Commission for Europe, approved the Batumi Action for Cleaner Air (2016–2021). This initiative invites governments to implement a range of actions to establish systemic, comparable and transparent monitoring activities and emissions inventories, develop national action programmes to reduce air pollution, improve public awareness; intensify capacity-building and technical support; trigger policy actions. The document also includes the Template for submitting voluntary commitments within the framework of the Batumi Action for Cleaner Air. According to Minister of Ecology and Natural Resources Mr. Semerak64, “the Ministry is currently developing the National Plan for Reduction of Emissions by Enterprises of Mining and Steel Sectors, taking into consideration requirements of the EU legislation”. In particular, the Plan will cover all the enterprises operating in the sector and set the schedule of gradual introduction of best technologies and management tools with the following reduction of pollutant emissions65. According to the Minister, enterprises that fail to invest in state-of-the-art technologies, will pay highest environmental protection fees.66 Directive 2009/147/EC on the conservation of wild birds (Art. 4.2) (Article 363 of the AA) On 24 June 2016, MPs Mr. Lutsenko and Mr. Rybak registered the draft law “On the Introduction of Amendments to Certain Laws of Ukraine as Regards Reinforcement of Environment Protection Activities”67 (No. 4869). This draft Law was supposed to amend the Law of Ukraine “On the Red Book of Ukraine” and the Forest Code of Ukraine which provide for special protection of nesting habits of rare animals included in the Red Book of Ukraine, such as white-tailed eagle, spotted eagle, black stork, Eurasian crane etc. The draft law provides for amending the Law of Ukraine “On the Animal World”, prohibiting transportation and transferring of poaching tools, as well as the Law of Ukraine “On the Natural Reserve Fund of Ukraine” to prohibit felling of hollow trees in conservation areas, where the birds from the Red Book nest. 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) Prime Minister Mr. Groysman underlined that the Government will support the development of hydropower in Ukraine and increase of its share in the overall electricity balance68 of the country with the view to reaching the energy independence and developing national economy. In particular, in July the Cabinet of Ministers is going to present the ten-year program of hydropower development in Ukraine69 to enable almost double increase in the share of hydropower in the country’s electricity generation. On 17 May, the International Finance Corporation (IFC) and Ukrgazbank signed a Cooperation Agreement70 aiming at facilitating access to finance for companies willing to introduce renewable energy and energy-saving technologies. The announced project is a part of the IFC's Sustainable Energy Finance Program in Ukraine. It will help increasing the volume of loans granted to small and medium business for RES, green vehicles, energy saving, efficient use of water resources and waste treatment. Chairman of the NEPURC Mr. Vovk also held a meeting with the IFC representatives in June71. Participants of the meeting discussed the state-of-the-art, outstanding problems and prospects of development of renewable energy in Ukraine, 63 http://www.unece.org/environmental-policy/environment-for-europe/efe-conferences/batumi-conference/documents-and-materials.html 64 http://menr.gov.ua/press-center/news/123-news1/5011-ukraina-pidtrymala-batumsku-initsiatyvu-shchodo-borotby-za-chyste-povitria 65 http://www.kmu.gov.ua/control/uk/publish/article?art_id=249086290&cat_id=244277212 66 http://www.kmu.gov.ua/control/uk/publish/article?art_id=249095973&cat_id=244277212 67 http://w1.c1.rada.gov.ua/pls/zweb2/webproc4_1?pf3511=59498 68 http://www.kmu.gov.ua/control/uk/publish/article?art_id=249105878&cat_id=244276429 69 http://www.kmu.gov.ua/control/uk/publish/article?art_id=249106014&cat_id=244276429 70 http://www.kmu.gov.ua/control/uk/publish/article?art_id=249039009 71 http://www.kmu.gov.ua/control/uk/publish/article?art_id=249097967&cat_id=244277212

