12:03 25.05.2016

Director of Energy Community: "In the area of energy efficiency Ukraine did almost nothing"

Exclusive Interfax-Ukraine interview with Director of Energy Community Secretariat Mr. Janez Kopac

Question: At their recent meeting in Japan the G7 energy ministers released a Progress Report outlining key policy measures and priority areas to overcome Ukraine's energy vulnerability, including implementation of the EU Third Energy Package, establishing an independent energy authority etc. How is Ukraine doing in terms of implementing the energy market reform and meeting the EU requirements?

Answer: Ukraine is well advanced in gas sector reform, having adopted the EU Third Energy Package compliant Law on Natural Gas Market, which entered into force in October 2015. Only one crucial point is still missing: the unbundling of Naftogaz.

The Electricity Market Law, which is a year and a half in delay, is now awaiting adoption by the Verkhovna Rada, which may happen before the summer. All the necessary secondary legislation for the law to be implemented in practice has already been prepared.

However, the Law on Independent Energy Regulator has not been adopted yet and this represents a huge barrier for genuine market oriented reforms in both the electricity and the gas sectors.

In the area of energy efficiency, Ukraine didn't do almost anything and resists adopting any reform measures and thus respecting its obligations under the Energy Community Treaty.

Question: How does the European Energy Community assess legal acts related to the Law of Ukraine "On the Gas Market" (Gas Network Codes, etc.)? Are the documents approved by the National Commission for Energy, Housing and Utilities Services Regulation the most preferable from the point of view of the European Energy Community?

Answer: The whole set of secondary legal acts (around 25 of them) was not adopted in its entirety. Of those adopted, many (i.e. Network Codes) include some provisions which are not completely compliant with the Gas Market Law. The Secretariat has assessed the acts and sent its analysis pointing to the cases of non-compliance to the National Commission. We hope that the acts will be corrected soon.

Question: Ukraine's government in April fixed a new ceiling on gas prices for households. The respective decree proscribes a formula similar to the one used on the NetConnect Germany (NCG) hub. To what extent does this approach match practices and legislation in the Energy Community? What recommendations would you make on this issue?

Answer: Yes, this so-called public service obligation act was designed together with the Energy Community Secretariat and is complaint with the Energy Community Treaty and its legal framework. It was conceived as part of the Gas Market Law in order to allow for a smooth transition from artificially low regulated prices for households to market prices in a two years' time (2017). Actually, it is quite an advanced approach, which even some EU Member States with significant gas production have not yet introduced (for example Romania where household prices are still heavily regulated).

Question: In the light of the decision to raise gas and heating prices for households, subsidies for unprotected population groups are crucial. Subsidies, however, are not always designed to increase energy efficiency, and may be related to corrupt schemes as well. How do you view the present subsidy payment system in Ukraine? How it could be improved? What should be changed? Is subsidy monetization necessary?

Answer: The Secretariat is not very familiar with the details of the subsidy schemes in Ukraine. The Law on Natural Gas Market has tasked the Cabinet of Ministers to determine the criteria for vulnerable customers, their categories and order and volumes of support. To our knowledge, this was done last autumn by using the existing (but improved and updated) general social protection scheme. We have been informed by the World Bank in Ukraine (supporting this scheme for many years) that improvements of the social protection scheme aimed to include lower income household categories (by abolishing the share of income spent for energy as input for defining the support, according to which more middle income households were covered by the support scheme).

The social protection scheme is rather general, not specifically targeting the energy sector as such and not focusing in particular on the promotion of energy efficiency.

Question: What assistance can the European Union and the European Energy Community provide to Ukrainian households to increase energy efficiency and cut energy bills?

Answer: The first step is for the Ukrainian authorities to adopt legislation related to energy efficiency issues.

Two draft laws (on Energy Performance of Buildings and Heat Metering) were finalized long ago by experts from different Ukrainian ministries with the support of the Energy Community Secretariat. A draft Energy Efficiency Law was drafted by the Secretariat a year ago but has failed to be discussed by the Ukrainian authorities and submitted for adoption.

Despite being an international obligation of Ukraine, the responsible ministry and government resist adopting any legal measure related to energy efficiency. Two of the draft laws are even a condition for the disbursement of EU macro-financial assistance amounting to EUR 600 million. It seems that Ukrainian authorities rather reject generous financial support than adopt a law that would protect Ukrainian customers. Energy efficiency is common sense, but not in Ukraine.

Question: The National Commission for Energy, Housing and Utilities Services Regulation has approved a new system for calculating electric power generated by thermal power plants. This system takes into account a coal price in Rotterdam. Does this method match practices and legislation of the European Energy Community? Does the Energy Community's Secretariat view this approach favorably? What would you recommend?

Answer: Regulation of generation prices is against the free competition on the market and should have been abolished in Ukraine from 2011 onwards, following the Energy Community Treaty obligations. Neither the old nor the new system is acceptable.

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