This publication was prepared with the support of the European Union and the International Renaissance

Foundation. The contents of this publication are the sole responsibility of NGO “DIXI GROUP”, as well as

Civil Network “OPORA”, All-Ukrainian NGO “Energy Association of Ukraine”, Resource & Analysis Center

“Society and Environment”, Association “European-Ukrainian Energy Agency”, and can under no

circumstances be regarded as reflecting the position of the European Union and/or the International

Renaissance Foundation.

The project “Enhancing impact of civil society in monitoring and policy dialogue on energy and related

sectors’ reforms in line with the Association Agreement implementation” aims at strengthening the role of

civil society in advocating reforms in the energy and related sectors.

The key objectives of the project are:

• monitoring of the implementation of the energy provisions of the Association Agreement, including

relevant environmental and trade-related commitments;

• strengthening the civic experts’ and local actors’ capacity to track actual implementation of the

reforms;

• facilitation of public dialog to lead in proper implementation of the European energy and

environmental reforms;

• informing stakeholders and the Ukrainian society about the meaning and potential benefits of

European reforms in energy and related sectors in order to empower them to keep the

government accountable for pursuing these reforms.

www.enref.org

Executive Summary

In August, the government approved the Energy Strategy by 20351 titled "Security, Energy Efficiency,

Competitiveness". The full text of the document, however, was published as late as early September. Yet,

most Task Force experts responded positively to the fact that such a strategic document had been

approved, hoping it would serve as the basis for the government policy in this field.

In the gas sector, experts pay much attention to an open letter from the Energy Community Secretariat to

the Government of Ukraine, regarding the imposition of public service obligations on natural gas market

actors. Besides, the Task Force warns about possible complications in the work of the Supervisory Board of

NJSC Naftogaz of Ukraine. Meanwhile, the regulator has restarted discussions on gas distribution tariff

setting.

In the electricity sector, the Task Force points to the creation of the Coordination Center for the

Establishment of a New Electricity Market, outlining the amount of preparatory work to launch the market

model. Experts also highlight the regulator's publication of a timetable of adoption of the necessary acts. At

the same time, the issue of the API2+ formula is especially high on the agenda, particularly, this is a case

currently under the NABU's investigation.

Experts notice a positive trend in the creation of working groups to implement the adopted energy

efficiency legislation. At the same time, the transparency and publicity of these groups raise concern.

Experts also highlight some improved approaches in the system of housing and utilities’ subsidies provision,

calling for a comprehensive change of this system.

With priority given to the development of renewable energy sources in the Energy Strategy, environmental

experts saw no implementation progress in the month of monitoring.

Likewise, experts in oil and oil products’ sector see no implementation progress in their industry, pointing

to numerous delays and rescheduling.

In the efforts to improve the business climate, experts point to the problems in reforming the NEURC, as

well as complications with publishing the regulator's decisions. Against this background, the Antimonopoly

Committee has started evaluating the state aid mechanisms, and a risk management system has been

introduced for the ProZorro system, a fact positively taken by the Task Force experts.

Most commonly used abbreviations:

AA – Association Agreement

CcSUP – Complex (Consolidated) Safety Upgrade Program of

Power Units of Ukrainian Nuclear Power Plants

CMU – Cabinet of Ministers of Ukraine

DHU – district heating utility

DSO – distribution system operator

ENTSO-E – European Network of Transmission System

Operators for Electricity

GDS – gas distribution systems

GTS – gas transportation system

LNG – liquefied natural gas

LRW – liquid radioactive waste

Naftogaz – National Joint-Stock Company Naftogaz of Ukraine

NEURC – National Energy and Utilities Regulatory Commission

SNRIU – State Nuclear Regulatory Inspectorate of Ukraine

TSO – transmission system operator

TPP – thermal power plant

YuUNPP – Yuzhno-Ukrainsk Nuclear Power Plant

VRU – Verkhovna Rada of Ukraine

WEM – wholesale electricity market

1 Resolution No. 605-r of the Cabinet of Ministers of Ukraine, dated August 18, 2017.

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During the August plenary parliamentary vacations, the Parliament registered no draft law concerning the gas sector reform. In August, the government finalized its approval of the new Energy Strategy of Ukraine by 2035, cut by 25 percent the social gas consumption norms for consumers without meters installed, and held a teleconference initiating the preparation of fuel and energy enterprises for the coming heating season. Despite some progress in the gas sector reform, the Energy Community Secretariat drew the attention of the government of Ukraine to shortcomings, calling for amendments to be made to the mechanism approved by the Cabinet of Ministers to impose public service obligations on natural gas market actors to secure general public interests on the natural gas market. As a result of the NEURC's campaign to reissue and provide licenses in the gas sector, 318 companies had obtained as of September 1, 2017 the right to supply natural gas on the domestic market of Ukraine (ENGIE became the third international company on this list in August), and 42 companies – the right to distribute natural gas. The regulator also published a draft decision on reforming the tariff setting in the gas distribution sector and announced a public campaign to discuss it. Judging by the negative response of the various stakeholders (in particular, of the Ukrtransgaz team and trade union, and the Prosecutor General's Office of Ukraine – on the dismissal of Ukrtransgaz Vice-President I.Burak, of the National Security and Defense Council – on the financing required for GTS support and modernization, and of an independent Naftogaz Supervisory Board member – on resignation), it is our conclusion that the current decisions of the Naftogaz management do not always meet the arising challenges and draw increasingly more criticism. Within the framework of a joint project with the European Commission to enhance the security of gas supply, the Ukrainian GTS has been tested for readiness for the next heating season, and upon the results of this test, recommendations will be given for the development of a set of measures to prevent crisis situations. As of the end of August, Ukrtransgaz registered record volumes of gas transit to Europe by the Ukrainian GTS: the transit reached a six-year high of 61.95 bcm.

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

Directive 2003/55/EC (Article 338, 341, Annex XXVII to the Association Agreement) in accordance with

Article 278 of the Association Agreement

The August reformist standstill of the Verkhovna Rada was apparently due to the fact that MPs were on

the plenary parliamentary vacations ending September 5.

In August, the government adopted several gas sector-related documents. The first document to draw attention is the resolution adopted on the eve of the new heating season and reducing the standard gas consumption norms for households (No. 6092). According to this resolution, the gas consumption norms for consumers that do not have gas meters installed have been changed as follows: if the consumer has a gas cooker and centralized hot water supply, the norm is reduced from 4.4 to 3.3 cubic meters per person per month3 (for periods when centralized hot water supply is suspended, the norm is 5.4 cubic meters per month); if the consumer does not have centralized hot water supply and a gas water heater, the norm is reduced from 7.1 to 5.4 cubic meters, and if a gas water heater is installed - from 14 to 10.5 cubic meters.

2 http://www.kmu.gov.ua/control/ru/cardnpd?docid=250210068 3 In April 2015, the Cabinet of Ministers already reduced the social gas consumption norm from 6 to 3 cubic meters. But that decision was reversed by courts in the lawsuits initiated by oblast gas supply companies. Therefore, the government introduced in February 2016 a compromise option of 4.4 cubic meters per person.

Gas

The second important document approved by the government is the updated Energy Strategy by 2035

"Security, Energy Efficiency, Competitiveness"4. In the opinion of Vice Prime Minister V. Kistion, this is a

program that outlines the totality of energy sector reforms that Ukraine needs to implement by 2035. The

objectives of the reforms are: to slash by half the energy intensity of the economy by 2030 and increase

domestic energy outputs from traditional and renewable sources5.

On August 23, during a meeting with Energy Community Secretariat Director J. Kopac, Minister of Energy and Coal Industry I. Nasalyk assured the meeting participants that the energy sector reform was on schedule and thanked the Secretariat for supporting the reforms6. He noted that the updated Energy Strategy of Ukraine by 2035 adopted by the government made it possible to further the reforms, and that Ukraine was determined to fully meet its international obligations under the Treaty establishing the Energy Community. In implementing a new mechanism, under which the gas suppliers that supply gas to households in

fulfillment of the public service obligations imposed upon them (gaz-zbuty) will receive a due 2.5 percent

margin in cash from special accounts to their regular clearing accounts, the Cabinet of Ministers adopted

a resolution (No. 6677), regulating the introduction of appropriate amendments to Resolution No. 296 of

April 26, 2017. The approved mechanism stipulates that the formula for calculating the standard amount

of transfer to a gaz-zbut will include a special correction factor that will depend on the share of coverage

by subsidies of the cost of gas supplied to households in the previous month. If subsidies covered 50

percent of this cost, gazzbuts will receive to their clearing accounts 5 percent of the total cash amount in

proceeds, and if the subsidies cover 80 percent of the cost - 12.5 percent of such cash proceeds.

In addition to the above documents, the Cabinet of Ministers, in an attempt to support Naftogaz, approved a short-term fund facility for it from Joint-Stock BankUkrgasbank PJSC, with a lending limit of UAH 3.5 billion (Instruction No. 514-p8). At the same time, in commenting on the decision of the Circuit Administrative Court of Kyiv9 that bound the Cabinet of Ministers to determine sources and the procedure for compensating Naftogaz for its outlays connected with its public service obligations to supply of gas to households, Vice Prime Minister V. Kistion stressed that the current level of Naftogaz's profits made it impossible to pay any compensation to the company for supplying gas to residential consumers10. For the government has established (Resolution No. 35111) that support for the general social interests on the natural gas market and protection of consumer rights is the core objective of Naftogaz, not profits in this market segment. It should be noted that in August the government failed to approve the amendments to the Regulation on Imposition of Public Service Obligations (PSO) on Subjects of the Natural Gas Market (Resolution No. 18712), while the draft of the amendments was made public by the Ministry of Energy and Coal Industry in July13. At the same time, the Ministry of Energy and Coal Industry has not published the new gas prices for households (according to the effective regulation, the prices should have been made public by July 1), a fact holding back the start of a campaign of gas supply contracting for the new heating season

4 http://www.kmu.gov.ua/control/uk/publish/article?art_id=250208523&cat_id=244274160 5 As a Contracting Party of the Energy Community, Ukraine has committed to bring its output of electricity produced from renewable sources up to 11 percent by 2020. Currently, this indicator barely exceeds 1 percent. 6 http://mpe.kmu.gov.ua/minugol/control/uk/publish/article?art_id=245230712&cat_id=35109 7 http://search.ligazakon.ua/l_doc2.nsf/link1/KP170667.html 8 http://www.kmu.gov.ua/control/ru/cardnpd?docid=250187476 9 http://www.reyestr.court.gov.ua/Review/67846832 10 http://www.kmu.gov.ua/control/uk/publish/article?art_id=250170880&cat_id=244276429 11 http://www.kmu.gov.ua/control/uk/cardnpd?docid=250014675 12 http://www.kmu.gov.ua/control/uk/cardnpd?docid=249865173 13 http://mpe.kmu.gov.ua/minugol/control/uk/publish/article?art_id=245222954&cat_id=35082

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with heating companies14. The imperfection of the said regulation (approved by Resolution No. 187) in the part concerning regulation of Naftogaz's purchases of domestically produced natural gas at a fixed price from its subsidiary Ukrgazvydobuvannya and transfer of this gas for sale to the gas supply companies from a clearly established list was the reason for the criticism the government received from the Energy Community Secretariat. According to D. Buschle, a representative of the Secretariat, such a mechanism provides preferences to oblast gas distribution companies and fixes their concentration on the market, which is unacceptable15. In this regard, the Secretariat sent an open letter on August 22 to the government of Ukraine16 with a preliminary opinion emphasizing inconsistency of the current version of Resolution No. 187 with the commitments Ukraine had undertaken. And on August 25, the Energy Community Secretariat jointly with the World Bank submitted to Ukrainian authorities a draft of new public service obligations regulation taking into account their proposals on how to meet the international commitments while guaranteeing social security for Ukrainians17. In August, within the framework of the NEURC's campaign to issue new form licenses to gas market

operators, the regulator approved 28 natural gas supply licenses18 and one gas distribution license19. In

addition to the gas supply licenses issued to three foreign companies, other events surfaced in August,

witnessing the progressing opening of Ukraine's gas market, in particular: in July, ENGIE increased

eightfold the gas supply to its Ukrainian subsidiary Engie Energy Management Ukraine LLC20; another foreign

operator, the Polish company PKN Orlen, began importing gas to Ukraine21.

