Ukraine and the Association Agreement: How to Prevent a Storm?

UKRAINE AND THE ASSOCIATION AGREEMENT:

HOW TO PREVENT A STORM?

ENERGY REFORMS ANNUAL MONITORING REPORT ON UKRAINE’S PROGRESS IN IMPLEMENTING THE EU-UKRAINE ASSOCIATION AGREEMENT IN THE FIELD OF ENERGY AND ENVIRONMENT

This project is funded by the European Union

This project is funded by the International Renaissance Foundation

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 DIXI GROUP NGO, Civil Network OPORA, AllUkrainian NGO “Energy Association of Ukraine”, Resource & Analysis Center “Society and Environment”, Association “European-Ukrainian Energy Agency”, as well as involved experts Leonid Unigovskyi and Gennadiy Riabtsev. The contents of this publication can under no circumstances be regarded as reflecting the position of the European Union.

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 to strengthen the role of civil society in advocating reforms in the energy and related sectors.

Key objectives of the project are as follows: • monitoring the implementation of the Association Agreement in terms of energy, including respective commitments to the environment and issues related to trade; • strengthening the capacity of public experts and local public figures to track the actual implementation of reforms; • promoting public dialogue for appropriate implementation of the European reforms in the energy sector and environmental issues; • informing stakeholders and Ukrainian society about the importance and potential benefits of European reforms in the energy sector and environmental issues to enable them to hold the government accountable for the reforms.

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Table of Contents

8 Summary

12 Recommendations

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124

Electricity and Nuclear Security

Oil

78 Energy Efficiency and Social Issues

16 Implementation Process

96

152 Business Climate

176 List of Laws and Regulations

Environment and Renewables

20 Gas

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Summary

8

Summary Over the last three years of the implementation of European reforms, including more than two-year implementation of commitments under the Association Agreement, Ukraine managed to achieve certain progress.

However, a number of obstacles emerged in the course of implementation.

Coordination structures designed to direct the efforts of the responsible authorities proved to be inefficient. The Strategic Advisory Group for Support of Ukrainian Reforms, the National Reforms Council, as well as the Office for Reforms together with the Office for Attracting and Supporting Investments act out of public view. The link is lacking to combine these groups with the bureaucratic apparatus of ministries and departments, which are forming and implementing policy. The position of Deputy Ministers for European Integration who have dual subordination (to the relevant ministers and the Vice Prime Minister for European Integration) fell short of expectations due to delays in their appointment and the lack of communication.

The change of government and respective management teams in the ministries complicated the already complex preparation and decision-making process. As a result, many draft regulatory acts ÂŤhung upÂť at another round of interdepartmental adjustment. For example, a months-long blocking by the Ministry of Justice of the Methodology for Determination and Calculation of Tariffs for the Services of Natural Gas Distribution prepared and submitted by the NEURC resulted in the delay of setting separate bills (for natural gas as a commodity and for gas networks operation).

However, even upon the completion of the approval process, the required legislation and regulation were not adopted. At the draft level, there was the Electricity Market Law and secondary legislation for the implementation of a new market model, the National Emission Reduction Plan, a package of laws on energy efficiency and investment climate improvement, regulations in the nuclear energy sector, and the Law on ensuring transparency in extractive industries. Hard quest for a compromise

9

Summary

in the adoption of the Law ÂŤOn the National Energy and Public Utilities Regulatory CommissionÂť did not lead to the rotation of its composition, and the NEURC decisions on regulating relations in the coal sector, tariff setting and in the electricity sector resulted in the discussions both among the public and in political quarters. Generally, the politicization of decisions, each of which started to be seen as a zero-sum game, further complicated the situation.

Weak institutional capacity of key ministries and agencies responsible for implementing the Association Agreement in the field of energy and environment became evident. Since the acquis implementation plans were inaccurate, with no persons responsible for the coordination of positions between the involved authorities, some executives did not pay due attention to their implementation, and the plans themselves were not reviewed or improved.

Summing up, clear goals are set up, but plans to achieve them contain few specifics. Despite continuous support from the European partners, activities of interdepartmental working groups, and, as a result, the Government in general, are inefficient. In addition, the lack of sanctions led to low operational discipline. These factors together led to a failure to perform tasks set in 2015-2016 within the earlier established time frames.

As a result, some reforms are being implemented extremely unsatisfactorily (creating minimum reserves of oil and oil products, ensuring equal conditions for granting and using subsoil use permits, creating the system for monitoring of oil products’ quality and safety). Where the progress emerged or reached a significant level, the reforms were not completed (implementation of the Naftogaz restructuring plan, creation of an independent market regulator, which requires changes in the principles and rules of the NEURC functioning, and investment climate improvement).

The reports on the implementation of international commitments reflect willingness of the authorities to pass the products of public policy (negotiations, creation of working groups, signing agreements of intent, etc.) as its results (resolution of the problems existing in this sector). The level of reporting on the work of each executive is insufficient, and the reports themselves are published irregularly.

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At the same time, significant achievements were reported in 2016. Public procurement system reform turned out to be one of the most successful, and a number of preparatory tasks for regulating state aid were performed in full. In general, openness and transparency of activities of both public institutions and large companies in the public sector of the economy considerably increased. The NEURC, the Ministry of Economy and Trade, the Ministry of Energy and Coal Industry, and the Antimonopoly Committee of Ukraine began to publish much more data, and ProZorro business analytics service started running at full capacity. The Government demonstrated it can be successful in communications – in particular, it had a positive experience of holding information campaigns related to the registration of housing and utilities subsidies and participation in the government programs to improve energy efficiency (so called «warm loans»).

International institutions, mainly the European Commission, the IMF and the World Bank, as well as the Energy Community Secretariat maintained their significant impact on the pace of reforms. Due to the consolidated position of the above institutions and other international institutions, as well as donor support in general, the Law «On the National Energy and Public Utilities Regulatory Commission» was adopted and such draft laws as «On Electricity Market», «On Commercial Metering of Public Utilities» and «On Housing and Public Utility Services» were submitted to the Verkhovna Rada of Ukraine and considered in the first reading, and other changes took place. In general, international partners started their active participation in the preparation of decisions and provided the government authorities with more action-oriented recommendations (e.g. regarding the Law «On Energy Efficiency Fund», monetization of housing and utilities subsidies, etc.) according to the «more for more» principle.

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Summary

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Recommendations Sharing the opinion that fundamental changes in the system of public administration, judiciary and electoral legislation are of top priority in implementing reforms, we believe that the stakeholders should consider the following suggestions: It is crucially important to establish productive functional relations between the advisory bodies, advisors and the apparatus of responsible authorities. Regular internal communication within departments (between structural units) and interdepartmental cooperation are the key elements for a coherent process. This first-priority task must be delegated to the deputy ministers for European integration and state secretaries.

At the same time, in order to preserve the institutional memory, and develop and implement efficient policies, the full cycle of its analysis, strategic planning of activities, procedures for monitoring and evaluating policies and programs should be introduced. For example, now it is ne-cessary to evaluate the effectiveness of the government programs on energy efficiency, national action plans in the field of energy efficiency and renewable energy, and to conduct a systematic review of the situation in the natural gas market. The acquis implementation plans approved by the Government should be reviewed and updated, and errors caused by inaccurate translation should be removed in certain plans. In certain cases, there is a need to change or vice versa - to define the responsible executive officers for the tasks requiring preparation of deeds.

The public should receive free and unimpeded access to reports on the Association Agreement implementation in the fields of energy and environment, and responsible authorities should ensure regular publication of such reports. Particular requirements for such documents should include sufficient level of task details that must be wider than the formal tasks in the implementation plans and/or relevant government orders or

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Recommendations

regulations. Successful cases of the reforms should also be included in these reports.

