Energy Community reveals biggest obstacle to Ukraine's gas sector reform

The Energy Community says that the unbundling of transmission and distribution system operators is the biggest obstacle to Ukraine's gas sector reform, according to a comprehensive assessment of Ukraine's progress with respect to the Gas Sector Reform Implementation Plan.

"At present, the biggest obstacle towards successful gas market reform is the unbundling of transmission and distribution system operators. The significant delay exists as for now in the unbundling of natural gas transmission and storage activities of the state owned gas incumbent Naftogaz," the Secretariat of the Energy Community said in its assessment titled "Gas Sector Reform Implementation Plan: 2 Years After," published on March 27, 2017.

While acknowledging Ukraine's progress in terms reforming its legislative framework, the Secretariat's assessment points to serious shortcomings linked to the implementation of the adopted measures.

The Energy Community recognizes that since the adoption in July 2016 by the Cabinet of Ministers of the restructuring plan on Naftogaz, limited progress has been achieved in drafting and submitting to Parliament the necessary legal amendments to ensure unbundling is implemented as per the approved Gas Market Law.

According to it, the Naftogaz Unbundling Plan sets out concrete steps for the company restructuring in line with the chosen ownership unbundling model to separate the natural gas transmission activities from natural gas storage. The plan foresees the establishment of two new entities in charge of transmission and storage operation: Main Gas Pipelines of Ukraine (MGU) and Underground Storage Facilities of Ukraine (UGS) to fall under the management of the Ministry of Energy and Coal Industry. A set of preparatory actions has been agreed to be put in place prior to the final decision on the ongoing cases with Gazprom at the Stockholm Arbitration Court.

"As for now, Main Gas Pipelines Company has been established on the basis of approved Charter and headed by an acting chief. However, the company exists so far only on paper. The existing challenge is the efficient transfer of assets and staff to the Main Gas Pipelines and setting up necessary legal basis for the effective and independent separation between the public bodies in charge of supervision and management of the state-owned transmission and supply entities pursuant to Third Energy Package criteria," the Energy Community said.

Distribution system operators, unbundled legally from supply in 2015, have submitted compliance programs to the National Commission for State Regulation in the Energy and Utilities of Ukraine (NEURC) for its assessment. The actual status of unbundling is yet to be verified against Third Package requirements. At present, the wholesale and retail market indicators do not bear the evidence that competition is at a satisfactory level, it concluded.

What is more, new instruments will have to be designed to motivate Ukraine to live up to its obligations from the Energy Community Treaty and apply its national legislation in practice, it added.

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