At the same time, the NEURC has failed to pass the decision approving the new methodology for

calculating the tariff (subscription fee) for the services of gas distribution companies (oblast and municipal

gas companies). This has happened because the NEURC chairman, D. Vovk, had to cancel the August 4

commission meeting considering the draft of this decision, yielding to the pressure by representatives of

the Federation of Trade Unions of Ukraine, which objected to the introduction of such a subscription

fee22.

Instead, the regulator published a package of regulatory changes in the gas distribution sector23 aimed at

furthering the implementation of the Law "On the Natural Gas Market" and initiated public discussions on

the proposed innovations. The package is intended to regulate the problematic aspects of three legislative

and regulatory acts. These aspects were identified during the public discussion of the actual functioning of

the distribution market with market operators. These, in particular, are the GDS Code, the Model

Agreement on Natural Gas Distribution, and the Methodology for the Tariffication of Natural Gas

Distribution Services. The essence of the changes is the introduction of the principle of "booked capacity"

14 http://www.naftogaz.com/www/3/nakweb.nsf/0/0F44D98F375796B3C22581800037F163?OpenDocument&year=2017&month=08&nt=%D0%9D%D0%BE%D0%B2%D0%B8%D0%BD%D0%B8& 15 http://p.dw.com/p/2j2ca 16 https://www.energy-community.org/news/Energy-Community-News/2017/08/22.html 17 https://www.energy-community.org/news/Energy-Community-News/2017/08/25.html 18 According to the media (http://interfax.com.ua/news/economic/445936.html), even Ukrposhta (Ukrainian Post) applied for a license to supply natural gas. As company representatives explained (https://www.epravda.com.ua/news/2017/09/4/628633/), Ukrposhta plans to supply gas to satisfy the needs of its own chain in the heating season. The NEURC will consider this application at its meeting of September 7, 2017. 19 http://www.nerc.gov.ua/?id=27267 20 http://biz.liga.net/ekonomika/tek/novosti/3705278-frantsuzskaya-engie-uvelichila-postavki-gaza-v-ukrainu-v-8-raz.htm 21 https://dt.ua/ECONOMICS/pkn-orlen-pochala-postavlyati-v-ukrayinu-prirodniy-gaz-252636_.html 22 https://economics.unian.ua/energetics/2065104-natskomisiji-z-tarifiv-ne-vdalosya-vidroditi-abonplatu-za-gaz.html 23 http://www.nerc.gov.ua/data/filearch/Materialy_zasidan/2017/serpen/04.08.2017/p1_04-08-2017.pdf

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instead of the connected capacity, which in the opinion of the authors of the package, should ensure a

more fair determination of the capacity value for consumers, simplify for them the process of changing it,

and change the procedure for establishing and reviewing tariffs for gas distribution services.

An unexpected obstacle to the NEURC's regulatory functions provided by the new regulator law was the

Uryadovyi Kurier newspaper's delayed publication of the NEURC's resolutions24. Despite numerous calls of

the regulator on the editorial board of the newspaper, government authorities, and international

organizations, there are 35 NEURC-adopted decisions still remaining unpublished (and accordingly, not

brought into effect), most of which are expected to be published in two to more than 20 weeks.

According to the NEURC, this "leads to a legal collapse in the energy and public utilities sectors and limits

the regulator's functional independence."

Apart from that, a working discussion of issues in organizing independent audit of the regulator was held

on August 22 at the Energy Community Secretariat office in Vienna, an event initiated by the NEURC

management25.

Since September 1, Naftogaz has increased by 6.3-6.7 percent in comparison with August 2017 its gas prices for industrial and other consumers 26that are not subject to the Regulation for Imposition of Public Service Obligations on Subjects of the Natural Gas Market to Ensure General Public Interests. According to the new price list27, the price for gas as a commodity (inclusive of VAT) is set from September 1, 2017 as follows: for monthly gas consumption of up to 50,000 cubic meters inclusive, unregulated monthly consumption, and monthly consumption exceeding 50,000 cubic meters without prepayment - UAH 8,749.2 per 1,000 cubic meters; for monthly consumption exceeding 50,000 cubic meters with prepayment28 – UAH 7,921.2 per 1,000 cubic meters (the same price level of UAH 7,921.2 per one thousand cubic meters is set for Naftogaz's subsidiaries wholly-owned by the founding company). Regulation (EU) No. 715/2009 on conditions for access to the natural gas transmission networks and

repealing Regulation (EC) No. 1775/2005 (Articles 338, 341, Annex XXVII to the Association Agreement)

in accordance with Art. 278 of the Association Agreement, trade-related issues (Articles 269-274 of the

Association Agreement)

As it became known on August 329, the Naftogaz management dismissed from August 1 Vice President

and Chief Engineer of Ukrtransgaz PJSC І. Burak, following an internal investigation, which lasted less than

a week – from July 25 through July 31 (appointing instead an acting vice president in the person of

О. Mykhalevych, deputy chief engineer for GTS modernization and prospective development). Taken as

administrative pressure, this decision triggered an extremely negative reaction on the part of the working

collective and the united trade union committee of Ukrtransgaz central office employees30. Considering

this dismissal as groundless, the trade unions threatened Naftogaz with potential lawsuits, petitions to

authorities, and even a strike31. According to a statement by Trade Union Commission Chairman

V. Honcharova, given to the ZIK television channel32, the actual reason behind this dismissal was the fact

that at a closed-door meeting of the National Security and Defense Council on July 7, I. Burak disclosed

24 http://www.nerc.gov.ua/?news=6171 25 http://www.nerc.gov.ua/?news=6369 26 http://www.naftogaz.com/www/3/nakweb.nsf/0/9A3E7AB5CC6776BCC2258183003A40AD?OpenDocument&year=2017&mon

th=08&nt=%D0%9D%D0%BE%D0%B2%D0%B8%D0%BD%D0%B8& 27 http://www.naftogaz.com/files/Information/Naftogaz-gas-prices-ne-PSO-September-2017.pdf 28 Payments made within the calendar month preceding the month of gas supply 29 http://utg.ua/utg/media/news/2017/08/pro-zminy-v-kerivnyctvi-utg.html 30 https://zaxid.net/ukrtransgaz_zvilniv_vitseprezidenta_profspilki_ogolosili_strayk_n1432841 31 http://tvi.ua/novini/profspilki-ukrtransgazu-ogoloshuyut-pro-pochatok-trudovogo-strajku.html 32 http://zik.ua/news/2017/07/26/goncharov_naftogaz_robyt_vse_shchob_likviduvaty_ukrtransgaz_1139517

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the true information about the unsatisfactory performance indicators of Ukrtransgaz for the first six

months of 2017. According to an open letter of I. Burak, published on the trade union committee's

website, the scheduled GTS diagnostics works had been completed by 35 percent, maintenance and

repairs by 23 percent, and capital investment by 14 percent only33.

Shortly, the media reported that the Prosecutor General's Office of Ukraine initiated proceedings against

Naftogaz officials in connection with the dismissal of the Ukrtransgaz Vice President34. The names of the

persons defending in the case are not specified; it is only reported that they are suspected of violating

Articles 172 ("A gross violation of the labor legislation") and No. 364 ("Abuse of power or office") of the

Criminal Code.

At the same time, Naftogaz also dismissed C. Proctor, a foreign independent member of the Supervisory

Board, the media reported referring to a statement by Naftogaz made in the information disclosure

system of the National Securities and Stock Market Commission35. Since the Supervisory Board is

authorized to make a decision discharging its member only if there is a resignation application from this

member, it seems reasonable to conclude that a corresponding application was actually submitted and

satisfied. Back in spring, three independent Naftogaz Supervisory Board members addressed the

government, warning36 of possible resignations, if there would be no progress in resolving burning issues.

That address included the signature of Yu. Kovaliv, the former Supervisory Board chairperson who has also

resigned by now. According to the Naftogaz charter, the Supervisory Board should consist of five persons,

whereas now there are only four in office. As contracted, C. Proctor's term of office expires on September

30, 2017. If no new Supervisory Board member is appointed by that date, this body may lose the ability to

make decisions at all (a quorum requires at least four board members).

The meeting participants under the chairmanship of CNSDU Secretary O. Turchynov insist on urgent

tender competition to be held by Naftogaz for contracts to modernize and overhaul elements of the gas

transmission system. This is stated in a decision passed upon the results of the July 7 meeting and

published in the media in August37. In addition, the decision points out that Naftogaz should identify both

priority measures of GTS modernization and overhaul, and measures of the company's long-term

strategy, factoring in the need to ensure reliable gas transmission further on. The reason for the CNSDU's

intervention in this area is the concern about the "preparation for the heating season of 2017/2018 and

uninterrupted GTS operation in the long term."

The NEURC also requires clarity as regards the preparation of a development plan for the domestic GTS

(Letter No. 8404/16.1.1/7-17 of the NEURC chairman D. Vovk to Acting Ukrtransgaz President M. Khymko,

dated August 01, 201738).

Minister of Energy and Coal Industry I. Nasalyk criticized Naftogaz's position on the gas transmission system39. He noted that he supported Ukrtransgaz's leaders in their position for the need to increase investment in the GTS, and as one of the factors emphasizing the importance and relevance of Ukraine's GTS after 2019, he names the recent decisions taken, in particular, by the United States regarding sanctions against Russia and the Nord Stream 2 project.

33 http://www.dsnews.ua/economics/kobolev-prodolzhaet-zachistku-ukrtransgaza--03082017220000 34 http://www.epravda.com.ua/rus/news/2017/08/10/627931/ 35 http://enkorr.com.ua/a/news/Naftogaz_uvolil_nezavisimogo_chlena_nabsoveta/228780 36 http://www.naftogaz.com/www/3/nakweb.nsf/0/B08A8DBA3B8A09DDC22580FA003B8506?OpenDocument&year=2017&month=04&nt=%D0%9D%D0%BE%D0%B2%D0%B8%D0%BD%D0%B8 37 http://www.epravda.com.ua/rus/news/2017/08/15/628070/ 38 https://www.epravda.com.ua/news/2017/08/9/627890/ 39 http://mpe.kmu.gov.ua/minugol/control/publish/article?art_id=245227484

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Thus, the stumbling block that is behind the unresolved conflict between Naftogaz and Ukrtransgaz and

that enmeshes government institutions in the conflict remains the approach to determining the capital

investments ofUkrtransgaz in the GTS in the 2017 financial plan and their adjustment. A decision on this

subject was made back in March, but remained still incomplete as of late August.