Overcoming the crisis of institutional capacity also requires identification of tasks, which can be resolved by NGOs, with the support of donor funds (for example, information and analytical support for the development of specific solutions). If resources will be contracted through the tender structures of government authorities or public funds, it is expedient to make procurements on each of the deliverables, avoiding artificial combination of such services, to attract a wider range of professional candidates, including those from the EU member states. The EU technical assistance projects designed to assist the ministries in implementing the Association Agreement should be more efficient and aimed at achieving specific results, and their narrative reports and financial statements including deliverables must be publicly accessible.

Government institutions should enhance opportunities for public participation in policymaking. Public dialogue of all stakeholders at early stages of implementing a reform and developing its concept must become a mandatory element of the EU-Ukraine Association Agreement implementation, as there is no point in discussing alternatives at the stage of adopting a regulatory act.

This means that – in order to control, monitor and submit proposals, – representatives of the civil society and expert communities should have the widest possible access to information and draft regulatory acts at early stages of development. In addition, it will be helpful to find the necessary resonance on problematic issues, and thus contribute to their resolution. Draft legal acts of regulatory nature must always be consist-

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ent with the clauses of the relevant directives, and in some cases, when it comes to emerging markets, they have to be processed within technical assistance projects.

International partners and institutions supporting reforms in Ukraine must maintain the principle of ÂŤpositive conditionalityÂť in making decisions on such support. However, it is appropriate to review the criteria for international technical assistance and loans used by the authorities in Ukraine and principles of evaluating their use. All reports under such projects should be public and responsible officers in the ministries and departments have to undergo audits.

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Implementation JANUARY

FEBRUA RY

February 4 Adoption of the law regulating the procedures for customs control and customs clearance of gas, including backhaul operations January 13 Approval of the procedure for developing, approving and implementing the plan for engaging external aid of the European Commission within the TAIEX

February 24 • The Government improved the content and the procedure for carrying out examination of draft regulatory acts to verify their compliance with the Association Agreement and other commitments in the field of European integration • Secretary of the Association Committee in Trade configuration of the Ukrainian party was determined as a contact person of the Ukrainian party for exchanging information and handling requests related to trade within the implementation of the Association Agreement • Approval of the Public Procurement Reform Strategy (Road Map) February 25 Adoption of the NEURC resolution on amendments to the Procedure for setting tariffs for licensees to supply electricity at a regulated tariff and/or to transmit electricity by local electricity networks in the event of applying RAB regulation

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M A RCH

March 16 The Cabinet of Ministers adopted a resolution which increased funding of activities aimed at maintaining power units and Shelter Object in safe condition

Process APRIL

M AY

JU NE

April 1 Signing of the Cooperation Agreement between the Government of Australia and the Government of Ukraine in the field of nuclear energy use for peaceful purposes, which creates preconditions for the supply of uranium to Ukraine April 6 Improvement of the rules of holding auctions for selling special subsoil use permits and granting special subsoil use permits, allowing auctions to attract more participants and create conditions for open competition April 13 The President issued Decree No. 141/2016 «On Additional Measures to Transform Shelter Object into an Ecologically Safe System and Revive the Territory Affected by Radioactive Contamination as a Result of the Chernobyl Disaster»

May 10 The President signed the Decree on Ukraine’s Accession to the International Renewable Energy Agency (IRENA)

June 10 Ukraine joined the Batumi Action on Clean Air June 13 The NEURC approved the Procedure for Setting Retail Electricity Market Tariffs for Consumers, which will allow for a gradual transition to the establishment of retail market tariffs and elimination of regional cross-subsidization between consumers

April 14 The NEURC adopted the Procedure for Gas Transmission Operator Certification April 27 The Cabinet of Ministers approved a single price for natural gas for households at 100% parity to the price of imported gas (UAH 6,879 per 1,000 cubic meters from May 1, 2016)

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JU LY

July 1 The Cabinet of Ministers approved the Restructuring Plan of Naftogaz of Ukraine NJSC, which as required by the Third Energy Package must ensure unbundling of natural gas transportation and storage activities July 6 Approval of the Regulations on the Subsoil Use Commission corresponding to the new procedure for granting subsoil for use in accordance with the international commitments July 6 Suspension of «warm loans» program to the extent related to the compensation from the state budget to individuals July 13 The Cabinet of Ministers approved the Hydropower Development Program of Ukraine by 2026 July 21 The Ministry of Ecology and Natural Resources published a draft resolution of the Cabinet of Ministers «On Approving the Concept of Reform of the State Environmental Monitoring System» July 25 An interdepartmental working group on updating the Energy Strategy of Ukraine by 2035 was created by the order of the Ministry of Energy and Coal Industry July 29 The Ministry of Energy and Coal Industry published the official report for 2015 on the security of natural gas supply

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AU G U ST

August 1 • The President signed the Law «On Ratification of the Paris Agreement» • ProZorro electronic procurement system was launched all over the country • Launch of a new automated customs control system «Single Window» • The President signed the Law «On Amending Certain Laws and Regulations of Ukraine to Regulate Certain Issues of Legal Regime in the Territory Affected by Radioactive Contamination as a Result of the Chernobyl Disaster» August 4 The NEURC amended the Procedure for setting tariffs for licensees to supply electricity at a regulated tariff and/or to transmit electricity by local electricity networks in the event of application of the RAB regulation, by providing a more transparent mechanism for making decisions on RAB tariff setting August 23 The Cabinet of Ministers amended the rules for electricity use by households on disconnection warnings and electricity purchase agreements under feed-in tariff

SEPTEMBER

September 5 Establishment of the Working Group on Reviewing Regulatory Acts in the Energy Sector Requiring Amendments or Abolitions September 21 Unit No. 1 of the Zaporizhzhia NPP got started beyond the projected period based on the license issued by the State Nuclear Regulatory Inspectorate of Ukraine (SNRIU) regarding extension of the service life by December 23, 2025 September 22 • The Verkhovna Rada adopted the draft law «On Electricity Market of Ukraine» (No. 4493) in its first reading • The Verkhovna Rada adopted the Law «On the National Energy and Public Utilities Regulatory Commission» as a whole

O CTOB E R

October 4 • The Verkhovna Rada adopted the Law «On Environmental Impact Assessment» and the Law «On Strategic Environmental Assessment» in their second reading and as a whole • The Verkhovna Rada adopted the Law which will promote voluntary surrender, registration and inspection of radioactive waste, its inclusion in the public accounting system and transfer to controlled storage October 6 Unit No. 2 of the Zaporizhzhia NPP continued operation based on the license issued by the SNRIU on extension of the service life by February 19, 2026 October 11 Oral hearings under a consolidated arbitration case in the suits filed

by Naftogaz and Gazprom related to gas supply contract ended in Stockholm October 13 The Minister of Ecology O.Semerak presented a political proposal of a draft Concept of Reforming Environmental Control System October 18 • Adoption of the draft Law «On Commercial Metering of Public Utility Services» in its first reading • The NEURC adopted a resolution on electricity quality standards October 27 Signing of the Rules of Professional Ethics in Competition as to the honesty and transparency in the retail fuel market in Ukraine October 28 The President vetoed the laws «On Strategic Environmental Assessment» and «On Environmental Impact Assessment»

N OVEMBER

DECEMBER

November 1 The Verkhovna Rada adopted a law to supplement the list of RES with such kinds of energy as aerothermal and hydrothermal

December 5 Oral hearings under a consolidated arbitration case in the suits filed by Naftogaz and Gazprom related to the transit contract ended in Stockholm

November 2 Approval of changes to the procedures for holding auctions for selling special subsoil use permits and granting these permits

