One fundamental prerequisite for the application of sector budget support programmes is the existence of such a coherent and nationally-driven policy. Ukraine’s key energy policy and priorities are defined in its own Energy Strategy to 2030, which was approved by the Cabinet of Ministers in 2006.

The strategy proceeds from the understanding that Ukraine has a limited endowment of conventional energy resources and also lacks diverse sources of primary energy sources, such as oil, natural gas, and nuclear fuel. Therefore, in order not to rely on imports, the strategy highlights the importance of rational energy use, the promotion of domestic energy production, and switching to alternative energy sources. Obviously, the strategy also recognises the significance of (and threats to) Ukraine’s position as a key transit route for predominantly Russian oil and gas and, therefore, a basic premise of the strategy is to maintain and enhance this transit role. The rudiments of the strategy are depicted diagrammatically below.

As shown in the figure above, the overriding objectives of Ukraine’s energy strategy are to ensure its energy security and status as a significant transit country. These then translate into a set of priorities, which include increasing transit volumes via its territory, reducing the economy’s energy intensity, improving its energy efficiency, integrating with the European energy system and expanding domestic energy production. In order to meet these objectives and priorities a set of policy measures is specified, which include modernising and rehabilitating infrastructure that transports hydrocarbons, diversifying supplies and routes, increasing domestic production of coal and nuclear energy, implementing broad-ranging energy efficiency measures, adopting relevant EU laws and undertaking pricing reform. Moreover, these measures represent and entail a radical shift in the underlying principles governing the Ukrainian energy sector as they require a move from monopoly organisation to more competitive structures, the modification of the State’s role from manager to regulator, forsaking central planning for liberalisation and providing opportunities for private sector participation (rather than relying solely on state ownership).

The Energy Strategy to 2030 represents a significant milestone as it provides an all-encompassing overview and comprehensive strategy of the energy sector, by building upon the various state programmes developed mostly in the 1990s for the various sub-sectors. Nevertheless, some of the projections in the strategy are contentious as they were not developed on the basis of detailed statistical data and models. There also appears to be too strong an emphasis on supply measures at the expense of energy demand and efficiency. More importantly, the strategy lacks specific measures to meet its stated objectives and it is therefore difficult to assess likely developments and the probability of realising its targets (and over which timeframe).

By way of example, the strategy calls for significant energy savings by the end of the projection period (specifically, a 50 per cent reduction in energy intensity compared to 2005), which is anticipated to derive from structural shifts in the economy, as it moves away from heavy industry and toward the tertiary sector, and significant "technological improvements". The document also envisages a doubling or more in the production of coal and nuclear power to reduce reliance on natural gas. While the projected energy savings and structural changes are feasible, in the context of other countries’ experience, the document lacks detailed, specific and concrete actions (including demand-side measures, financing and regulatory/legislative changes) that are necessary to meet the ambitious targets set by the strategy. We expect that this and other similar issues could be discussed and further elaborated in the context of "Component 2: Ad-hoc assistance related to fulfilment of indicators for the Energy Sector Budget Support Programme" of the Complementary Technical Assistance to the EU-Funded Budget Support to Ukraine's Energy Strategy Implementation project.