Environment and Renewable Energy Sources and agreed on further joint actions of the working group aimed at creating better conditions for “green” energy development. At the same time, “green” loans become more accessible for small and medium business72 since Ukrgazbank decided to reduce interest rates for environmental projects lending: from 24% to 20.5% in UAH, from 10% to 7.7% in USD and from 9% to 6.7% in EUR. In June, Minister of Ecology and Natural Resources Mr. Semerak reported that Ukraine was in the process of creation of one of the most promising renewable energy markets73. He stated this in Toronto at Canada–Ukraine business forum, which has become the first step towards the implementation of the five-year Canada–Ukraine Trade and Investment Support project (CUTIS). Meanwhile, a delegation of the Organization of Economic Cooperation and Development (OECD) will visit Ukraine in July to discuss “greening” of business with Ukrainian government officials74. On 01 June, Head of the SAFE Mr. Savchuk participated in the meeting of the Verkhovna Rada Committee on Fuel and Energy Complex, Nuclear Policy and Nuclear Safety, where a range of draft laws75 elaborated by the Agency was examined. The draft law “On the Introduction of Amendments to the Law of Ukraine “On Alternative Energy Sources” as Regards Including Heat Pumps in the List of Equipment Operating on Renewable Energy Sources” (of 23 May 2016 No. 4555-1) was among them. The draft law, in particular, provides for the inclusion of aerothermal, geothermal and hydrothermal energy in the list of alternative energy sources. Head of the SAFE Mr. Savchuk mentioned that the draft Law had been developed in close cooperation with the Agency’s experts aiming at implementing Directive 2009/28/EC and it had already been approved by the Secretariat of the Energy Community76. Draft law “On the Introduction of amendments to Article 8 of the Law of Ukraine “On Alternative Fuels” (of 06 May 2016 No. 4618) was also discussed. According to Head of the SAFE Mr. Savchuk, the draft Law was developed with the purpose to facilitate biofuel production. Also, the meeting focused on the draft Law on settling issues concerning the provision of administrative services related to qualification of a cogeneration plant, confirmation of alternativeness of fuel and issue of the relevant certificates (of 04 May 2016 No. 4564).

72 http://www.kmu.gov.ua/control/uk/publish/article?art_id=249132877&cat_id=244277212 73 http://www.kmu.gov.ua/control/uk/publish/article?art_id=249131612&cat_id=244276429 74 http://www.kmu.gov.ua/control/uk/publish/article?art_id=249101446&cat_id=244276429 75 http://www.kmu.gov.ua/control/uk/publish/article?art_id=249082824&cat_id=244277212 76 http://www.kmu.gov.ua/control/uk/publish/article?art_id=249082802&cat_id=244277212

Oil During the reporting period, the Government was not active in the fulfilment of Ukraine’s international commitments in the oil and oil products market. It can be partially explained by the ongoing change of management of responsible bodies and long terms for the fulfilment of the set tasks. One of the main concerns is the lack of consistency in development and implementation of the state policy in the above-mentioned sector, i.e. every next government denies the progress achieved by its predecessors. Directive 2009/119/EC imposing an obligation on Member States to maintain minimum stocks of crude oil and/or petroleum products According to the relevant Action Plan for implementation, the Ministry of Energy and Coal Industry was to develop a draft Act of the Cabinet of Ministers on the model of stocks and approve it in December 2015 in coordination with the Secretariat of the Energy Community77. However, due to reorganization of the Government, in particular the change of management of the Ministry of Energy and Coal Industry, the efforts in that area were postponed for an indefinite term. No information on finalizing preparation of the relevant document was published. Nevertheless, on 26–27 May 2016, the State Reserves Agency of Ukraine held a roundtable “Creating minimum stocks of oil and petroleum products in Ukraine” involving representatives of public authorities, business, Energy Community and International Energy Agency78. Participants in the roundtable discussed Ukraine’s fulfilment of requirements under Directive 2009/119/EU. According to calculations presented at the roundtable, the total volume of minimum stock of oil and petroleum products in Ukraine must be about 2 million tonnes of oil equivalent, including 580 thousand tonnes of crude oil, 460 thousand tonnes of diesel fuel and 930 thousand tonnes of gasoline. Stockpiling measures may be funded by additional UAH 0.40 fee payable by petroleum products market players for every litre of motor gasoline and diesel fuel sold during 2017–202379. This proposal caused lively debates in Ukrainian mass-media. In particular, there was a concern that the stockpiling model would not take into account interests of the majority of market players. It was noted that it is the Government to be first and foremost responsible for the introduction of efficient stockpiling mechanism80. Therefore, European experts suggested using a mixed stock management system based on cooperation between the Government and the market players led by an independent body, i.e. an agency. Such agency may be responsible for purchasing and selling oil and petroleum products, signing agreements on storage of products with market players and the State Reserves Agency, as well as option agreements on supply thereof upon request. According to the Energy Community experts, the Ukrainian Government, to comply with its obligations, must decide upon the reservation system model and establish an agency presided by a board of directors consisting of representatives of the Ministry of Energy, the MEDT, the Ministry of Finance and the State Reserves Agency as soon as possible81. As a result of the roundtable of 26–27 May, it was decided to create a working group consisting of representatives of private and public bodies to develop a stockpiling mechanism82. It is a little bit surprising, since the Working Group for the elaboration of model for stockpiling of oil and petroleum products was established by the Order of the Minister of Energy and Coal Industry of Ukraine of 02 July 2015 No. 41283.