On August 8, 2017, the Supervisory Board of Naftogaz unanimously supported the election of P. Stanczak

to the post of Ukrtransgaz PJSC President40and on August 21, in accordance with the decision of Naftogaz,

the sole shareholder of Ukrtransgaz (No. 12641), he was elected President of Ukrtransgaz. Until the

moment P. Stanczak signs the contract, whose terms and conditions are established by the shareholder's

decision No. 126, the functions of the president will be performed by M. Khymko. As reported, the

experience of the newly elected president in the field of gas transportation, distribution, and storage

exceeds 25 years; in particular, in 2003-2004, P. Stanczak was responsible in Polish PGNiG for unbundling

the functions of gas transmission system operator and creating an independent operator of the Polish

GTS, Gaz-System S.A. P. Stanczak is expected to actually begin performing the duties of Ukrtransgaz

president once the documentation formalities are over.

Directive 2004/67/EC concerning measures to safeguard security of natural gas supply (Articles 338, 341,

Annex XXVII to the Association Agreement), functioning of an "Early Warning Mechanism" (Annex XXVI

to the Association Agreement), reacting to an emergency situation (Articles 275-276, 309, and 314 of

the AA)

One example of effective cooperation between Ukraine and the European Commission in ensuring security of gas supply is a project of the Joint Research Center of the European Commission, which is under implementation for the second year in a row42. In August, representatives of the Center, in collaboration with representatives of Naftogaz, Ukrtransgaz, and the Ministry of Energy and Coal Industry successfully carried out in accordance with the EU methodology and standards a study of possible crisis scenarios concerning natural gas supply to Ukraine. The study was funded by the European Commission within the framework of technical assistance; its beneficiary is the Ministry of Energy and Coal Industry of Ukraine as the central body of executive power responsible for monitoring the security of natural gas supply. The purpose of the project was to identify the risks threatening Ukraine's gas transportation system in the heating season of 2017/2018, analyze the scenarios, probability, and consequences of their occurrence, and update the hydraulic model designed to simulate the GTS operation. The results of the study serve as the basis for developing a set of preventive measures to significantly improve the readiness of the GTS for emergencies. The results of the eight months of 2017 showed growth in almost all performance indicators of Ukraine's GTS43. Specifically, since the beginning of the year, Ukrtransgaz has transited to the EU countries 23.4 percent more natural gas than in the same period of 2016 - 61.95 billion cubic meters. It is noteworthy that this volume of transit is the largest since 2011. The volume of gas injected into UGS has also increased: this year, Ukrtransgaz injected 7 billion cubic meters of natural gas into gas storage facilities, up 71 percent against the same period last year. As of September 1, 2017, Ukrainian gas storage facilities had accumulated 14.8 billion cubic meters of gas44. In addition, gas imports from European countries have increased by 95.8 percent, compared with 2016 - up to 9.4 billion cubic meters. In terms of import directions, this amount of gas breaks down as follows: imports from the Slovak direction - 7.1 billion cubic meters, from the Hungarian side - 1.5 billion cubic meters, and from the Polish side - 0.8 billion cubic

40 http://utg.ua/utg/media/news/2017/08/pawel-stanchak-is-new-ukrtransgas-president.html 41 http://utg.ua/img/menu/company/docs/2017/126.pdf 42 http://mpe.kmu.gov.ua/minugol/control/publish/article?art_id=245228091 43 http://utg.ua/utg/media/news/2017/09/utg-report-for-8m-2017.html 44 Ibid.

Gas

EUROPEAN LAW UPDATES

In June, the European Commission announced public consultations on the strategy of Trans-European Networks for

Energy (TEN-E). The consultations will last until September 4. The purpose of the consultations is to assess the

effectiveness, integrity, and economic efficiency of this strategy, which is intended to help the governments and

businesses of EU member countries to combine the electricity and gas infrastructure across national borders.

On July 11, EU Commissioner for Climate Action and Energy M. Canete and Minister of Economy, Trade and Industry

of Japan H. Seko signed a Memorandum of Cooperation between the EU and Japan on Promoting and Establishing a

Liquid, Flexible and Transparent Global Liquefied Natural Gas Market. According to the Memorandum, the parties will

exchange experience and take joint actions to promote the best practices (flexibility in LNG purchase and sale

contracts, organization of gas hubs in consumer markets, price transparency, reporting, etc.).

On July 21, the General Court of the EU canceled the interim measures of protection on a claim lodged by Polish

PGNIG regarding the decision of the European Commission on auction access to 50 percent of the OPAL pipeline

reserve capacity. This mechanism can now be used by Russian Gazprom, contracting most of the pipeline capacity

under the procedure exceptional for the EU Third Energy Package.

On August 1, the ACER Energy Regulators Association and the European Network of Gas Transmission System

Operators (ENTSOG) announced renewal of the common platform for consultations on the implementation of

network codes. From now on, this platform (http://www.gasncfunc.eu/) accepts comments and complaints from any

stakeholder and on any issue related to codes and instructions on gas markets.

meters. Parallel to this, according to the GTS operator's update, the domestic output of gas in Ukraine increased by 3 percent, coming close to 13.8 billion cubic meters for the eight months. Some, although quite insignificant, drop was registered in gas consumption, by 0.5 percent from 17.9 billion cubic meters as of the beginning of the year45. Following Poland, Lithuania received on August 21 its first LNG tanker from the American export terminal

Sabine Pass, the first LNG lot delivered from the USA to the Baltic States and one of the first US supplies

to Eastern Europe46. The Clean Ocean gas carrier transported 140,000 cubic meters of LNG to the Klaipeda

terminal in pursuance of an agreement concluded in June between Lietuvos duju tiekimas and Cheniere

Marketing International. In July, the Lithuanian company signed another agreement, this time with Gas

Natural Fenosa, under which LNG supplies are expected in mid-September. In addition, Norwegian Statoil

and American Koch Supply & Trading supply LNG to Lithuania from Norway and Nigeria.

Despite the high cost of LNG and the maintenance cost of the terminal to receive it, Lithuania expects some future benefits from its ability to receive LNG supplies. In particular, the Lithuanian government hopes its country will eventually become a regional liquefied natural gas distribution center (hub). In the words of Minister of Energy of Lithuania Z. Vaiciunas47, "This will not only strengthen energy independence, but also exacerbate competition among gas suppliers." In this case, the overseas fuel supplies will subsequently help reduce gas prices both in the neighboring countries and in Lithuania itself.

45 Ibid. 46 http://www.delfi.lt/verslas/energetika/i-lietuva-atplauke-pirmasis-sgd-krovinys-is-jav.d?id=75529063 47 https://www.gazeta.ru/business/2017/08/21/10844792.shtml

Electricity and Nuclear Safety

On June 11, the Law of Ukraine "On the Electricity Market" came into force, introducing a new market model in accordance with the Third Energy Package and providing a procedure for transition to it. On August 9, the Cabinet of Ministers of Ukraine issued a decision creating a Coordination Center for the Introduction of a New Electricity Market. Vice Prime Minister V. Kistion took the chair of it. The NEURC and Energorynok SC are to perform the functions of the Center's Secretariat. To successfully implement a new market model, it is necessary to implement a series of organizational, technical, and legislative measures. One of the first organizational steps for the transition to the new market model is expected to be the incorporation of Ukrenergo NEC and certification of electricity TSO. To implement the provisions of the Law, more than 100 regulatory acts have to be developed and adopted, 86 of which must be ready and adopted by June 2018. The bulk of the acts fall within the purview of the NEURC. Therefore, the Regulator passed in August an adoption schedule for such acts, began to publish first drafts, and adopted the TSO Certification Regulation.

To reduce the dependence on coal from the anti-terrorist operation area, the second power-generating unit of the Zmiyivska TPP was converted to operation on coals of the gas group. The lawfulness of the approval of the API2+ formula raises much concern – the National Anti-Corruption Bureau of Ukraine currently has this matter under investigation. The SNRIU and the United States Nuclear Regulatory Commission signed an agreement on renewal of the agreement on technical information exchange and cooperation in the field of nuclear safety.

Directive 2009/72/EC of July 13, 2009 concerning common rules for the internal market of electricity and repealing Directive 2003/54/EC (Articles 269, Chapter 11, Section IV of the EU-Ukraine Association Agreement)

On August 9, the Coordination Center for the Introduction of a New Electricity Market was created (CMU Resolution No. 599)48 and the corresponding Coordination Center (CC) Regulation adopted. The chair of the Center was taken by Vice Prime Minister V. Kistion, who is in charge of energy issues in the government. The CC consists of representatives of the VRU, Ministry of Energy and Coal Industry, NEURC, Ministry of Finance, Ministry of Economic Development and Trade, AMCU, Energorynok SC, Ukrenergo NEC, WEM Council, and others.

The Coordination Center for the Introduction of a New Electricity Market is an advisory and consultative body under the Cabinet of Ministers of Ukraine, created for the implementation of the final provisions of the Law "On the Electricity Market." The core tasks of the Coordination Center are coordination of actions related to the introduction of a new electricity market; preparation of proposals and recommendations on measures related to the introduction of a new market of electric energy and control over their implementation; preparation, adoption, and control of the relevant plans; analysis of progress in introducing a new electricity market and of causes of market introduction problems. The organizational, record-keeping, and information functions of the Coordination Center are assigned to its secretariat, whose role is performed by the NEURC (monitoring, coordination of working groups) and Energorynok SC (information and organizational components).

On August 10, the NEURC adopted a schedule of submission of draft regulatory documents needed to implement the Law of Ukraine "On the Electricity Market." The key implementers are Energorynok SC and Ukrenergo NEC. It is necessary to develop and adopt a total of more than 100 regulatory acts, 86 of which must be ready and adopted by June 2018.49

48 http://zakon3.rada.gov.ua/laws/show/559-2017-%D0%BF 49 http://www.nerc.gov.ua/?news=6343

Electricity and Nuclear Safety

Regulation 714/2009/EC of July 13, 2009 on conditions for access to the network for cross-border exchanges in electricity and repealing Regulation 1228/2003 (Article 270, Chapter 11, Section IV of the EU-Ukraine Association Agreement)

On August 8, Ukrenergo NEC presented the electronic auction platform Damas opening access to the throughput capacity of the interstate power grids50. This platform has been implemented and operated at Ukrenergo SE since May 18, 2017, and direct access to it51 is available through the official website of the company. Any electricity transmission or supply licensee is eligible to take part in the auctions after the appropriate registration. Offered at such auctions is "the share of throughput capacity of the interstate power grids that was not distributed on the annual and monthly auctions, or not used up, as well as that returned for redistribution."52 If the access period offered at the annual auction ranges from 30 days to one calendar year, at the monthly auction it ranges from 1 day to the end of the corresponding month, and at the hourly auction, the offered access period is hourly up to one day. Access to the throughput capacity of interstate power grids of Ukraine is offered to market operators at special auctions under the Procedure for Electronic Auctions to Distribute the Throughput Capacity of Interstate Power Grids approved by Resolution No. 426 of the NEURC, dated March 28, 2017.53 The Resolution came into effect on May 12, 2017.

Directive 2009/72/EC of July 13, 2009 concerning common rules for the internal market of electricity and repealing Directive 2003/54/EC (Articles 273, Chapter 11, Section IV of the EU-Ukraine Association Agreement)

On August 10, the NEURC passed Resolution No. 1016, approving thereby the Procedure for Certification of the Electricity Transmission System Operator for the New Electricity Market.54 In accordance with Section XVII of the Final and Transitional Provisions of the Law "On the Electricity Market", the Regulator has to approve the TSO certification procedure within two months of the effective date of the Law, which has been done. As the applicable legislation requires, the draft resolution was approved by the Antimonopoly Committee.