December 8 Polish and Ukrainian gas TSOs signed an agreement on cooperation rules with the aim of connection through the future UA-PL interconnector

November 7 The NEURC adopted a resolution on amending the methods of calculating fees for grid connection which facilitate conditions for SMEs (for units from 160 kW to 5 MW)

December 14 The government approved changes to the Statute, Regulations on the Supervisory Board and the Board of Directors of Naftogaz

November 9 • The Cabinet of Ministers established Main Gas Pipelines of Ukraine PJSC and approved an action plan on the TSO corporate governance • The government approved the concept of the Special-Purpose Government Economic Program for Developing Nuclear Power Industry by 2020 November 15 The Verkhovna Rada adopted an appeal to the EU member states on strengthening cooperation in the field of energy security and on risks of pipelines bypassing Ukraine November 16 Establishment of the Interdepartmental Working Group on the Operation of Oil and Oil Products Market and Development of Oil Processing Industry November 23 • The Cabinet of Ministers revoked over 360 old regulatory acts burdening business • The President signed the Law «On the National Energy and Public Utilities Regulatory Commission» November 24 Signing of the Memorandum of Understanding on a Strategic Energy Partnership between the EU and Ukraine

December 19 Signing of the Memorandum of Understanding between Ukraine and the EIB on strengthening cooperation and implementing projects in 2017-2020 December 20 • Holding of the first auction for selling special subsoil use permits under new rules reading and as a whole • Completion of the work of the Committee on Housing and Utility Services on the draft law «On Energy Efficiency of Buildings».

• The Verkhovna Rada adopted amendments to the Budget Code on channeling 5% of the royalty (rent) for hydrocarbons production to local budgets December 22 Publication of a draft Energy Strategy by 2035 for public discussion December 26 Draft law «On Energy Efficiency Fund» submitted to the Verkhovna Rada December 28 • The Cabinet of Ministers approved the Gas Production Development Concept by 2020, to achieve own gas production of 27 bcm • The Cabinet of Ministers abolished gas export licensing and set no export quotas for 2017.

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GAs

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West wind, speed of 0.3 cubic meters per second

0,3

Gas Directive 2009/73/EC concerning common rules for the internal market in natural gas and repealing Directive 2003/55/EC (Articles 338, 341, Annex XXVII to the Association Agreement) pursuant to Article 278 of the Association Agreement Directive 2009/73/EC (the Third Energy Package) aims at creating a full valid internal gas market of the EU. It provides for the separation of vertically integrated companies according to their ownership structure (i.e. by property rights), or OU. The Government of Ukraine shall independently determine the market development model: aimed either at further liberalization (establishment of an independent system operator, or ISO) or strengthening regulation (company owner and independent transmission system operator (ITO) are not the same), or full ownership unbundling. Equally important changes relate to further enhancing the national regulators’ independence, expanding market information exchange and establishing the retail market.

Implementation of the Law «On the Natural Gas Market» The Program of Activities of the Cabinet of Ministers of Ukraine approved at the time of forming a new government composition (Resolution No. 1099VIII1), provided for the fulfillment of commitments under accession to the Third Energy Package, including reorganization of Naftogaz of Ukraine NJSC, separation of gas production and transportation activities, granting of access to the gas transport infrastructure, ensuring of transparency of tariff setting and effective targeted subsidies system, implementation of commercial metering.

1 http://zakon3.rada.gov.ua/laws/show/1099-19

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GAs

Similar items were included in the priority action plan of the Government for 20162. The steps are as follows: defining the split-off model for the gas transportation system, developing and adopting secondary legislation, implementing IT systems for daily gas balancing, creating conditions for operating a gas hub through storing gas in storage facilities under «customs warehouse» regime and its metering in energy units, creating conditions for providing RAB tariff setting for the TSO and gas distribution networks operators, developing legislation to ensure trade in natural gas on the stock exchanges.

In furtherance of the Law “On the Natural Gas Market”, the Law «On Amending the Customs Code of Ukraine to Create Preconditions for a New Model of the Natural Gas Market»3 (Law No. 994-VIII) was adopted on February 4.

The document regulated the procedures for customs control and customs clearance of natural gas including backhaul operations. In fact, the above changes enabled such operations to be performed starting from March 1.

Amendments to the Law «On the Natural Gas Market» approved this fall and related to the reduction in requirements for the formation of gas insurance stocks by gas suppliers in the UGS to maximum 10% of the scheduled monthly delivery volumes (No. 1541-VIII dated September 22, 20164), came into effect, thus ensuring equal opportunities for all suppliers in this field.

According to the law, these changes were finally secured by the Cabinet of Ministers of Ukraine by implementing Resolution No. 860, dated November 16, 20165, by which it approved zero level of gas insurance stocks for 2016/2017, provided no emergencies occur in the market. In our opinion, the development and implementation of the legislation on strategic gas stocks6 would be a universal solution to this problem.

The Verkhovna Rada of Ukraine adopted amendments to the Budget Code (No. 30387) on channeling a part of the rent for natural gas production in the following proportions: 1% – to village, settlement, town and city budgets, 2% – to the regional budgets and 2% – to the relevant district budgets (before the approval of changes, the entire amount was credited to the state budget). Financial opportunities which will be provided to local communities from 2018, will not only improve the environmental and economic situation, but also raise the interest of local population in the development of gas production.

Fulfilling the requirements of Clause 9 of Section VII of the Law «On the Natural Gas Market», the Cabinet of Ministers of Ukraine reversed a number of its resolutions and their separate paragraphs contradicting the provisions of this law (Resolution No. 4428), in particular Resolution of 2001 «On Natural Gas Supply to Consumers», the use of which led to artificial 2 http://www.kmu.gov.ua/control/uk/cardnpd?docid=249104044 3 http://zakon5.rada.gov.ua/laws/show/994-19 4 http://zakon5.rada.gov.ua/laws/show/1541-19/paran2#n2 5 http://zakon5.rada.gov.ua/laws/show/860-2016-%D0%BF 6 http://ngbi.com.ua/rada/report_ChUn.pdf 7 http://w1.c1.rada.gov.ua/pls/zweb2/webproc4_2?id=&pf3516=3038&skl=9 8 http://www.kmu.gov.ua/control/uk/cardnpd?docid=249189576

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market segmentation. Besides, since the Law «On the Natural Gas Market» lacked the concept «Unified Gas Transportation System of Ukraine», the Ministry of Energy and Coal Industry developed and published a draft order to cancel its own order No. 882 «On Vesting Functions of the Operator of the Unified Gas Transportation System of Ukraine», dated December 2, 20139.

The Verkhovna Rada of Ukraine registered a proposal (No. 5289/П10) to take as a basis draft law No. 528911 submitted in October and to bring 12 laws («On State Property Privatization», «On Pipeline Transportation», «On Production Sharing Agreements», «On Natural Monopolies», «On State Social Standards and State Social Guarantees», «On Oil and Gas», «On the Association of the Co-owners of and Apartment House», «On Housing and Public Utility Services», «On Heat Supply», «On Operation of Fuel and Energy Complex During a Special Period», «On Ensuring Natural Gas Commercial Metering», «On Licensing Certain Business Activities») in compliance with the Law «On the Natural Gas Market». MPs did not consider similar draft laws introduced earlier: government draft law No. 4503, dated April 21, 2016,12 and alternative draft law No. 4868 (supported by the Government13, dated June 14, 201614, and withdrew from consideration a separate draft law on amending the Law «On Ensuring Natural Gas Commercial Metering» (No. 4756 dated June 2, 201615), which proposed to move from communal metering units in apartment houses to metering its individual consumption.