77 http://www.kmu.gov.ua/document/248091904/Dir_2009_119.pdf 78 http://interfax.com.ua/news/press-release/345292.html 79 http://interfax.com.ua/news/economic/346294.html 80 http://www.unn.com.ua/uk/news/1578792-vid-efektivnosti-modeli-formuvannya-naftorezervu-zalezhatimut-i-tsini-na-palne-ekspert 81 http://interfax.com.ua/news/economic/346294.html 82 http://www.gosrezerv.gov.ua/reserv/control/uk/publish/article?art_id=162944&cat_id=45334 83 http://mpe.kmu.gov.ua/minugol/doccatalog/document?id=245027178

Oil 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 of the AA) According to the relevant Action Plan for implementation, the first report must be presented in January 2017 (elaboration of draft new version of the Subsoil Code of Ukraine)84. In June, there was no information on fulfilment of the above-mentioned task by the State Service of Geology and Mineral Resources. Therewith, according to the Provisions85, the aforesaid body is capable only to implement the State policy in the area of geological study and rational use of subsoil. Therefore, making it responsible for the development of the policy in this field means breaching Article 1, paragraph 2 of the Law “On Central Executive Bodies”86. Besides, appointment of the Head of the State Service of Geology and Mineral Resources to the position of “the interim officer”, which is doubtful itself, does not allow appointing his deputies and the board, as well as creates barriers for the operation of the body. On 17 June, the draft law “On the Introduction of Amendments to Chapter IX “Rent” of the Tax Code of Ukraine as Regards Certain Issues of Rent Assessment” (No. 4850) was registered with the Parliament87. This draft Law proposed to set zero rent for “above-basic volumes” of oil, gas and gas condensate extracted from tight and depleted deposits by companies in which the State holds more than 25% and their subsidiaries, representative offices and branches, as well as counterparties under joint venture agreements. The subsoil use reform prepared by the Ministry of Ecology envisages simplification of issue of permits for the use of subsoil resources and introduction of efficient control over the fulfilment of environmental requirements. The Ministry of Ecology is going to involve experience and technical assistance of Lithuania88 and Canada (Alberta province)89. Directive 98/70/EC relating to the quality of petrol and diesel fuels According to the Action Plan for the implementation of Articles 3 and 4 of Directive 98/70/EC relating to the quality of petrol and diesel fuels and amending Council Directive 93/12/EEC90, the Ministry of Energy and Coal Industry of Ukraine must approve and bring into force 36 national standards related to motor fuels and methods of testing of motor gasoline, diesel fuels, marine and boiler fuels, which are necessary to ensure enforcement of the Technical Regulation on Requirements to Automobile Gasoline, Diesel, Marine and Boiler Fuels91. As of June 2016, development of five standards was not even started, another nine standards were returned for follow-up revision, another 21 drafts were on the stage of final revision and only one was being prepared to publishing92. Therewith, due to the liquidation of the Scientific and Research Institute of Oil-Processing and Petrochemical Industry MASMA State Enterprise, which was a developer of the majority of standards, further work is in question.