On August 28, the NEURC adopted a resolution amending the Conditions and Rules of the Entrepreneurial Activity of Electricity Transmission by Trunk and Interstate Power Grids (No. 1030).55 The amendments clarify the licensee's powers with regard to the prohibition of the activities to produce, distribute, and supply electricity, as well as trader activities, except for the activities to purchase and sell electric energy to compensate the technological loss of power in the process of its transmission by power grids and balancing, including for the purposes of emergency assistance to/from transmission system operators of neighboring countries and settlement of imbalances. It is also established that the licensee is bound to perform the balancing in order to provide/receive emergency assistance to/from transmission system operators of neighboring countries under emergency assistance contracts between the respective transmission system operators on the conditions approved by the NEURC. For this purpose, electricity is purchased/sold on the wholesale electricity market of Ukraine.

On August 31, the NEURC published a draft resolution titled "On Approval of the Rules for Settling Disputes Arising between Business Entities Operating in the Energy and Public Utilities’ Sectors." The document is developed with the intention to create conditions for an alternative method of pre-trial settlement of disputes between business entities operating in the energy and public utilities’ sectors.56

50 https://ua.energy/media/pres-tsentr/pres-relizy/elektronna-auktsionna-platforma-ukrenergo-krok-energetychnoyi-yevrointegratsiyi/ 51 https://ua.energy/kliyentam/auktsiony/auktsionna-platforma-2/ 52 https://ua.energy/media/pres-tsentr/pres-relizy/elektronna-auktsionna-platforma-ukrenergo-krok-energetychnoyi-yevrointegratsiyi/ 53 http://zakon3.rada.gov.ua/laws/show/v0426874-17 54 http://www.nerc.gov.ua/?id=26922 55http://www.nerc.gov.ua/?id=27201 56 http://www.nerc.gov.ua/?news=6399

Electricity and Nuclear Safety

These Rules do not apply to consumers who turn to the NEURC with complaints claiming violation of their rights and interests.

Directive 2009/72/EC of July 13, 2009 concerning common rules for the internal market of electricity and repealing Directive 2003/54/EC (Articles 274, Chapter 11, Section IV of the EU-Ukraine Association Agreement)

On August 18, the CMU approved the Energy Strategy by 2035 titled "Security, Energy Efficiency, Competitiveness."57 The new Energy Strategy of Ukraine takes into account the international commitments of Ukraine in the energy sector and aims at halving the energy intensity of the economy by 2030 and increasing electricity production from both traditional and alternative sources. It is proposed that by 2035 the energy production from RES will reach 25 percent in the energy balance and NPPs will account for a 50 percent share. The focus will be on energy efficiency and energy saving.

By its Instruction No. 531-р, dated August 9, 2017, the Cabinet of Ministers approved the financial plan of National Energy Company "Ukrenergo" SC for 2017. 58 The key indicators in the financial plan are:

• total income – UAH 8,209.2 million (up UAH 360.9 million or 4.6 percent from the 2016 plan);

• net profit – UAH 7,876.98 million (up UAH 270.9 million or 3.6 percent);

• tariff for 2017 – 6,933 kopecks/kWh (up 0.617 kopecks/kWh as compared with 2016);

• total incoming power - 111,500 million kWh.59

Article 339, Chapter 1, Section V of the EU-Ukraine Association Agreement, Coal Market

A positive factor for Ukraine's coal sector is the adoption of the new Energy Strategy of Ukraine by 2035,60 which outlines the main development targets for the industry, such as: optimization of the structure of state-owned coal enterprises and improvement of their economic and technical indicators; transition to self-sustaining production with the state support reoriented to health and safety, environmental protection, and coal branch restructuring; and increase in energy coal outputs.61

During August, measures were implemented to reduce the dependence on coal of the anthracite group, diversify coal supplies, and accumulate its stocks. In particular, the second power-generating block of the Zmiivska TPP has been converted to operation on coal of the gas group grades "Г" and "ДГ."62 On August 14, the unloading of the third vessel loaded with anthracite coal (75,000 tonnes) from South Africa began63, and in late August, the first lot of coal from the USA was sent to Ukraine and is expected to arrive in September.64 Also, the investigation into the lawfulness of the April 2016 approval of the API2+ formula continued.65,66

Article 342, Chapter 1, Section V of the EU-Ukraine Association Agreement, Nuclear Cooperation, Council Directive No. 2014/87/Euratom, Council Directive No. 2013/59/Euratom, Council Directive No. 2006/117/Euratom

57 http://www.kmu.gov.ua/control/uk/publish/article?art_id=250208523&cat_id=244274160 58 http://www.kmu.gov.ua/control/ru/cardnpd?docid=250190593 59 https://ua.energy/media/pres-tsentr/pres-relizy/kabmin-zatverdyv-finansovyj-plan-ukrenergo-na-2017-rik/ь 60 http://www.kmu.gov.ua/control/uk/publish/article?art_id=250208232&cat_id=244276429 61 http://www.kmu.gov.ua/control/uk/publish/article?art_id=250192785&cat_id=244276429 62 http://kharkivoda.gov.ua/news/87894 63 https://economics.unian.ua/energetics/2080436-u-portu-yujniy-pochali-rozvantajennya-tretogo-balkera-z-vugillyam-z-par.html 64 https://www.facebook.com/ukr.embassy.usa/posts/1508407082535852 65 https://economics.unian.ua/energetics/2098469-formula-rotterdam-zastosovuetsya-nezakonno-sitnik.html 66 https://economics.unian.ua/energetics/2070296-nkrekp-pidozryuyut-u-zmovi-pri-zatverdjenni-formuli-rotterdam-plyus.html

Electricity and Nuclear Safety

On August 1, the SNRIU and the United States Nuclear Regulatory Commission signed an agreement on renewal of the agreement on technical information exchange and cooperation in the field of nuclear safety.67

According to the new Energy Strategy of Ukraine by 2035, the main tasks in the nuclear energy sector are: to increase the share of nuclear power generation in total electricity output; to diversify nuclear fuel supply sources; to expand the domestic uranium resource base; to increase the output of uranium and zirconium; to create a stock of fresh nuclear fuel (uranium concentrate); to study the possibilities of creating capacities to produce nuclear fuel; and to develop and approve a concept of management of spent nuclear fuel from Ukrainian NPPs.68

Therefore, pursuing the diversification of nuclear fuel supply sources for nuclear power plants, the share of nuclear fuel supplied from Russia is planned to be reduced from 49 percent (as of the first half of 2017) to 45 percent by the end of 2017. Westinghouse has already stated its readiness to increase its nuclear fuel supplies to Ukraine's nuclear power plants.69 In the meantime, 75 percent of the YuUNPP's active capacity is loaded with Westinghouse fuel, and the second power-generating block is planned to be loaded by the end of the year, as well as the active capacity of the third block in 2018. The plant is planned to switch to American fuel completely in 4 years.70 Also in July, the SNRIU permitted the use of Westinghouse fuel on power-generating units No. 1 and No. 4 of the Zaporizhzhia NPP.71

To bring the level of safety at Ukraine's NPPs into line with international requirements, "post-Fukushima" and CCSUP measures were implemented in August. In particular, as part of the implementation of "post-Fukushima" safety measures, the KhNPP received four mobile diesel-generating stations to support safe operation of the KhNPP in an emergency with complete power outage at the NPP.72 Also, as part of CCSUP measures, the first power-generating block of the YuUNPP underwent works to replace old batteries for new ones of series Classic from Exide Technologies GmbH (GNB Industrial Power) in the general block and third channel safety system.73

On August 30, the draft law "On Amendments to Certain Laws of Ukraine Regulating the Nuclear Energy Sector" (No. 5703 dated January 23, 2017) was withdrawn in the VRU.74

Article 342, Chapter 1, Section V of the EU-Ukraine Association Agreement, Nuclear Cooperation, Cooperation in Solving the Problems Resulting from the Chornobyl Disaster and Decommissioning of the Chornobyl Nuclear Power Plant

On August 1, the first stage of comprehensive testing of SNFSF-2 began, involving simulated spent fuel assemblies (SSFA). The "hot" testing of SNFSF-2 involving spent nuclear fuel is scheduled to start in December 2017.75

The industrial site of the Chornobyl NPP has resumed the works to construct a LRW reprocessing plant to treat the LRW accumulated at the Chornobyl NPP, generated in the process of the facility's decommissioning, and the LRW from the Shelter Object.76

67 http://www.kmu.gov.ua/control/uk/cardnpd?docid=250250456 68 http://mpe.kmu.gov.ua/minugol/doccatalog/document?id=245213112 69 https://economics.unian.ua/energetics/2094979-westinghouse-gotuetsya-zbilshiti-svoyu-chastku-na-rinku-yadernogo-paliva-ukrajini-zayava-kompaniji.html 70 https://economics.unian.ua/energetics/2080704-tretiy-blok-yujno-ukrajinskoji-aes-hochut-povnistyu-perevesti-na-palivo-westinghouse-v-2018-rotsi-energoatom.html 71 http://www.snrc.gov.ua/nuclear/uk/publish/article/369005 72 http://www.energoatom.kiev.ua/ua/press/nngc/47452-na_hmelnitckyi_aes_prodovjuyut_vprovadjuvati_postfukusmsk_zahodi_z_bezpeki/ 73 http://www.energoatom.kiev.ua/ua/press/nngc/52937-na_yuuaes_vedetsya_zamna_akumulyatornih_batareyi_na_sistemah_vajlivih_dlya_bezpeki/ 74 http://w1.c1.rada.gov.ua/pls/zweb2/webproc4_1?pf3511=60992 75 http://dazv.gov.ua/novini-ta-media/vsi-novyny/vitalij-petruk-kholodni-viprobuvannya-tse-vikhid-na-pryamu-do-provedennya-garyachikh-viprobuvan-ta-vvedennya-v-ekspluatatsiyu-svyap-2.html

Electricity and Nuclear Safety

EUROPEAN LAW UPDATES

On September 14, 2017, Commission Regulation (EU) 2017/1485 of August 2, 2017 establishing a guideline on

electricity transmission system operation comes into force.

It was developed by the ENTSO-E and combines in a single legislative document the previous three draft codes for

operation under normal conditions (regarding operational safety, operational planning and scheduling, and load

frequency control and redundancy).

The Grid Code provides detailed recommendations for:

(a) operational safety requirements and principles;

(b) rules and responsibilities for the coordination and data exchange between TSOs, between TSOs and DSOs,

and between TSOs, DSOs, and the Significant Grid User, which means that an existing and a new power

generating installation and an installation that uses the grid in terms of demand and is regarded as a TSO is

significant because of its impact on the transmission system in terms of supply safety, including the provision

of supporting services, in operational planning and on-line mode);

(c) rules of training and certification of the system operator's staff;

(d) power shutdown coordination requirements;

(e) requirements for planning between areas covered by controlling organizations;

(f) rules intended to establish a Union framework for controlling load frequency and redundancy.

76 http://dazv.gov.ua/novini-ta-media/vsi-novyny/u-grudni-2017-roku-na-prommajdanchiku-dsp-chornobilska-aes-planuyut-vvesti-v-ekspluatatsiyu-zavod-z-pererobki-ridkikh-radioaktivnikh-vidkhodiv.html

Energy Efficiency and Social Issues

A traditional still season in the previous years, this August was for the government quite a busy month in terms of progress in the energy efficiency reform. Following the conceptual adoption of most of the basic laws (the latest draft law from the energy efficiency package titled "On Housing and Communal Services," which had not been adopted, was scheduled for voting in early September), the initiative in this area has generally shifted to executive authorities.