Two draft laws related to the provision of the households with domestic natural gas are pending consideration at the Verkhovna Rada committees: 1) on amending the Law «On the Natural Gas Market» (No. 529016), which provides for: a) making domestic natural gas supply to cover domestic needs of the households of Ukraine a top priority; b) limiting the profitability of gas supplies to maximum 10%; c) clearly defining the components of gas prices by law, and 2) on amending the Tax Code of Ukraine (draft law No. 532117), designated to reduce the cost of housing and public utility services for household consumers in Ukraine through the exemption from taxation of natural gas production and transportation operations aimed at meeting their needs.

In our opinion, the above draft laws critically lack full and unbiased forecast of their social and economic consequences.

9 http://mpe.kmu.gov.ua/minugol/control/uk/publish/article?art_id=245156850&cat_id=35082 10 http://w1.c1.rada.gov.ua/pls/zweb2/webproc4_1?pf3511=60586 11 http://w1.c1.rada.gov.ua/pls/zweb2/webproc4_1?pf3511=60296 12 http://w1.c1.rada.gov.ua/pls/zweb2/webproc4_2?pf3516=4503&skl=9 13 According to the reply made by the Ministry of Energy and Coal Industry to the request for access to public information, the proposal to support the above draft law as of top priority was supported at the Government meeting on July 20, 2016.

14 http://w1.c1.rada.gov.ua/pls/zweb2/webproc4_1?pf3511=59497 15 http://w1.c1.rada.gov.ua/pls/zweb2/webproc4_1?pf3511=59286 16 http://w1.c1.rada.gov.ua/pls/zweb2/webproc4_1?pf3511=60298 17 http://w1.c1.rada.gov.ua/pls/zweb2/webproc4_1?pf3511=60364

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GAs

Ensuring the basis of the implementation of Part 1 of Article 12 of the Law “On the Natural Gas Market”, the Cabinet of Ministers of Ukraine in July approved a standard natural gas sale and purchase agreement for suppliers with special obigations (Resolution No. 44418), which, in order to solve the problem of delay in the movement of funds on the part of Naftogaz, was improved in September (Resolution No. 65519) through regulating the transfer of the title to gas in the course of signing its delivery and acceptance certificates and settlements.

Amendments to the relevant acts of the NEURC20, adopted with a view to bring the Gas Distribution System Code, Rules for Natural Gas Supply, the Standard Natural Gas Distribution Agreement, the Standard Agreement for Natural Gas Supply to Household Consumers, the Methodology of Setting Fees for Connection to the Gas Transmission and Distribution Systems (NEURC Resolution No. 1418, dated August 11, 201621), as regards improving relations between the consumer and the gas distribution system (GDS) operator, which are regulated by these acts, in compliance with the Law “On the Natural Gas Market” - entered into force. The above amendments ensure the implementation of Directive 2009/73/EC, including its Annex I, as regards protection of gas consumers’ rights.

In April, the Government approved a uniform price for natural gas for consumers – so, the final gas price for the households since May 1, 2016 is UAH 6,879 per 1,000 cubic meters22 (Resolution No. 315). The price for natural gas as a commodity is set at 100% parity to the price of imported gas and the retail price is formed on the basis of the wholesale price, the average weighted transportation and distribution tariffs, and trade mark-up of the supplier.

As mentioned in the explanation of the Ministry of Economy and Industrial Development, the wholesale price for natural gas is set at UAH 4,942 per 1,000 cubic meters, which is formed taking into account the following: the forecast price in the German NCG gas hub (according to Platt’s European Gas Daily), the cost of transportation from NCG to the western border of Ukraine (at the tariffs of European TSOs), the service tariff established by the NEURC for natural gas transportation through cross-border 18 http://zakon2.rada.gov.ua/laws/show/444-2016-%D0%BF 19 http://www.kmu.gov.ua/control/uk/cardnpd?docid=249354036 20 http://www.kmu.gov.ua/control/uk/publish/article?art_id=249536134&cat_id=244277212 21 http://www.nerc.gov.ua/index.php?id=22285 22 http://www.kmu.gov.ua/control/uk/cardnpd?docid=249005214

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gas pipelines to the entry points to the GTS of Ukraine. However, according to experts, this formula in fact prevents any further development of the “entry-exit” tariff system23.

Pursuant to the Law «On the Natural Gas Market» and Clause 11 of Section V of the Rules for Natural Gas Supply approved by the NEURC (Resolution No. 2496, dated September 30, 201524), during the year the NEURC carries out monthly monitoring of natural gas prices for all categories of consumers in Ukraine and communicates on its official website the maximum price for consumers that are not covered by provisions on vesting special obligations for ensuring nationwide interests.

The Ministry of Energy and Coal Industry, by its Order No. 627,25 dated October 3, 2016, created a working group for developing draft regulations to ensure trading in natural gas on the exchanges. The working group should submit proposals to amend the legislation or develop new regulations to start trading in natural gas on the exchanges.

Natural gas market monitoring report forms26 provided for by the Law «On the Natural Gas Market» and other legislative acts and adopted by Resolution No. 123427 of the NEURC, came into force (including – provision of information on wholesale prices), which should be submitted by gas market entities, which are entrusted with special obligations to secure general public interests in the course of the natural gas market operation (forms No. 1, 2 and 3), gas wholesalers (form No. 4 «Report on Wholesale Prices for Natural Gas») and gas suppliers (form No. 5). Earlier, in March, the regulator updated report forms for GTS, storage facilities and DSOs28, by adjusting the respective resolution of 2012.

Based on Clause 7 of Article 39 of the Law «On the Natural Gas Market,» the NEURC released from fulfilling requirements regarding separation and independence of gas DSOs, four DSOs with less than 100,000 connected customers (Regulation No. 15-p, dated August 17, 201629).

The Independent Regulator Law (NEURC) A new law (No. 1540-VIII, dated September 22, 201630) on the market regulator – the National Energy and Public Utilities Regulatory Commission (NEURC), approved by the Verkhovna Rada of Ukraine in September, finally came into force31 at the end of November. The most significant changes stipulated by this Law, relate to the financing of the committee and the appointment and rotation of commission agents.

23 http://gazeta.zn.ua/energy_market/rynok-gaza-ukrainy-normalnye-geroi-vsegda-idut-v-obhod-_.html 24 http://www.nerc.gov.ua/?id=18009 25 Not publicly available as of December 2016.

26 http://www.nerc.gov.ua/index.php?id=21057 27 http://www.nerc.gov.ua/?news=5343 28 http://www.nerc.gov.ua/index.php?id=19878 29 http://www.nerc.gov.ua/?id=21059 30 Law No. 1540-VIII, dated September 22, 2016, was officially published in the newspaper “Holos Ukrainy”, issues No. 225, on November 25, 2016.

31 http://zakon0.rada.gov.ua/laws/show/1540-19

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GAs

According to the sector reform plan, a draft law on enhancing independence of the NEURC had to be submitted for consideration to the Cabinet of Ministers of Ukraine no later than May 2015. However, the process of agreeing changed to be made by the stakeholders turned out to be extremely difficult and controversial. This is evidenced by the fact that the finally submitted (and adopted) draft law became the tenth draft law on the regulator registered with the Verkhovna Rada of Ukraine over the last 15 years.

Therefore, being a compromise, law No. 1540-VIII, which entered into force, nevertheless, means moving forward - to a truly independent gas market regulator.

Unbundling of Naftogaz On February 19, the Ministry of Energy and Coal Industry established a working group on developing an action plan to prevent the risks associated with the reorganization of Naftogaz of Ukraine NJSC, its subsidiaries and business entities, in which corporate rights (participation interests, shares) belong to Naftogaz of Ukraine NJSC as related to the fulfillment of loan obligations32.