84 http://www.kmu.gov.ua/document/248102926/Dir_94_22.pdf 85 http://www.geo.gov.ua/storinka/polozhennya-pro-derzhgeonadra-ukrayiny 86 http://zakon5.rada.gov.ua/laws/show/3166-17 87 http://w1.c1.rada.gov.ua/pls/zweb2/webproc4_1?pf3511=59466 88 http://www.menr.gov.ua/press-center/news/123-news1/4986-ostap-semerak-u-sferi-povodzhennia-z-vidkhodamy-ta-nadrokorystuvannia-ukraina-vykorystaie-dosvid-lytvy 89 http://www.menr.gov.ua/press-center/news/123-news1/5018-ukraina-rozrakhovuie-na-tekhnichnu-dopomohu-kanady-v-reformuvanni-systemy-nadrokorystuvannia 90 http://www.kmu.gov.ua/document/248091869/Dir_98_70.pdf 91 http://zakon.rada.gov.ua/go/927-2013-п 92 http://uas.org.ua/files/2016/06_14/Zvit_vikon_Program_2016-06.xlsx

Business Climate The draft Law “On Disclosure of Information in Extractive Industries” (No. 4840)93 was presented, which is supposed to provide the public access to closed information of upstream companies, including tax information. No key laws have yet been adopted pursuant to Ukraine’s commitments under Directives 2009/72/EC and 2009/73/EC to create favourable conditions for business development and set out clear rules of doing business. In this situation, the Ministry of Regional Development issued the Order “On approval of the Procedure of Operation of the E-system of Licensing of Economic Activities in Construction of Objects of IV and V Categories of Difficulty” (No. 132)94 to give access to information about licensing, and enable economic entities to submit documents online when applying for a license. Article 22 of the AA, Section III JUSTICE, FREEDOM AND SECURITY, on fight against crime and corruption Articles 271–296 of the AA, Chapter 11 Trade-Related energy, Directives 2009/72/EC concerning common rules for the internal market in electricity and Directive 2009/73/EC concerning common rules for the internal market in natural gas The draft Laws “On the Electricity Market of Ukraine” (No. 4493)95 and “On the National Commission for State Regulation of Energy and Public Utilities (No. 2966-д)96 were included in the agenda of the Parliament five and three times, respectively. The last time, on 16 June, vote for both draft Laws failed because of lack of sufficient number of MPs in the hall of the Verkhovna Rada as most attended the football match where Ukraine’s national team played97. The Ministry of Finance developed a draft resolution on the introduction of a one-stop shop automated customs clearance system98. It aims to simplify and accelerate the customs clearance procedure and reduce corruption. The project may be launched at the customs houses of Ukraine since 01 August 201699. Meanwhile, US experts held a workshop for the Ministry of Energy and Coal Industry on cybersecurity100, and on 24 June the Cabinet of Ministers approved the action plan for the implementation of the Cybersecurity Strategy of Ukraine for 2016101. Article 22 of the AA, Section III JUSTICE, FREEDOM AND SECURITY, on fight against crime and corruption Articles 281–288 of the AA, Chapter 12 Transparency, Directives 2013/34/EU on the annual financial statements, consolidated financial statements and related reports of certain types of undertakings, 2013/50/EU amending Directive 2004/109/EC on the harmonisation of transparency requirements in relation to information about issuers whose securities are admitted to trading on a regulated market, and 2007/14/EC laying down detailed rules for the implementation of certain provisions of Directive 2004/109/EC On 17 June, the draft Law “On Disclosure of Information in Extractive Industries” (No. 4840) was registered with the Verkhovna Rada102. This legislative initiative aims at tightening requirements to reporting by mining companies based on the requirements of international standards and best practices of information disclosure, as well as the Extractive Industries Transparency Initiative and the AA (in terms of the implementation of Directive 2013/34/EU). This draft Law provides for granting access to the public to the information disclosed by economic entities in extractive industries about the results of their activities, the taxes they paid in particular. The document establishes the procedure and methods of information