Expectedly, the Ministry of Regional Development as the principal regulatory acts developer created working groups to prepare the regulatory framework for all three laws. Unfortunately, none of them is working intensively enough, and the process itself can hardly be regarded as completely transparent and open to the public. At the same time, the Cabinet of Ministers has succeeded in upgrading the approaches to social assistance in the field of utility bill payments by improving certain approaches to subsidies. Welcoming such initiatives, the expert community, however, keeps stressing the need for comprehensive changes to this system to be able to monetize subsidies at the level of consumers, in the first place.

Directive 2012/27/EC on energy efficiency

Initially the government committee77, and later the Cabinet of Ministers78, approved the draft Energy Strategy of Ukraine by 2035. The formation of an energy-conscious society is declared among (actually the topmost of) the six priorities of the government energy policy for this period of time. Unfortunately, as of early September 2017, the only publicly available text of this document remained the draft version of June 1, 2017 posted on the website of the Ministry of Energy and Coal Industry79, though the official text was thereafter released80. Apart from that, the government approved the concept of further heating reform81, which, despite declaring quite right goals and effective approaches, is extremely general.

Energy Audits and Energy Management Systems (Article 8)

While the fate of the dubious government order introducing a national energy management system in public sector institutions in Ukraine remains unclear, and achievements in promoting energy audits are fixed at the level of information seminars and public events only, 82 some local self-government bodies keep showing far greater initiative than the central government. In particular, the Cherkasy Raion State Administration has decided to introduce a simple energy management system in some public sector institutions, appreciating the energy and money savings achieved in other regions of the country.83

Despite the fact that the Cabinet of Minister's instruction is not made public as of today, the State Agency on Energy Efficiency and Energy Saving together with experts of the USAID project "Municipal Energy Reform in Ukraine" has developed for local self-government authorities regulations on:

• the introduction of energy management systems in public sector institutions financed from local budgets;

• monitoring of fuel and energy consumption by public sector institutions;

• financial incentives for persons responsible for implementing energy management systems in pubic sector institutions;

• establishment of energy consumption limits for pubic sector institutions.

77 https://day.kyiv.ua/uk/news/100817-uryadoviy-komitet-shvaliv-energetichnu-strategiyu-ukrayini-do-2035-go-kistion 78 http://www.kmu.gov.ua/control/uk/publish/article?art_id=250208232 79 http://mpe.kmu.gov.ua/minugol/control/uk/doccatalog/list?currDir=50358 80 http://mpe.kmu.gov.ua/minugol/control/uk/publish/article?art_id=245234085&cat_id=35109 81 http://www.kmu.gov.ua/control/uk/publish/article?art_id=250208533&cat_id=244276429 82 http://www.kmu.gov.ua/control/uk/publish/article?art_id=250184294&cat_id=247229077 83 http://provce.ck.ua/cherkaskyj-rajon-stane-pershoprohidtsem-u-vprovadzhenni-masshtabnoho-proektu-z-enerhomenedzhmentu/

Energy Efficiency and Social Issues

The said Regulation is published on the official website of the State Agency on Energy Efficiency and Energy Saving84. The recommendations it provides were developed within the framework of the signed memoranda of partnership between the State Agency on Energy Efficiency and Energy Saving and local authorities regarding the implementation of energy management in the public sector.

Metering (Article 9)

A working group has been established within the Ministry of Regional Development and Municipal Economies to prepare by-laws aimed at implementing the Law "On Commercial Accounting of Thermal Energy and Water Supply," which came into effect on August 2. The working group includes representatives of the sectoral VRU committee, water supply and sewerage companies and district heating utilities, the NEURC, State Agency on Energy Efficiency and Energy Saving, Ministry of Economic Development and Trade, Association of Ukrainian Cities, NJSC Naftogaz, non-governmental organizations, and housing and utilities experts. On August 30, the working group had its first meeting, at which a list of draft legislative and regulatory acts was presented, prepared by experts of the Ministry of Regional Development and Municipal Economies Development, including:

Draft government resolutions:

- On approval of the procedure for the notification by external utility network operators of building owners (co-owners) of their intention to install commercial metering devices;

- On approval of the procedure for transferring the fees paid by consumers for the installation of a commercial metering device by an external utility network operator to the communal contractor that is not the operator of the given external utility network;

- On approval of the procedure for determining the technical feasibility of the installation of heat distribution meters and economic feasibility of the installation of heat distribution meters;

- On approval of the procedure for monitoring the coverage by installed commercial metering devices and the procedure for information exchanges between the authority monitoring the coverage of utilities by installed commercial metering devices and the body that is authorized to make decisions to bring subjects to responsibilities for violations;

Draft orders of the Ministry of Regional Development and Municipal Economies:

- On approval of the procedure for installing commercial metering devices in buildings and equipping utility systems for such metering;

- On approval of the procedure for equipping individual premises in buildings with heat distribution meters/heat distributing devices and equipping utility systems for such accounting;

- On approving the methodology for determination of the fee for the installation, replacement, and maintenance of commercial metering devices and distribution of tis amount among the consumers;

- On approval of the procedure for accepting metering devices for subscriber registration;

- On approving the methodology for distributing the cost of consumed utility services in the building among the consumers;

- On approving the methodology for determining and calculating correction factors for distribution of consumed heat among individual consumers (in corner apartments (premises) and apartments (premises) located on the ground and topmost floors of buildings, etc).

According to the minutes of the working group's meeting received by Energy Reforms experts from one of its participants, a decision was made to identify the main executors in the relevant structural units of the Ministry that were to coordinate working subgroups and interaction among their members in drafting legislative and regulatory acts.

84 http://saee.gov.ua/sites/default/files/ENERGY_MANAGEMENT_14_08_2017.docx

Energy Efficiency and Social Issues

The Ministry of Regional Development and Municipal Economies85 and the NEURC (in response to the official request for information from NGO Civil Network OPORA) simultaneously reported on the current coverage of the housing stock by heat meters, and it is noteworthy that the data presented by the ministry and the data from the national commission vary considerably. This could be explained by the difference in indicators (the Ministry of Regional Development and Municipal Economies counted buildings with central heating systems and buildings that actually are equipped with heat meters, whereas the regulator counted the total number of heating inputs and the number of meters installed on them), if the variances were not so striking in some regions. For example, according to the ministry, there are 944 buildings with meters installed in the Zhytomyr Oblast, while according to the regulator, there are almost half of that number of meters installed on the heating inputs, that is, only 482. On the other hand, the Ministry of Regional Development and Municipal Economies reports 4,175 buildings equipped with meters in the Kharkiv region, while the NEURC gives a greater figure of 4,650 meters. Despite these regional variances, both the ministry and the national regulator arrive at similar summary figures: 56,964 buildings are equipped with meters (Ministry of Regional Development and Municipal Economies) and 56,317 meters installed on heating inputs (national commission).

Communication of Energy Efficiency Improvement Updates to Consumers and Other Stakeholders (Articles 12, 17)

The State Agency on Energy Efficiency and Energy Saving, as a specialized body of executive power that implements the state energy saving and energy efficiency policy, is exercising energetic efforts in its information component. Continuing the positive dynamics of the previous periods, the State Agency on Energy Efficiency and Energy Saving held in August a number of public events that focused on energy management and benefits of the ESCO mechanism in the Donetsk region, 86, as well as ways to improve energy efficiency in the industrialized region of the Zaporizhzhia Oblast.87 In addition, the agency's specialists developed and distributed recommendations to local authorities on the implementation of an energy management system in public sector institutions.88

Energy Service Market (Article 18)

The national database of potential ESCO objects previously created by the State Agency on Energy Efficiency and Energy is actively developing: while as of the beginning of August it counted about 7,000 objects, at the end of the month their number exceeded 10,00089.

In addition, with the support of the Friedrich Ebert Foundation and market operators, the State Agency on Energy Efficiency and Energy Saving continued in August the information campaign promoting energy audits and the benefits of the ESCO-mechanism for the Kherson 90and Donetsk Oblast 91state administrations. As earlier, the main purpose of those events was to spread the word promoting the benefits of ESCO-contracts in the public sector, which is completely in line with the government functions as seen by the relevant articles of the Directive.

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

As was the case with the law on commercial accounting for heat, a working group was created under the Ministry of Regional Development and Municipal Economies to develop regulatory acts in pursuance of the

85 http://www.minregion.gov.ua/wp-content/uploads/2017/07/Priladi-obliku-01.07.2017.pdf 86 http://saee.gov.ua/uk/news/1909 87 http://saee.gov.ua/uk/news/1908 88 http://saee.gov.ua/uk/news/1923 89 http://saee.gov.ua/uk/content/energoservis_1 90 http://saee.gov.ua/uk/news/1916 91 http://saee.gov.ua/uk/news/1909

Energy Efficiency and Social Issues

Law "On the Energy Efficiency Fund." According to the Ministry of Regional Development and Municipal Economies, a number of bylaws have already been developed, including a draft government resolution on the establishment of the Energy Efficiency Fund and approval of its charter, and sent to the central executive authorities for approval in accordance with the Cabinet of Ministers Regulation. However, the said acts have not been posted on the official website of the principal developer. In addition, a scheduled meeting of the working group is being prepared to consider proposals on the preparation of other draft acts concerning operation of the Energy Efficiency Fund.

While the creation of the Energy Efficiency Fund is yet underway, the monitoring conducted by the State Agency on Energy Efficiency and Energy Saving shows that since early October 2014, approximately 320,000 families have taken advantage of the state support for the implementation of energy efficiency measures in the housing sector under the government's "warm loans" program for a total of more than UAH 4 billion. Some 210,000 families have drawn UAH 3.5 billion to acquire energy efficient materials and equipment. In particular, the individual home insulation projects are the most popular. Over 21,000 private households have drawn UAH 367 million from banks to install solid fuel boilers. Condominiums and housing associations also accounts for a significant share in the state financial support for thermo-modernization of apartment buildings. In particular, more than a thousand of condominiums and housing associations (about 80,000 families) have received UAH 178.3 million from banks.92

In view of the fact that the state budget allocations had been used up as early as April 2017, banks temporarily suspended lending for energy efficiency projects, though the issue of "warm loans" resumed from August 1493.

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

The Law "On Energy Performance of Buildings" is possible to implement only through the adoption and implementation of the provisions and rules of by-laws. Such bylaws are currently being drafted by a working group created by the Ministry of Regional Development and Municipal Economies, with the participation of experts, representatives of central executive bodies and international technical support donors. However, it has been a long time since the public domain had any draft regulatory acts published and information released on whether such documents had been sent to central executive authorities for approval. Therefore, it is rather difficult to talk about the content of such acts.

Such an unjustified delay is a bad message, as the law provides for at least eight complex regulatory acts to be developed, for example, regarding the need to establish the characteristics of buildings with nearly zero energy consumption and of the minimum profitability level based on the methods for calculating energy performance indicators of buildings. According to the transitional provisions of the law, all the said acts must be developed within six months of its effective date (except for the adoption of the first national plan to increase the number of buildings with nearly zero energy consumption, for which the government has been given up to two years)94.

Social Issues

Changes have occurred in the field of social support for housing and communal services consumers. The new subsidy calculation rules have started to work since August 18, 2017. This means that from now on, when deciding on the amount of subsidy to be provided, incomes for the latest six months will be taken into account rather than incomes for the whole past year, as it used to be previously. In addition, the changes also apply to subsidies for households with unemployed persons. From now on, the income of the unemployed for this period will be taken as double the amount of subsistence minimum.