The current Restructuring Plan of Naftogaz of Ukraine NJSC, which pursuant to the unbundling requirements of the EU Third Energy Package must ensure separation of natural gas transportation and storage activities, was approved by the Cabinet of Ministers in July (Resolution No. 49633). The Ministry of Energy and Coal Industry created an interdepartmental working group on plan implementation.

Subject to the fulfillment of Ukraine’s commitments on the implementation of European legislation and the practical need to promote further liberalization of the gas market, the very fact that the decision on the unbundling of Naftogaz this year is definitely positive; however, it does not state the purpose to cancel the dominant position of such company in Ukrainian gas market within the terms prescribed and approved by the Energy Community.

In fact, the government’s plan is to establish two new joint stock companies, 100% of which will belong to the state: Main Gas Pipelines of Ukraine and Underground Gas Storage Facilities of Ukraine», and it consists of detailed procedures for their organization. Assets of PJSC Ukrtransgaz will be transferred to such companies. However, Resolution No. 496 provides that the transfer of gas transmission assets to a new operator will take place only after a final arbitral award is rendered by the Stockholm arbitration in the arbitration proceedings in the two lawsuits filed by Naftogaz and Gazprom (at least 30 days after the effective date thereof), which is expected in 2017. That is, even according to this official restructuring plan, the actual unbundling of Naftogaz was postponed at least for the middle of 2017.

32 http://mpe.kmu.gov.ua/minugol/doccatalog/document?id=245095097 33 http://www.kmu.gov.ua/control/uk/cardnpd?docid=249240258

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According to Naftogaz, oral hearings under the consolidated arbitration case in the suits filed by Naftogaz and Gazprom related to gas supply contract ended in Stockholm on October 1134. Although the position of the Ukrainian side was simple and convincing, the hearings under the case for revising the terms and conditions of the transit contract between Ukraine and Russia lasted two weeks and ended on December 5. Given the unprecedented for the Arbitration Institute of the Stockholm Chamber of Commerce total amount of claims in the case of Naftogaz/Gazprom (exceeding USD 65 billion35), it seems impossible, in our opinion, to predict the date of unbundling, and hence the date of transfer of GTS assets to an independent operator.

In our opinion, as well as in other experts’ opinions36, any delay in reforming Naftogaz of Ukraine NJSC threatens the entire future liberalization of the gas market. Already now, market development needs real, not deferred separation of a TSO from Naftogaz of Ukraine NJSC. Besides, it is important that experts evaluated the approved plan of unbundling as lacking a comprehensive vision of the reforms in the gas sector and Ukrainian GTS. In our view, this plan does not take into account real conditions and practice of a TSO activity and makes it difficult to attract international investors to some parts of Ukrainian GTS. In September, the attention of experts was drawn to a conflict that had arisen due to the fact that in order to support independence of a TSO, the Ministry of Economy and Industrial Development, which until then had managed Naftogaz of Ukraine NJSC, without informing its top management, corrected and approved the restated Statute of Naftogaz by taking over the control of Ukrtransgaz (Order No. 1478 of the Ministry of Economy and Industrial Development37). Under these extraordinary circumstances, all ownership relations between Naftogaz of Ukraine NJSC and Ukrtransgaz were retained. In fact, according to this new Charter, Naftogaz of Ukraine NJSC was unable to change senior officers of the operator unilaterally. However, because of the lack of transparency, involvement of international partners to the process and exaggerated response of Naftogaz, the order was canceled, which, however, did not solve the problem. This conflict again drew attention not only to the unbundling procedure but generally to the reform of Naftogaz of Ukraine NJSC. 34 http://www.naftogaz.com/www/3/nakweb.nsf/0/1E3E64706CE94E9DC225804F0029A51E 35 https://www.facebook.com/NaftogazUA/posts/1087020708044380 36 http://www.epravda.com.ua/rus/columns/2016/07/2/597900/; http://gazeta.zn.ua/energy_market/ eto-ne-restrukturizaciya-naftogaza-a-likvidaciya-ukrtransgaza-_.html; http://www.epravda.com.ua/ columns/2016/07/7/598119/; http://ua-energy.org/post/62357; http://gazeta.zn.ua/energy_market/kakdelyat-ukrainskuyu-gts-ili-unbundling-3-_.html 37 http://www.naftogaz.com/www/3/nakweb.nsf/0/0D0D1DFF88C3A5BFC225803D0039D9F3?OpenDocu ment

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After the revocation of the order of the Ministry of Economy and Industrial Development, the process of reforms in Naftogaz resumed, now under the auspices of the government working group established at the initiative of the Prime Minister38, which is now responsible for accelerating the process. The group includes, in addition to representatives of the Government, Naftogaz of Ukraine NJSC and Ukrtransgaz PJSC, experts from the World Bank, the EBRD and the US Ambassador to Ukraine. Since October, meetings of the working group on unbundling have been taking place, with the participation of the representatives of the Energy Community Secretariat.

In October, the Ministry of Economy and Industrial Development, pursuant to Resolution No. 675 of the Cabinet of Ministers of Ukraine39, placed 100% of shares of Naftogaz of Ukraine NJSC in the management of the CMU; imposed moratorium on any staff changes in the top management of the relevant state-owned companies40; took measures to develop optimal management model for Ukrtransgaz and reflect it in the new statutes of Naftogaz and Ukrtransgaz41. In November, the Cabinet of Ministers of Ukraine established a new operator of the Ukrainian GTS – Main Gas Pipelines of Ukraine PJSC - and adopted its Statute and made a number of changes to the restructuring plan of Naftogaz of Ukraine NJSC. The adoption of the CMU resolutions on the establishment of Main Gas Pipelines of Ukraine PJSC (No. 801, dated November 9, 2016), approval of its constituent documents and state registration (No. 837, dated November 16, 2016), backed by the decision of the National Securities and Stock Market Commission on the registration of the share issue of the said PJSC42, initiated practical measures of the unbundling of Naftogaz. According to the Ministry of Energy and Coal Industry, the total amount of issued shares is UAH 3.786 million43, and Main Gas Pipelines of Ukraine PJSC received premises to form the authorized capital of the company44. The Ministry of Energy and Coal Industry approved regulations on the Supervisory Board and the Board of Directors of Main Gas Pipelines of Ukraine PJSC45.

38 http://www.kmu.gov.ua/control/uk/publish/article?art_id=249329740&cat_id=244276429 39 http://www.kmu.gov.ua/control/uk/cardnpd?docid=249369692 40 http://www.epravda.com.ua/news/2016/10/13/607980/ 41 http://www.kmu.gov.ua/control/uk/publish/article?art_id=24940642&4cat_id=244276429 42 http://www.nssmc.gov.ua/press/news/nkcpfr_informueh_pro_rezultati_svogo_chergovogo_ zasidannya119 43 http://mpe.kmu.gov.ua/minugol/doccatalog/document?id=245162044 44 http://mpe.kmu.gov.ua/minugol/doccatalog/document?id=245158645 45 Order No. 771, dated November 25, 2016, is not publicly available as of December 2016.

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However, the deadlines of certain further steps changed to later dates in 2017 (Resolution No. 800, dated November 9, 201646): implementation of the structure and corporate governance of the new TSO and establishment of Underground Gas Storage Facilities of Ukraine PJSC. Concurrently, the Cabinet of Ministers of Ukraine decided to abandon the establishment of the Ukrtransgaz PJSC Supervisory Board with two independent directors (intended to be established before October 1, 2016).

In fact, the process immediately showed imperfection of the approved plan, both literally (the CMU itself recognized that and amended Resolution No. 496 by adopting Resolution No. 800), and figuratively: numerous experts’ comments on the shortcomings of the government’s plan have already been published47 and keep coming.

