The objectives under the various MoU road maps and the measures both undertaken to date and those requiring further development, correspond to a large degree with the performance indicators for disbursement attached to the Financing Agreement regarding the provision of budget support for the implementation of Ukraine’s Energy Strategy. It is therefore reasonable to expect that these elements are likely to feature prominently in discussions with the beneficiary regarding the development of priority areas for the provision of further ad hoc advice and assistance.

There are a few recent developments of particular relevance and importance that deserve highlighting:

• Impending Ukrainian membership of the Energy Community (EnC) Treaty – following Ukraine’s application for full membership of the EnC in November 2008, negotiations for its entry were recently concluded and their outcome was submitted for approval through the formal procedures of both the EU and Ukraine. Moreover, a memorandum of understanding was signed in October 2009 by Deputy Director-General Fabrizio Barbaso, on behalf of the EC, with Ukraine’s Fuel and Energy Minister Yuriy Prodan, which sets out a series of deadlines for implementing EU legislation in the areas of electricity, gas, environment, renewable energy sources (RES) and security of supply. Specifically, the terms and conditions to Ukraine’s accession annexed to the memorandum commit Ukraine to the following timetable:

  • The preparation of implementation plans by 1 July 2011 regarding the acquis on RES, namely the implementation of the directives on the promotion of electricity produced from RES and the promotion of the use of bio-fuels or other renewable fuels for transport;
  • Implementation of the EU’s 2003 electricity and gas directives and the associated regulations and decision on network access and cross-border exchange, respectively, by 1 January 2012;
  • Implementation of the directives on the security of natural gas supply and on measures to safeguard security of electricity supply and infrastructure investment, also by 1 January 2012;
  • The directive relating to the reduction of the sulphur content of certain liquid fuels by 1 January 2012;
  • A range of other acts in the environmental field must variously be implemented by January 2013, 2015 and 2018; and
  • All non-household electricity and gas customers must become "eligible" from 1 January 2012 and all other customers from 1 January 2015.

• Ukraine’s application for full membership of the Union for the Coordination of Transmission of Electricity (UCTE), the European synchronous electricity grid (as of July 2009, the work of UCTE has been fully integrated into ENTSO-E, the European Network of Transmission System Operators, but we maintain the UCTE terminology to avoid confusion) - in March 2006 Ukraine and Moldova jointly applied for full membership and integration of their respective power systems with the UCTE synchronous area. In response, during that same year the UCTE launched a project group with the immediate task of developing terms of reference for the project and goals to assess all the technical, regulatory and operational requirements for the full integration of the two countries’ electrical systems into the UCTE system. The terms of reference were finalised in January 2008 and cooperation since then has been ongoing to finalise all the contractual arrangements for project financing, so that all necessary activities may commence. The estimated implementation period of the project, covering studies, the implementation of recommendations and the conduct of tests and trial operations, is estimated at 7.5 years.

• Joint EU-Ukraine International Investment Conference on the Modernisation of Ukraine’s Gas Transit System – in 2007 a preliminary audit of the gas transit system was undertaken with assistance from the EU. The audit concluded that investments in the order of € 2.5 billion in Ukraine’s gas pipeline infrastructure for the period 2007 - 2013 are required to preserve the current volumes of gas transit. Following this, UkrTransgaz (the Naftogaz subsidiary responsible for gas transit) developed a master plan for modernising and rehabilitating the gas transit system, including the identification of discrete priority projects requiring funding and which would improve the technical efficiency of the system. The Master Plan and the identified bankable projects were presented at a joint EU-Ukraine investment conference in March 2009 with the participation of the EIB, EBRD, the World Bank, private sector financial organisations and the national financial agencies of EU Member States and other countries. According to the Joint Declaration issued after the conclusion of the conference’s proceedings, Naftogaz undertook to form a dedicated technical coordinating unit to further advance and detail the modernisation plan (we understand this group has now been established), while IFIs will soon commence their due diligence procedures in view of providing loans for the implementation of the selected projects.

Although not a recent development, specific mention ought to be made of the establishment of the National Electricity Regulatory Commission (NERC), as this represents a significant achievement in the institutional and market reforms of the Ukrainian energy sector. NERC was founded in December 1994 to regulate the electricity sector, but since then its authority and functions have been extended to other sub-sectors – district heating, oil and natural gas. Moreover, with EU support, there have been ongoing efforts to strengthen both its capacity and independence. NERC is currently coordinating the preparation of a draft Electricity Market Law, which is expected to establish new electricity market arrangements replacing the current single buyer wholesale electricity market model with a balancing market model. Two draft Laws of Ukraine "On State Regulation in Energy Sector of Ukraine" and "On National Energy Sector Regulatory Commission of Ukraine" have been submitted to the Parliament of Ukraine.