92 http://saee.gov.ua/uk/news/1938 93 http://saee.gov.ua/uk/news/1922 94 http://zakon3.rada.gov.ua/laws/show/2118-19/print1501171330168556

Energy Efficiency and Social Issues

Positive changes have also been noticed with regard to the debts incurred by subsidy recipients for housing and utility services, specifically, if a family has a debt of up to UAH 340, this will not deprive it of a due subsidy, unlike earlier when any housing and utility debt automatically deprived of the right for a subsidy.

Some changes also took place in the issue of changed place of residence of a subsidy recipient. From now on, subsidies will be provided either at the place of actual residence (which has to be reported in advance) or at the place of registration, whereas before August 18, subsidies for housing and utility services were provided to citizens without taking into account their place of registration and actual residence.

In early August, the President signed amendments to the Law "On the State Budget of Ukraine for 2017," adopted earlier by the Verkhovna Rada, increasing thereby the state budget subventions to local budgets for relieves and housing subsidies for households by UAH 14.1 billion to almost UAH 61.2 billion.95 However, according to calculations by public experts participating in the working group on monetization of subsidies, the allocated amounts will still not suffice to cover all relieves and subsidies by the end of 2017, since some of them have been used for covering the arrears in state guarantees due to the residential sector for housing and utility services, incurred as a result of a partial lack of funding at the beginning of the year. There is a high probability of new waves of social tension associated with unsystematic funding of DHU enterprises through social support programs, which may leave such enterprises unable to provide utility services to consumers.

The stated intentions to create a centralized register for collecting the full information about subsidy recipients are not implemented yet. Moreover, regulation is needed for the issues of access to this register for authorized fiscal authorities, its synchronization with other registers, and filling it up with the necessary data, for example, about the energy consumption by the population, etc.

Significant changes may be expected for retail consumers of natural gas in Ukraine in the light of the recommendations provided to Ukraine by the Energy Community Secretariat in its letter of August 22.96 Proceeding from the negative evaluation of the existing system of imposing public service obligations on suppliers of gas to households, this competent authority has proposed to cancel on certain conditions the obligation of state-owned mining companies to sell gas for such purposes in favor of NJSC Naftogaz of Ukraine and the latter's obligation to unconditionally sell this gas to oblast distribution companies. Provided that the proposed changes will be implemented to a significant degree, gas consumers in Ukraine will be theoretically able to choose a supplier, as there will be new companies competing with traditional oblast gas companies. It is expected that the newly established retail companies of NJSC Naftogaz of Ukraine will become the initial competitors, which the company sees as a great opportunity,97, and additionally, oblast gas companies may themselves compete with one another outside their traditional oblast markets. The implementation of these proposals will bring Ukraine significantly closer to the goal of complete implementation of the provisions of Directive 2009/73/EC in so far as it relates to ensuring consumer rights.

95 http://www.president.gov.ua/news/prezident-pidpisav-zmini-do-derzhbyudzhetu-na-2017-rik-yaki-42630 96 https://www.energy-community.org/news/Energy-Community-News/2017/08/25.html 97http://www.naftogaz.com/www/3/nakweb.nsf/0/70B7A05B71C1F63DC225818C00271911?OpenDocument&year=2017&month=08&nt=%D0%9D%D0%BE%D0%B2%D0%B8%D0%BD%D0%B8&

Energy Efficiency and Social Issues

EUROPEAN LAW UPDATES

The modalities of adoption and implementation of the Clean Energy for All Europeans initiative remain the central

updating issue of the European energy law. The package of legislative initiatives concerns the adoption of new

editions of the Energy Performance of Buildings Directive and the Energy Efficiency Directive. The deadlines and

ways for approving the updates of these fundamental documents by the European Parliament were discussed at a

meeting of the European Energy Council with the participation of energy ministers of the member states, Vice-

President of the European Commission M. Šefčovič and EU Commissioner for Energy and Climate Change

M. Canete. The meeting also approved (and published in August) the earlier discussed amendments to the energy

efficiency labeling regulation. Following the results of this meeting, Mr. Canete made a speech welcoming the

progress made but remarking that further work was needed with the European Parliament to make the national

commitments of member states more ambitious.

The European Commission also approved new special ecodesign rules for vacuum cleaners sold and used on the EU

territory. According to DG Energy, the regulation innovations reflect advanced technologies and achievements in

technological progress, and the application of the new rules is estimated to save up to EUR 70 for each consumer in

the service life of each appliance. The new rules also promise to save up to 20 TWh by 2020.

Environment and Renewable Energy Sources

The Association Agreement was not being implemented in August 2017 in so far as it related to the issues

covered by the monitoring. The only fact worth mentioning here was the President's signing of the Law

"On Amendments to Certain Legislative Acts of Ukraine on Conservation of the Primeval Forests under

the Framework Convention on the Protection and Sustainable Development of the Carpathians."

At the same time, "green" energy projects have at last been legislatively promoted to the priority category. The evidence is the government-approved Energy Strategy of Ukraine by 2035 "Security, Energy Efficiency, Competitiveness," according to which the share of electricity generated from RES in the total national electricity output should reach 25 percent. Given that as of August 1 this share was only 1.43 percent, this target looks overly ambitious so far, requiring a very fast growth in "green" generation capacities.

Directive 2009/147/EC on the Conservation of Wild Birds (Article 4.2) (Article 363 of the AA)

On August 31, 2017, the President finally signed98 the Law "On Amendments to Certain Legislative Acts of Ukraine on Conservation of the Primeval Forests under the Framework Convention on the Protection and Sustainable Development of the Carpathians," which passed vote in the Verkhovna Rada in May 2017.99 This law is extremely important in view of the need to protect virgin forests in Ukraine and will have an indirect positive effect on the conservation of wild birds. The law makes cutting virgin forests impossible and will pave the way for the introduction of administrative responsibility for the destruction of and damage to virgin forests.

Directive 2009/29/EC on the promotion of the use of energy from renewable sources and amending and subsequently repealing Directives 2001/77/EC and 2003/30/EC (Article 338 of the AA)

According to the results of the first half of 2017, 126.5 MW of "green" capacities were introduced in Ukraine, of which 118.1 MW was the share of solar power generation. This is a result of the "green" solar energy tariff remaining very high, and despite the volatile political situation and defective "rules of the game" on the market, investors want to invest in "green" projects. Parallel to this, solar projects are becoming increasingly interesting not only for businesses, but also for households. As of the end of the first half of this year, 1,635 households had installed solar panels, 100 up almost fourfold compared to 2016. It is worth noting that as little as 121 MW of "green" capacities was installed for the whole past year. In general, experts estimate that approximately USD 130 million was invested in renewable energy over the six months.

However, it should be noted that almost all such projects are implemented by domestic investors. Foreign business is still indecisive despite the numerous negotiations held by the State Agency on Energy Efficiency and Energy Saving. In particular, Denmark is yet not contemplating any serious investments in renewable energy projects in Ukraine but ready to help Ukraine improve its legislative framework in this field101. Also, the Danish company Rambøll Group will develop mechanisms for Ukraine to encourage non-gas-based heat production and mechanisms accelerating the pace of development of the domestic biomass market102. Meanwhile, the Swiss startup Designergy is considering the possibility of setting up in Ukraine 103 the manufacture of unique solar panels integrated into the roofing of buildings.

98 http://www.president.gov.ua/news/prezident-pidpisav-zakon-pro-posilennya-vidpovidalnosti-za-n-43014 99 http://w1.c1.rada.gov.ua/pls/radan_gs09/ns_golos?g_id=12509 100 http://www.kmu.gov.ua/control/uk/publish/article?art_id=250203363&cat_id=244277212 101 http://www.kmu.gov.ua/control/uk/publish/article?art_id=250214474&cat_id=244277212 102 http://www.kmu.gov.ua/control/uk/publish/article?art_id=250222990&cat_id=244277212 103 http://www.kmu.gov.ua/control/publish/article?art_id=250187636

Environment and Renewable Energy Sources

EUROPEAN LAW UPDATES

In August 2017, the Official Journal of the European Union (L 212/1) published Commission Implementing Decision

(EU) 2017/1442 of July 31, 2017 establishing best available techniques (BAT) conclusions, under Directive

2010/75/EU of the European Parliament and of the Council, for large combustion plants.

Oil

If it were not for the Energy Strategy adopted identifying the development priorities and target state of the oil sector of Ukraine by 2035, one could say that August has passed in vain for the government. The development deadline for the new Subsoil Code was again postponed. The implementation is delayed of Directive 98/70/EC relating to the quality of gasoline and diesel fuel and Directive 94/63/EC on the control of volatile compound emissions resulting from the storage of petrol and its distribution from terminals. For unknown reasons, the issuance of special permits for subsoil use has been suspended, which has already affected outputs. Despite a rather high spot given to Ukraine in the RGI 2017 rating, experts believe the country does not have or have still underdeveloped the legal instruments needed for effective hydrocarbon production. The results achieved by the government increasingly less correlate with the officially declared plans. More frequent become reports of adopted government decisions that are actually still under development. The published financial audit reports on enterprises responsible for the fulfillment of Ukraine's international obligations unexpectedly prove facts of wound up work on projects loudly announced previously. The Ministry of Energy and Coal Industry, Ministry of Ecology and Natural Resources, and State Service for Geology and Mineral Resources consider completed a number of tasks in the oil sector, though the draft documents they have worked out have long been returned for revision because of their failure to comply with the requirements of the regulation. Directive 2009/119/EC Imposing an Obligation on Member States to Maintain Minimum Stocks of Crude Oil and/or Petroleum Products (Article 338 of the Association Agreement) The updated implementation plan for Directive 2009/119/EC was not approved as of September 5, 2017, developed by the State Reserve Agency to replace the currently effective one104, and the implementation terms of most of the tasks set therein expired in 2015-2016. The document proposes to105 the Cabinet of Ministers to assign the State Reserve Agency the responsibility for "organizing the work to implement the action plan," releasing the Ministry of Energy and Coal Industry of this responsibility, and reschedule: – the adoption of the regulatory act of the Cabinet of Ministers regarding the model of minimum security

stocks of oil and petroleum products from December 2015 to December 2017; – the adoption of the Law "On Minimum Security Stocks of Oil and Petroleum Products" from December

2016 to December 2017; – the implementation of all the organizational measures set in the action plan for a period following the

enactment of the law "On Minimum Security Stocks of Oil and Petroleum Products." At the same time, the State Reserve Agency has not yet selected a date for the roundtable that is expected to see a presentation of the first fruits of efforts of the European and Ukrainian experts working in the EU technical support project "Assisting Ukraine in Implementing Energy Sector Reform to Meet Its International Obligations."106 Directive 2009/28/EC on the Promotion of the Use of Energy from Renewable Sources and Amending and Subsequently Repealing Directives 2001/77/EC and 2003/30/EC On August 18, 2017, the government approved the Energy Strategy of Ukraine by 2035 titled "Security, Energy Efficiency, Competitiveness."107 The document, in particular, provides for: - increased share of renewable energy in the final consumption to up to 11 percent by 2020 due to the

development of a stable and predictable policy for encouraging the use of such energy and investment attraction;

- encouragement of increased use of environment-friendly types of motor fuel, increased share of environment-friendly types of fuel in the consumption balance, and creation of incentives to promote growth in this share;

- support for the implementation of energy-saving , efficient, and environmentally friendly technologies throughout the entire chain from production to supply of petroleum products to end users.