Meanwhile, on April 14, the NEURC adopted the Resolution «On Approving the Procedure for Gas Transmission Operator Certification»48, designed to adapt to the EU legislation. The document stipulates that the obligations as to the TSO certification shall be set forth regardless of the chosen model of its separation.

Formation of the full composition of the Supervisory Board of Naftogaz of Ukraine NJSC is another achievement of the year. This body was created for the first time in the company’s history and it is part of the corporate governance reform recommended by the OECD. In particular, foreign specialists with significant experience in the field were chosen to fill the positions of independent members49.

In addition, the Cabinet of Ministers of Ukraine, at its meeting on November 9, 2016, approved an action plan on corporate governance of the TSO prepared by the Ministry of Energy and Coal Industry with the participation of the EBRD50. To implement the plan the Ministry of Energy and Coal Industry and other authorities should develop the respective regulations and submit them for consideration to the Government.

Finally, on December 14, by its Resolution No. 1044,51 the Cabinet of Ministers of Ukraine approved amendments to Naftogaz’s Statute as recommended by the governmental working group, and amendments to the regulations on the company’s Supervisory Board and the Board of Directors. The same resolution approved the versions of the above-mentioned documents, which regulated the company’s operations, to come into effect as from April 1, 2017. All those amendments aim at improvement of Naftogaz’s corporate management, creation of proper conditions for the 46 http://zakon3.rada.gov.ua/laws/show/800-2016-%D0%BF 47 http://ukrgasforum.org/forum-program: Natural Gas Market of Ukraine: what has been done and what needs to be done? Expert View 48 http://www.nerc.gov.ua/index.php?id=20977 49 http://ua-energy.org/post/59485 50 According to the reply made by the Ministry of Energy and Coal Industry to the request for access to public information.

51 http://www.kmu.gov.ua/control/uk/cardnpd?docid=249637698

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performance of its functions by the TSO, Ukrtransgaz, and prevention of conflicts between Naftogaz and Ukrtransgaz, which used to take place earlier, during the reform process.

Thus, we can conclude that this year the progress has emerged in reforming Naftogaz of Ukraine NJSC. Other Initiatives In February 2016, the Government presented the Production Deregulation Road Map52, which had been discussed with the stakeholders. The Ministry of Energy and Coal Industry also presented a number of initiatives: one draft law53 proposes transferring to the agency the functions of issuing and controlling the application of special permits for subsoil use with respect to fossil fuels (natural gas, oil-well gas and shale gas, central-basin gas, coal-bed methane, condensate, oil bitumen, oil), hard minerals (anthracite, shales, lignite, coal, peat) and uranium ores; another draft law54 proposes establishing preferential rent rates, determining the competence of the relevant authorities and clarifying the procedures for executing production sharing agreements (PSA).

As regards implementation of a new tax model for companies of all types of ownership that produce natural gas, provided for by part 6 of clause 5 of the reforms plan, no visible progress has been observed since the beginning of 2016. However, two draft laws on amending the Tax Code of Ukraine with respect to the rental fee for natural gas production were registered in November. The first draft law (No. 5459, dated November 25, 201655) regulates setting a rent rate of 12% for the extraction of gas from new boreholes (launched after January 1, 2017, regardless of the depth of the deposit). The second draft law sets a separate rent rate for gas production to ensure domestic needs of the households of Ukraine (No. 5459-1, dated November 29, 201656), at 12% – from the deposits with a depth of up to 5,000 m and at 6% – from the deposits with a depth of over 5,000 m. In our opinion, the adoption of the first draft law will create real conditions for an increase in the natural gas production in Ukraine.

52 http://mpe.kmu.gov.ua/minugol/control/uk/publish/article?art_id=245087515&cat_id=35109 53 http://mpe.kmu.gov.ua/minugol/control/uk/publish/article?art_id=245094152&cat_id=35082 54 http://mpe.kmu.gov.ua/minugol/control/uk/publish/article?art_id=245094456&cat_id=35082 55 http://w1.c1.rada.gov.ua/pls/zweb2/webproc4_1?pf3511=60594 56 http://w1.c1.rada.gov.ua/pls/zweb2/webproc4_1?pf3511=60612

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At its meeting in December, the Government adopted the Concept of the development of the gas extraction industry by 202057, developed with the participation of government officials, MPs, experts, and representatives of extracting companies, etc. The key objective is to increase domestic gas extraction up to 27 billion cubic meters by 2020, but the failure to approve reduced rent rates for new boreholes makes achievement of those objective rather unrealistic.

In terms of solving the problems of privatization, only two legislative acts were registered, that is draft resolutions of the Verkhovna Rada of Ukraine: No. 4664/П58 – by which MPs from the Committee for Economic Policy of Ukraine recommend that the Verkhovna Rada of Ukraine reject the draft law put on the agenda of 5th session of the eighth convocation59 on registering the property of Ukrgazvydobuvannya PJSC which is not subject to privatization60 and No. 534861 – by which it proposed to impose moratorium on the privatization of state-owned and municipally-owned enterprises until January 1, 2018. The approval of the moratorium may affect activities of Naftogaz of Ukraine NJSC (in particular, the possibility of the recovery of rather significant debts62 of the Odesa Portside Plant).

Meanwhile, Ukraine has considerably liberalized natural gas exports: according to Resolution No. 1009 of the Cabinet of Ministers of Ukraine63, gas export will not be subject to licensing and no quotas will be set in that regard in 2017. In addition, the Government canceled a number of resolutions in order to bring the legal framework in line with the Law «On the Natural Gas Market»64, that decision was due to the fact that the issue of compensation of difference in tariffs for households, state-financed institutions and other gas consumers was no longer relevant.

The NEURC published a number of draft resolutions for the purposes of public discussion, in particular, the resolution on amending the Gas Distribution System Code and the Standard Agreement for Natural Gas Transportation65, designed to improve the process of charging additional payment for gas, the parameters of which do not meet the requirements of the GTS Code, and the resolution on approval of licensing conditions for economic activities66, which regulates licensing conditions for transportation, distribution and storage (injection, withdrawal), LNG facility services and natural gas supply.

Concurrently, the regulator published two draft resolutions relating to the introduction of the use of energy units in the natural gas market (so far, 57 http://www.kmu.gov.ua/control/uk/publish/article?art_id=249631979&cat_id=244274160 58 http://w1.c1.rada.gov.ua/pls/zweb2/webproc4_1?pf3511=60333 59 5th Session of the eighth convocation (current) should be completed by January 31, 2017 60 http://w1.c1.rada.gov.ua/pls/zweb2/webproc4_1?pf3511=59090 61 http://w1.c1.rada.gov.ua/pls/zweb2/webproc4_1?id=&pf3511=60405 62 http://www.epravda.com.ua/news/2016/09/13/605224/ 63 http://www.kmu.gov.ua/control/uk/cardnpd?docid=249634792 64 http://www.kmu.gov.ua/control/uk/cardnpd?docid=249570155 65 http://www.nerc.gov.ua/?id=21784 66 http://www.nerc.gov.ua/?id=22456

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only for settlement purposes). Changes provided for by the first draft resolution67 will enable supplementation of the existing NEURC regulations with the provisions on the procedure of conversion of the natural gas volumes into the volumes of the energy supplied/consumed, and consumers’ payment documents – with the information about the volume of consumed gas in energy units. According to the second draft resolution68, the GTS and GDS Codes must be supplemented with the same regulations.

In case of adopting these regulations, which are so far aimed at unifying the process of informing the parties about the parameters of the gas used in energy units, the NEURC shall initiate positive movement to metering gas in energy units, as required by the EU directives and regulations (market transfer to calculations in energy units is not provided for).