93 http://w1.c1.rada.gov.ua/pls/zweb2/webproc4_1?pf3511=59455 94 http://zakon5.rada.gov.ua/laws/show/z0837-16 95 http://w1.c1.rada.gov.ua/pls/zweb2/webproc4_1?pf3511=58829 96 http://w1.c1.rada.gov.ua/pls/zweb2/webproc4_1?pf3511=58234 97 http://www.epravda.com.ua/columns/2016/06/15/596052/ 98http://www.minfin.gov.ua/uploads/redactor/files/%D0%9F%D1%80%D0%BE%D0%B5%D0%BA%D1%82%20%D0%9F%D0%BE%D1%81%D1%82%D0%B0%D0%BD%D0%BE%D0%B2%D0%B8%20%D0%9A%D0%9C%D0%A3.pdf 99 http://www.kmu.gov.ua/control/uk/publish/article?art_id=249040352&cat_id=244277212 100 http://www.kmu.gov.ua/control/uk/publish/article?art_id=249068394&cat_id=244277212 101 http://www.kmu.gov.ua/control/uk/publish/article?art_id=249148710&cat_id=244274160 102 http://w1.c1.rada.gov.ua/pls/zweb2/webproc4_1?pf3511=59455

Business Climate disclosure, requirements and responsibility. Achieving transparency in extractive industries became one of the priority objectives included in the strategy of the Ministry of Energy and Coal Industry103. Articles 150–151 of the AA, Chapter 8 Public procurement, on institutional principles and standards regulating the process of awarding public contracts, Directives 2004/18/EC on the coordination of procedures for the award of public works contracts, public supply contracts and public service contracts and 2004/17/EC coordinating the procurement procedures of entities operating in the water, energy, transport and postal services sectors (Annex XXI) Ukraine officially joined the WTO Agreement on Government Procurement104 which opened the global procurement market for domestic companies. Members of the relevant committee submitted 105the draft Law “On the Introduction of New Investment Opportunities, Securing Rights and Legitimate Interests of Business Entities for the Purposes of Large-scale Energy Modernization” to be considered in the first reading (registry No. 4549)106. The amendments provide for the alignment of laws on public procurement and ESCO. Articles 104–105 of the AA, Section 5 Regulatory framework, Sub-section 1 Domestic regulation, on licensing conditions and procedures The Ministry of Regional Development, Construction and Housing and Communal Services of Ukraine issued the Order “On approval of the Procedure of operation of the e-system of licensing of economic activities in construction of objects of categories of difficulty IV and V” (No. 132)107. It provided for the creation of a website to provide information to applicants for a license for economic activities in construction of objects of categories of difficulty IV and V; a possibility for an applicant to submit the required documents online; registration, processing and review of e-documents submitted by applicants by a responsible body; provision of information to applicants on the status and results of review of e-documents submitted by them to obtain a license.

103 http://www.kmu.gov.ua/control/publish/article?art_id=249063178 104 http://www.kmu.gov.ua/control/uk/publish/article?art_id=249038943&cat_id=244277212 105 http://www.kmu.gov.ua/control/uk/publish/article?art_id=249043706&cat_id=244277212 106 http://w1.c1.rada.gov.ua/pls/zweb2/webproc4_1?pf3511=58925 107 http://zakon5.rada.gov.ua/laws/show/z0837-16

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. Pavlenko (DiXi Group); 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, Directive 96/29/Euratom, Council Directive 2006/117/Euratom, Council Directive 2003/122/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

Directives 2004/18/EC and 2004/17/EC (ANNEX XXI) 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

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