104 http://zakon0.rada.gov.ua/laws/show/346-2015-%D1%80 105 http://civic.kmu.gov.ua/consult_mvc_kmu/uploads/attach-3346-490347147.pdf 106 http://rezerv.gov.ua/u-derzhrezervi-tryvae-robota-po-implementacii-dyrektyvy2009119ec/ 107 http://www.kmu.gov.ua/control/uk/publish/article?art_id=250208523

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

108 http://saee.gov.ua/sites/default/files/REPORT_29_08_2017.pdf 109 http://zakon2.rada.gov.ua/laws/file/text/54/f466691n20.zip 110 http://mpe.kmu.gov.ua/minugol/control/uk/publish/article?art_id=245160232&cat_id=167475 111 http://www.drs.gov.ua/wp-content/uploads/2016/11/7994-29-12-2016.pdf 112 http://www.kmu.gov.ua/document/248091869/Dir_98_70.pdf 113 http://mpe.kmu.gov.ua/minugol/control/uk/publish/article?art_id=245160232&cat_id=167475

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December 29, 2016, as developed without adherence to the key principles of state regulatory policy114, it is not being revised as the document has been removed from the checklist. The national standardization program for 2017115 as amended as of July 25, 2017 provides for the adoption by the end of 2017 of 32 standards to implement Directive 98/70/EC. Three of them were approved as of September 5, 2017, nine being in the editing phase, 15 returned for revision, and five being in the initial development phase116. On the whole, of the 36 national standards for motor fuels and testing methods, which are needed to enable the application of the Technical Regulation Regarding the Requirements for Motor Gasolines, Diesel, Marine, and Boiler Fuels117, only twelve have actually been approved. The Ministry of Energy and Coal Industry is obligated to develop by January 1, 2018 the Technical Regulation Regarding the Requirements for Aviation Gasolines and Jet Fuel in compliance with the requirements of Directive 98/70/EC (Clause 32 of the 2017 Plan to Develop Technical Regulations118). However, the implementation of this and the above-mentioned tasks in full is unlikely due to a lack of funding. Directive 94/63/EC on the Control of Volatile Organic Compound Emissions from Storages of Petroleum Products and Their Transportation from Oil Terminals to Service Stations, as Amended by Regulation (EC) 1882/2003 (Annex ХХХ, Articles 360-363, 365, and 366 of the AA): In November 2016, the tasks set in Clauses 1.1.1, 1.1.2, and 1.2.1 of the Directive 94/63/EC implementation plan became overdue119. Despite this, as of September 05, 2017, the Cabinet of Ministers had failed to adopt the resolution "On Approving the Technical Regulation of the Requirements for Storage, Transportation, and Transshipment of Fuel, Equipment and Service Stations," and the Ministry of Ecology and Natural Resources failed to approve the recommendations for controlling operation of filling stations and to take inventory of oil tank farms. Directive 94/22/EC on the Conditions for Granting and Using Authorizations for the Prospecting, Exploration and Production of Hydrocarbons (Annex XXVII, Articles 279, 280, and 341 of the AA) According to the Implementation Plan of Directive 94/22/EC, a new version of the Subsoil Code of Ukraine should have been adopted by the end of 2016120. It is known that amendments to the document are under development by the working group under the Ministry of Ecology and Natural Resources of Ukraine121, whose latest scheduled meeting took place on July 18, 2017122. The Cabinet of Ministers said that as of June 20, 2017, the draft of updated Subsoil Code of Ukraine was "under review by concerned authorities",123 since its submission to the Verkhovna Rada had been postponed to the fourth quarter of 2017 (Objective I, Task 202124). Unclear remains the progress in the preparation of draft government resolutions amending the Regulation of Geological Information Disposal Procedure125 (Objective I, Task 206126), Methodology for the Valuation of the Mineral Resource Potential and Mineral Reserves of a Conceded Field or Subsoil Block127, and Methodology for Determining the Initial Auction Price for the Special Permit for Subsoil Use128 (Objective І,

114 http://www.drs.gov.ua/wp-content/uploads/2016/11/7994-29-12-2016.pdf 115 http://uas.org.ua/wp-content/uploads/2017/04/Program_2017_nakaz_N64_2017-04-03.xlsx 116 http://uas.org.ua/ua/messages/dodatok-1-do-programi-robit-z-natsionalnoyi-standartizatsiyi-na-2017-rik/ 117 http://zakon.rada.gov.ua/go/927-2013-п 118 http://www.me.gov.ua/Documents/Download?id=d8571d0b-53a6-4ade-88c1-75579be0cb39 119 http://www.kmu.gov.ua/document/248091862/Dir_94_63.pdf 120 http://www.kmu.gov.ua/document/248102926/Dir_94_22.pdf 121 https://menr.gov.ua/content/sklad-robochoi-grupi.html 122 https://menr.gov.ua/news/31593.html 123 http://www.drs.gov.ua/deregulation/plan-deregulyatsiyi-2016-2017-rr/ 124 http://www.kmu.gov.ua/document/249935381/R0275.doc 125 http://zakon0.rada.gov.ua/laws/show/423-95-%D0%BF 126 http://www.kmu.gov.ua/document/249935381/R0275.doc 127 http://zakon3.rada.gov.ua/laws/show/1117-2004-%D0%BF 128 http://zakon0.rada.gov.ua/laws/show/1374-2004-%D0%BF

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Targets 203 and 204129). Harmonization of the present methodologies with applicable legislative norms and the requirements of the UN Framework Classification of 2009 will: – simplify commercial, feasibility, and geological study, as well as taxation operations, in particular at the

time of implementation of production-sharing agreements; – introduce a differentiated assessment approach depending on the intended purpose of the works

(exploration or production), reliability degree of the geological material (resources or reserves), and type of deposits in terms of extraction complexity (traditional or non-traditional methods).

At the same time, the Ministry of Social Policy delays developing a draft Cabinet of Ministers act amending the Regulation of the Mining Allotment Granting Procedure 130in the part related to revoking a mining allotment for the oil and gas industry (the implementation deadline is the first quarter of 2017131). Despite a rather high spot given to Ukraine in the RGI 2017 rating132, experts point to the lack or underdevelopment of a number of legal instruments related to hydrocarbon development in the country133. In particular, they emphasize the following points: - the impossibility of distributing risks among several partners in the same project to be able to attract

new investors to existing subsoil projects; - too lengthy a process of negotiating and approving production-sharing agreements and increased risk

of default on them due to the government of Ukraine being a mandatory party to them; - the impossibility to build flexible joint asset management tools due to the compulsory participation in a

company that holds a special permit, which means the need to acquire all its assets and liabilities; - doubtfulness of service agreements concluded within Ukraine's legal environment, as well as the

requirement of the international financial reporting rules to reflect stocks in the contractor's balance sheet;

- the ban on the alienation of right to use subsoil plots and wells, and the lack of guarantees of smooth transition hydrocarbon production for an investor that has completed the geological exploration work.

The issue by the State Service for Geology and Mineral Resources of special permits for subsoil use remains unresolved as well. With this in mind, Ministry of Ecology and Natural Resources of Ukraine Head Ostap Semerak initiated on August 7, 2017 a second review of the membership of the Subsoil Use Commission under the State Service for Geology and Mineral Resources. The reason for this decision is the impossibility of meetings due to the lack of a quorum. According to the minister, "the State Service for Geology and Mineral Resources needs a serious reform" that should not be limited to changing the leadership of this body.134 Meanwhile, the Ukrnafta PJSC board instructed the appropriate people on August 21, 2017 to prepare by the end of the current month a plan of action to wind up a number of projects and cut the investment program by at least UAH 500 million due to a delay in prolonging the hydrocarbon production licenses for the Zavodivske, Korzhivske, Koziivske, Pivdenno-Panasivske, Anastasiivske, Artyukhivske, Rybalske, Kachalivske, and Lypovodolynske fields135. The possibility of cutting the staff to up to 1,500 employees is also under consideration. On August 3, 2017, the decision of the Circuit Administrative Court of Kyiv came into effect, binding the State Service for Geology and Mineral Resources to extend for 20 years and issue licenses for the Zavodivske, Korzhivske, and Koziivske fields. On August 11, 2017, the State Enforcement Service opened proceedings to implement this decision. The claim by Ukrnafta PJSC seeking extension of the other six licenses has also been allowed by a court of first instance. As of September 05, 2017, there was no date set for the case consideration in an appellate court.

129 http://www.kmu.gov.ua/document/249935381/R0275.doc 130 http://zakon2.rada.gov.ua/laws/show/59-95-%D0%BF 131 http://zakon2.rada.gov.ua/laws/show/1079-2016-%D1%80/paran146#n146 132 http://resourcegovernanceindex.org/system/documents/documents/000/000/046/original/2017_Resource_Governance_ Index.pdf?1498599435 133 https://focus.ua/opinions/378207/ 134 https://www.facebook.com/os.semerak?hc_ref=ARRoOvtdDCEbK6jt57sckggmvVU-6qn6YB9de9fzv3NM-X5Z9qi_3eKOaLPtQYTCmUc&fref=nf&pnref=story 135 https://www.ukrnafta.com/ukrnafta-skorotit-investiczijnu-programu-ta-personal

Oil

Article 280 of the AA regarding transparency in licensing hydrocarbon prospecting, exploration, or production On August 17, 2017, the interagency commission for the conclusion and implementation of production-sharing agreements created a working group to prepare draft resolutions of the Cabinet of Ministers on tender competitions for three agreements on the distribution of the hydrocarbons to be produced within the subsoil blocks Reshetylivska (Poltava Oblast), Berestyanska (Lviv, Kharkiv, and Dnipropetrovsk Oblasts), and Varvynska (Poltava and Chernihiv Oblasts)136. Yet, the Ministry of Ecology and Natural Resources keeps delaying drafting a Cabinet of Ministers resolution "On Amendments to Cabinet of Ministers Resolution No. 423 dated June 13, 1995" that simplifies digital access to secondary geological information in real time (the task deadline is the first quarter of 2017137). Article 337 of the Association Agreement regarding informing and protecting consumers from unfair pricing, and access to petroleum products, particularly to liquefied gas, for consumers, especially consumers of the most vulnerable categories In connection with a significant rise in prices for the liquefied petroleum gas used as motor fuel, the Interagency Working Group for Issues of Functioning of the Oil and Petroleum Products Market and Development the Oil Refining Industry held a meeting on August 31, 2017138. Its results show arrangements worked out to prepare "as soon as possible" proposals to create a backup stock of liquefied petroleum gas, diversify its supply sources, and spur up the development of the infrastructure for the production and storage of this resource, regulate its transport problems, operation of the liquefied petroleum gas market, and improvement of interagency interaction on it. Article 338 of the AA regarding continuation and intensification of the cooperation in the energy field In pursuance of Item "a" of Article 338 regarding the implementation of energy strategies and policies, development/elaboration of relevant projections and scenarios, the government approved on August 18, 2017 the Energy Strategy of Ukraine by 2035 titled "Security, Energy Efficiency, Competitiveness."139. The document, in particular, provides for: – deepening of international cooperation in the full use of the oil transportation infrastructure potential,

implementation of projects to diversify sources and routes of oil supply to both Ukraine and European countries from alternative sources through Ukraine, and formation and maintenance of the necessary level of oil and petroleum products stocks in Ukraine; improvement of the efficiency of infrastructure and development of a new oil infrastructure, which is of common interest, enhancing the energy security of the region;

– encouragement of the sparing use of motor fuel and other resources through technological development and use of high-tech equipment; encouragement of increased use of environment-friendly types of motor fuel, increased share of environment-friendly types of fuel in the consumption balance, and creation of incentives to promote growth in this share; support for the implementation of energy-saving , efficient, and environmentally friendly technologies throughout the entire chain from production to supply of petroleum products to end users.