The fulfillment of Ukraine’s commitments in this field is backed by the legislative initiatives of Naftogaz of Ukraine NJSC69, supported by the Cabinet of Ministers of Ukraine: a draft resolution on approving the Action Plan for Implementing Gas Metering in Energy Units is submitted for consideration to the Ministry of Energy and Coal Industry and the Ministry of Economy and Industrial Development70. According to the plan, gas metering in energy units shall be implemented from the second quarter of 2017.

Conclusion: It can be noted that in Ukraine’s performance of the Action Plan for the Gas Sector Reforms agreed with the Energy Community (CMU Order No. 375-р, dated March 25, 201571), as of the end of 2016, the most significant progress was made in the implementation of the Law «On the Natural Gas Market» and development of its respective bylaws. Meanwhile, despite non-compliance with the approved terms, another important positive achievement is the approval and start of implementation of the Restructuring Plan of Naftogaz of Ukraine NJSC, as lack of progress in this direction hampered the entire process of market liberalization. The overall assessment of transformations of the Ukrainian gas market and recommendations for its further development were presented at the 2nd Ukrainian Gas Forum72.

67 http://www.nerc.gov.ua/?id=21852 68 http://www.nerc.gov.ua/?id=22459 69 http://www.naftogaz.com/www/3/nakweb.nsf/0/BF19A453140F7596C225803B00270D7E?OpenDocum ent&year=2016&month=09&nt=%D0%9D%D0%BE%D0%B2%D0%B8%D0%BD%D0%B8& 70 http://mpe.kmu.gov.ua/minugol/control/publish/article?art_id=245146527 71 http://zakon3.rada.gov.ua/laws/show/375-2015-%D1%80 72 http://ngbi.com.ua/rada/report_ChUn.pdf

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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) pursuant to Art. 278 of the Association Agreement, trade-related issues (Articles 269-274 of the Association Agreement) EU Regulation No. 715/2009 (Third Energy Package) establishes common tools of the rules for accessing gas transmission systems, LNG terminals and storage facilities taking into account specific features of national and regional markets.

The document outlines the procedure for gas transmission operator certification, as well as development, coordination, implementation of network codes (involving the European Network of Transmission System Operators for Gas, ENTSOG).

Implementation of the Law «On the Natural Gas Market» and Development of Bylaws The agenda of the current session of the Verkhovna Rada of Ukraine was supplemented73 with a draft law registered on June 1 on amending the following laws: «On the Natural Gas Market», «On Ensuring Natural Gas Commercial Metering», «On Metrology and Metrological Activities» as regards protection of gas consumers’ rights when using natural property of the Ukrainian people (No. 474974), intended to improve the conditions of the consumers’ access to gas distributions systems (GDS) by reducing the connection fee.

The essence of the draft law is to oblige DSOs to provide design and construction of internal gas networks at their own expense, as well as to provide consumer connection services. In our opinion, the draft law needs to be modified as regards coordination of the rules of the GDS accession procedure, other applicable legislative acts (primarily the GDS Code).

International experts, based on research and analysis of GDS indicators in Ukraine and EU countries, provided NEURC with their recommendations75 for updating the regulatory acts required to improve the current tariff setting system, as well as DSOs performance evaluation system aimed at improving effectiveness of the performance of their functions.

73 http://zakon5.rada.gov.ua/laws/show/1707-viii 74 http://w1.c1.rada.gov.ua/pls/zweb2/webproc4_1?pf3511=59276 75 http://www.nerc.gov.ua/index.php?news=5176

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In March, according to the Gas Transmission System Code, the procedure for payment of the ordered capacity services, in particular the provision of financial guarantees and execution of agreements, was implemented76, and Ukrtransgaz announced the forms of nominations and allocations77, differentiated for the needs of various market entities. In turn, the NEURC changed the GTS and GDS Codes by defining the Procedure for Holding Auctions for Allocating the Transfer Capacity at Cross-Border Connections, and the TSO was obliged to use the funds received for balancing services and not used based on the year results solely as a source of funding GTS development78.

At the same time, bringing the contractual relationship regarding gas transit in line with the Standard Agreement for Natural Gas Transportation was locked up to the time of the decision of the Stockholm arbitration, which considers the transit dispute between Naftogaz and Gazprom. As regards gas transmission rates for entry and exit points located in Ukraine (internal transmission), the NEURC adopted a protocol decision on their establishment no later than April 1, 201779.

In the area of GDS operation, the attempts to eliminate the legal uncertainty as to the use of public gas distribution networks failed80. On March 18, MPs submitted a draft law «On Specific Features of Leasing Connected Gas Distribution Networks with a Controlling State-Owned or MunicipallyOwned Share» (Reg. No. 4263)81. The document proposed to define GDSs as integral property complexes and enable state and municipal property management bodies to lease such facilities (if the share of state/municipal ownership exceeds 50%) according to the competitive procedure. In autumn, after the last failed consideration of this draft law by the Committee of the Verkhovna Rada of Ukraine on Fuel and Energy Complex, a special working group on analyzing and developing new possible approaches to solve this problem was established on the basis of the Committee.

Meanwhile, another attempt to enforce the provisions of Article 37 of the Law «On the Natural Gas Market» as regards the paid use of gas distribution systems owned by the state, was Government draft law No. 5558, registered with the Verkhovna Rada of Ukraine82. If adopted, that draft Law will bind regional gas companies to conclude new lease agreements and pay leasing fees for the use of state-owned GDSs to the budget. Alternate draft law No. 5558-183 on specific aspects of leasing GDSs and elements thereof was also submitted. The fundamental difference of that document from the one submitted by the Government is that the lessor thereunder is not the State Property Fund but “a state-owned undertaking designated by the Government”. That undertaking is likely to be Naftogaz as a minority shareholder in DSOs. 76 http://utg.ua/utg/customers/transmission-contract.html 77 http://utg.ua/utg/customers/dispetching-gas-transmission.html 78 http://www.nerc.gov.ua/index.php?id=19859 79 Response to the request for access to public information.

80 http://www.epravda.com.ua/columns/2016/11/10/610632/ 81 http://w1.c1.rada.gov.ua/pls/zweb2/webproc4_1?pf3511=58443 82 http://w1.c1.rada.gov.ua/pls/zweb2/webproc4_1?pf3511=60757 83 http://w1.c1.rada.gov.ua/pls/zweb2/webproc4_1?pf3511=60806

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Instead, the regulator developed a sample Gas Distribution System Operator Compliance Program84, with respect to fulfilling the requirements of Article 39 of the Law «On the Natural Gas Market» (independence of DSOs, ensuring equal access to systems and services, monitoring and reporting).

As stated, this program was developed to implement Directive 2009/73/EC, but it is of a recommendatory nature.

On December 25, the NEURC reported on successful completion of the test project for remote metering of the consumed natural gas, in which three distribution companies took part (Dnipropetrovskgaz, Odesagaz and Poltavagaz). As a result, non-routine situations were detected and developed and the system’s ability to automatically generate gas real balances (hourly consumption) and provide information regardless of its consumption type was confirmed85.

As to the implementation of RAB regulation for DSOs, according to the NEURC86, none of the transition conditions (pursuant to resolutions of 2013: evaluation of assets, appeal of licensees, setting of regulation parameters, including threshold return) was fulfilled. In addition, the transition to RAB regulation in 2016 was considered premature by the regulator, since that could lead to higher retail prices for household consumers.

The process of consulting on changes to the GTS Code started in May. In particular, the NEURC published its own draft resolution87 and encouraged discussion of the draft restated Code, which had been delivered from Naftogaz of Ukraine NJSC and Ukrtransgaz PJSC88.