- development of new oil and gas condensate fields, construction of new wells on existing fields to increase oil and gas condensate outputs, identification of the locations of residual stocks of these products on the basis of continually operating geological and technological models; improvement in the transparency and publicity of the licensing process, ensuring its systematicness, shortening of the times and list of bureaucratic procedures; promotion of the development of deposits with difficult-to-extract and depleted oil reserves by setting reasonable rental rates for subsoil use; promotion of high-precision 3D seismic research, provision of services, drilling of exploration wells on new sites and fields; ensuring non-discriminatory access to and exchange of quality geological information; promotion of advanced

136 http://www.kmu.gov.ua/control/uk/publish/article?art_id=250207310 137 http://zakon2.rada.gov.ua/laws/show/1079-2016-%D1%80/paran146#n146 138 http://www.kmu.gov.ua/control/uk/publish/article?art_id=250235511&cat_id=244277212 139 http://www.kmu.gov.ua/control/uk/publish/article?art_id=250208523

Oil

methods and technologies to improve oil recovery; encouragement of equipment and infrastructure modernization, production optimization at productive wells;

- formation of a favorable policy for technical re-tooling and modernization of oil and gas refineries, using modern technologies; creation of favorable fiscal conditions, tariffs, and investment climate for the supply of crude oil for processing; covering of at least 50 percent of the domestic market's demand for petroleum products of an environmental class of at least Euro-5 produced in Ukraine; implementation of a market system of fuel quality monitoring, introduction of measures to promote compliance with the established quality standards and more intensive efforts to inform the public of companies responsible for the distribution of low-quality fuel;

- implementation of measures to ensure reliable energy supply and security of the energy infrastructure, diversification of petroleum products supply sources and routes; creation of conditions reducing the dependence on import revenues and encouraging the expansion and use of domestic production capacities and import diversification (no more than 30 percent from a single source);

- competitive prices for petroleum products, liquefied petroleum and compressed natural gas, reflecting their real value and quality; introduction of a state quality control system for petroleum products and gas fuels; creation of conditions and development of an appropriate infrastructure to promote the use of gas fuels for transport and domestic needs; creation of preconditions for increased economic attractiveness of acquiring, manufacturing, and using gas-fueled transport.

– The optimism associated with the adoption of a document that has outlined the development priorities and target state of Ukraine's oil sector by 2035 is tinted with concerns over the fact that as of September 05, 2017, the final text of the Energy Strategy was not published.

Business Climate

The Antimonopoly Committee has come one step closer to Ukraine's fulfillment of its international obligations as the Law "On State Aid to Business Entities" came into effect. This means that from now on the Antimonopoly Committee of Ukraine should start collecting information about existing and new state aid mechanisms, study them, and make appropriate decisions on their suitability for competition. The fulfillment of these tasks is intended to prevent future situations when some companies have advantages over others due to their access to public resources, which is not in line with the world standards for sound economic competition. Despite the fact that the function is new, the Committee began to work without any problems. Also, a new State Aid Portal has been launched. The other positive changes include the Cabinet of Ministers' approval of the Energy Strategy of Ukraine by 2035. The Energy Strategy clearly outlines the country's priorities for the coming 15 more years, which, in turn, makes it much easier for foreign companies to make long-term investment decisions, but the document is still unavailable in public access. There have also been changes in the ProZorro public procurement system, both in technical and legislative terms. In view of a large number of tender competitions announced on a daily basis, it is practically impossible to conduct audits for possible violations. A new risk management system is intended to, if not solve, at least mitigate this problem, using formal criteria to automatically screen suspicious purchases. In the meantime, the Cabinet of Ministers adopted amendments to Resolution No. 553, enabling bidders to change without any financial overheads electronic platforms to compete for public procurement contracts. The problem situation surrounding the NEURC reform, however, remains unresolved. Neither the Cabinet of Ministers, nor the Presidential Administration, nor the Verkhovna Rada have delegated their representatives to the Competition Commission selecting new commissioners. Taking into account the regulatory procedures and timeframes set for selecting and approving new NEURC members, the regulator will have no quorum from November 26 after the next two members are discharged, and the energy sector will have no active regulator for the relevant branches. Also, the issue of timely publication of the commission's passed decisions and resolutions in the Uryadovyi Kurier newspaper remains unresolved, a factor negatively affecting operation of companies.

Article 277 of the Law On the Regulator (provisions of Directives 2009/72/EC and 2009/73/EC regarding the regulatory authority) At a working meeting, the NEURC chairman Dmytro Vovk updated representatives of the United States Agency for International Development (USAID) on current difficulties and obstacles in the work of the regulator140. Among the key ones, in particular, he highlighted the lack of staff rotation, failure to amend the Budget Code, and delayed publication of NEURC resolutions. As for the latter, Uryadovyi Kurier published 38 resolutions as of August 21141. The meeting participants were also informed about the forthcoming audit of the commission by the Energy Community, with whose representatives the NEURC head held a meeting to coordinate technical aspects of the audit142. Articles 255-256 regarding anticompetitive actions and mergers The AMCU published for comments and discussion a revised draft order approving the Standard Requirements for Vertical Concerted Actions of Business Entities and amending the Standard Requirements for Vertical Concerted Actions of Business Entities, Releasing Them from the Need for Prior Permission from the Antimonopoly Committee of Ukraine143. As regards the former document, the AMCU defines terms,

140 http://www.nerc.gov.ua/?news=6378 141 http://www.nerc.gov.ua/?news=6362 142 http://www.nerc.gov.ua/?news=6369 143 http://www.amc.gov.ua/amku/control/main/uk/publish/article/136711

Business Climate

sets criteria freeing compliant companies from the need to obtain a corresponding permit for vertical concerted actions, and exceptions. As regards the latter, no significant changes are actually made, it is proposed to delete Clause 1.4 that defines the term "vertical concerted actions" and supplement some other clauses of the order. The Antimonopoly Committee began studying the state of competition in Ukraine in 2017. This study is conducted by the Comprehensive Research Center for the Anti-Monopoly Policy through surveys, specifically using anonymous questionnaires offered to everyone volunteering to fill them out. The purpose of this study is to explore the current state of competitive environment and effects of the government's competition policy, as well as develop practical recommendations on how to improve the legislation on the protection of economic competition.144 Articles 263-267 on state aid to business entities Following the enactment of the Law "On State Aid to Business Entities,"145 the Antimonopoly Committee of Ukraine launched the data processing system Register146. It will help the Committee to collect information on the current and new state aid (state aid register, register of decisions, register of cases, etc.). The Portal makes it much more convenient to provide information on state aid to both state resource managers and business entities. Articles 148-156 on public procurement (provisions of Directive 2014/25/EC) In the ProZorro system, an automatic risk management system has been introduced147. The system automatically finds dubious tenders, using such criteria as, for example, abnormal saving (exceeding 60 percent), the supplier's work with only one customer, not detailed tender competition announcement, and so on. There are 16 criteria at the moment, but their number will be increased to 60. The government adopted Resolution No. 553 improving the functioning of the electronic procurement system ProZorro148. It amends the Operation Procedure of the Electronic System of Procurements and Authorization of Electronic Platforms. In particular, it has been added that the charge imposed on legal entities (bidders) by the electronic platform operator for the participation in a tender competition should be returned if the tender is canceled or the bidder changes the platform.

144 http://www.amc.gov.ua/amku/control/main/uk/publish/article/136126 145 http://www.amc.gov.ua/amku/control/main/uk/publish/article/136692 146 http://www.amc.gov.ua/amku/control/main/uk/publish/article/136748 147 https://www.facebook.com/dozorro.org/videos/1098050666992082/ 148 http://www.kmu.gov.ua/control/uk/cardnpd?docid=250187756

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 task forces. These are, in particular, Gas task force: L. Unigovskyi

and R. Nitsovych (DiXi Group); Electricity task force: S. Golikova (Energy Association of Ukraine) and

O. Shumilo; Energy Efficiency and Social Issues task force: T. Boyko (OPORA) and D. Nazarenko (DiXi Group);

Environment and Renewable Energy Sources task force: N. Andrusevych (Society and Environment) and

N. Yermakova (DiXi Group); Business Climate and Investments task force: V. Beliakova (European-Ukrainian

Energy Agency) and A. Bilous (DiXi Group), Oil task force: 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:

Article 27, Chapter 11 (Title IV TRADE AND TRADE-RELATED MATTERS) of the Association Agreement

Article 28, Chapter 11 (Title IV TRADE AND TRADE-RELATED MATTERS) of the Association Agreement

Article 29, Chapter 11 (Title IV TRADE AND TRADE-RELATED MATTERS) of the Association Agreement

Article 88, Chapter 6 (Title IV TRADE AND TRADE-RELATED MATTERS) of the Association Agreement

Article 93, Chapter 6 (Title IV TRADE AND TRADE-RELATED MATTERS) of the Association Agreement

Articles 97-102, Chapter 6 (Title IV TRADE AND TRADE-RELATED MATTERS) of the Association Agreement

Article 104, Chapter 6 (Title IV TRADE AND TRADE-RELATED MATTERS) of the Association Agreement

Article 105, Chapter 6 (Title IV TRADE AND TRADE-RELATED MATTERS) of the Association Agreement

Article 107, Chapter 6 (Title IV TRADE AND TRADE-RELATED MATTERS) of the Association Agreement

Articles 144-147, Chapter 7 (Title IV TRADE AND TRADE-RELATED MATTERS) of the Association Agreement

Chapter 8 (Title IV TRADE AND TRADE-RELATED MATTERS) of the Association Agreement and the Directive 2014/25/EU

Article 255, Chapter 10 (Title IV TRADE AND TRADE-RELATED MATTERS) of the Association Agreement

Article 256, Chapter 10 (Title IV TRADE AND TRADE-RELATED MATTERS) of the Association Agreement

Article 258, Chapter 10 (Title IV TRADE AND TRADE-RELATED MATTERS) of the Association Agreement

Methodology

Article 263, Chapter 10 (Title IV TRADE AND TRADE-RELATED MATTERS) of the Association Agreement

Article 267, Chapter 10 (Title IV TRADE AND TRADE-RELATED MATTERS) of the Association Agreement

Article 277, Chapter 11 (Title IV TRADE AND TRADE-RELATED MATTERS) of the Association Agreement and Directives 2003/54/EC and 2003/55/EC (as regards the regulatory authority)

Articles 355-359, Chapter 5, (Title V ECONOMIC AND SECTOR COOPERATION) of the Association Agreement and Directive 2008/92/EC

Article 379, Chapter 10 (Title V ECONOMIC AND SECTOR COOPERATION) of the Association Agreement

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 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

Glossary

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.

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

Glossary

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 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.

Glossary

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. 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.

Glossary

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 149 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 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

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

Glossary

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 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 2008/92/EС concerning a Community procedure to improve the transparency of gas and

electricity prices charged to industrial end-users

Pursuant to that Directive, open, generally accessible mechanisms of providing information on the prices of energy resources for customers must be introduced. A particular methodology of collection of respective information about gas and electricity prices is to be drawn up and the respective mechanism to that effect is to be introduced.