During the July discussions at the First Meeting on Implementing the Codes of Gas Networks in the Energy Community89, Ukrtransgaz PJSC proposed to set different deadlines for implementing network codes in the member states and pointed to Ukraine’s ability to do that earlier than it had been envisaged90 in the Concept of Implementing network codes in the member states presented by the Permanent High Level Group (PHVR) in June. Special attention in the concept is drawn to the implementation of all 4 types of gas transmission codes at the points of connection of Ukraine’s GTS systems with the systems of neighboring EU member states. Concurrently, Ukrtransgaz PJSC (together with Gaz-System and FSGZ) cast doubt on the approach of consistent implementation of individual codes, insisting on introducing the approach of simultaneous implementation of the whole complex91. Given the proposals of Ukrtransgaz regarding the implementation of the complex of gas transmission codes in Ukraine, a substantial correction of the legal framework will be required.

84 http://www.nerc.gov.ua/?id=20118 85 http://www.nerc.gov.ua/?news=5619 86 Response to the request for access to public information.

87 http://www.nerc.gov.ua/?id=20014 88 http://www.nerc.gov.ua/?id=20068 89 https://www.energy-community.org/portal/page/portal/ENC_HOME/CALENDAR/Other_Meetings/2016/ Jul_07 90 https://www.energy-community.org/portal/page/portal/ENC_HOME/DOCS/4200388/35C8ECAA5942726 4E053C92FA8C0A8CB.pdf 91 https://www.energy-community.org/portal/page/portal/ENC_HOME/DOCS/4224396/377055ABDA715BC BE053C92FA8C05799.pdf

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In order to ensure compliance with the requirements of EU Regulation No. 312/2014 on balancing, at the meeting of the NEURC, which took place in November, within the discussion of the Daily Balancing Implementation Concept submitted by Naftogaz of Ukraine NJSC, the Commission analyzed changes to be made to the regulatory legislation. Given the above, the Commission has adopted a protocol decision92, according to which, for the purpose of implementing EU Regulation No. 312/2014 in the national legislation in full, the NEURC envisaged as follows: • by April 1, 2017, considering amendments to the Gas Transmission System Code, which will allow implementation of the daily balancing mechanism in the natural gas market; • applying to the Committee of the Verkhovna Rada of Ukraine on Fuel and Energy Complex and the Cabinet of Ministers of Ukraine to initiate amendments to the Law «On Public Procurement» for the purpose of non-application of the law to the cases of providing balancing services by the gas transmission system operator.

According to the information provided by the Ministry of Energy and Coal Industry in response to the request, a working group on implementing the IT systems for daily gas balancing, involving representatives of the Ministry of Energy and Coal Industry, Naftogaz of Ukraine NJSC and its branch - the Center for Metrology and Gas Distribution Systems, as well as Ukrtransgaz, was created at the end of 2016. The working group should analyze long-term economic benefits of implementing IT systems, determine the optimal range of necessary tools, evaluate the implementation costs and on the basis of that information prepare the Plan for Implementing a Complex of Measures.

Conclusion: The development of competitive principles in the gas sector of Ukraine and its integration with the European regional market are hindered by the preservation, despite the formal subordination of the Ukrainian TSO – Ukrtransgaz PJSC – directly to the Cabinet of Ministers of Ukraine, of the possibility of Naftogaz of Ukraine NJSC to affect the operator’s decisions until the completion of the actual unbundling. The process was also hindered by months-long blocking by the Ministry of Justice of Ukraine of the Methodology for Determination and Calculation of Tariffs for the Services of Natural Gas Distribution prepared and submitted by the NEURC. That resulted in the delay in separating the bills for natural gas as a commodity and for operating gas distribution systems.

92 http://www.nerc.gov.ua/?news=5563

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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 275276,309,314) Directive 2004/67/EC requires to define general, transparent and non-discriminatory supply security policy compatible with the requirements of a competitive market, and identify the roles and responsibilities of the market participants to perform the necessary procedures. The Government should define minimum standards for gas supply security to be followed by the market players, and prepare and update contingency plans at the national level, determine the “vulnerable consumers” category and provide them with adequate protection, establish cooperation with the European Commission and other stakeholders.

Implementation of the Law “On the Natural Gas Market” Pursuant to the requirements of Article 7 of the Law «On the Natural Gas Market» and Article 29 of the Treaty establishing the Energy Community, in the summer, the Ministry of Energy and Coal Industry published the official Report for 2015 on the results of monitoring the security of natural gas supply93. The report provides an overview of the implementation of measures provided for by Article 5 of the Law. The monitoring of security measures in the gas transmission sector is the most complete.

Besides, according to the information provided by the agency in response to the request, together with the energy companies, the Ministry of Energy and Coal Industry shall ensure updating of the authorized persons within the «Early Warning Mechanism» between Ukraine and the EU, which will be approved by a separate order. Beside, in June - August 2016, a group of experts from the European Commission together with the experts of the Ministry of Energy and Coal Industry and Naftogaz of Ukraine NJSC developed amendments to the Regulations on Security of Natural Gas Supply94 and the National Action Plan in the event of a crisis with the natural gas inflow 95 (Art. 6 of the Law). As of December 2016, the preparation for submitting the above draft amendments to the central executive authorities was going on.

The agency also reported that Order No. 71696 dated November 9, 2016, approved the Plan for Implementing Advanced Gas Metering Systems for 2016. In addition, the agency developed a draft order «On Approving the Procedure for Monitoring the Balance of Demand and Supply of Natural 93 http://mpe.kmu.gov.ua/minugol/control/uk/publish/article;jsessionid=7C4B02116B98E45BC55A2BCBF2 06C864.app1?art_id=245131842&cat_id=35109 94 http://zakon2.rada.gov.ua/laws/show/z1489-15/paran16#n16 95 http://zakon0.rada.gov.ua/laws/show/z1458-15 96 Not publicly available as of December 2016.

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Gas in Ukraine» (which also canceled the procedure for developing and approving the projected annual balance of natural gas receipt and distribution) and the draft order to the list of independent organizations that carry out an examination of baseline data for compliance with the applicable standards, rules and regulations.

Besides, the Ministry of Energy and Coal Industry sent a letter to the Cabinet of Ministers of Ukraine with the analysis of long-term economic benefits and costs of measures for implementing advanced gas metering systems and their optimal list, with request to postpone the deadline. By the end of 2016, a decision should be made on amending the legislation regarding the definition and adoption of standard losses and production and process expenses during the production, preparation for transportation, and transportation (to replace Order No. 604 of the Ministry of Energy and Coal Industry, dated September 30, 2004). In addition, the development of the draft order of the Ministry of Energy and Coal Industry «On Amending Safety Regulations for Gas Supply Systems of Ukraine», approved by Order No. 285, dated May 15, 2015, is underway.

Implementing the provisions of Part 5 of Art. 39 of the Law «On the Natural Gas Market» related to placing obligations on the GDS operator to develop and implement a compliance program including measures for ensuring safe and reliable operation of the GDS, the NEURC approved officials nominated for 36 DSOs responsible for monitoring the implementation of the compliance program at those enterprises (Order No. 17-p, dated August 18, 201697).

Other Initiatives A number of initiatives which helped to solve the problem of Ukraine’s successful completion of the heating season of 2016/2017 were approved.

At the beginning of the year, the Cabinet of Ministers of Ukraine brought the restated Provisional Regulation «On the Procedure for Settlements for Gas Supply Services to the Public Using Communal Metering Unit»98 in 97 http://www.nerc.gov.ua/?id=21060 98 http://www.kmu.gov.ua/control/uk/cardnpd?docid=248816114

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line with the Gas Distribution System Code. In March, the Government approved new standard rates of gas consumption by the households without gas meters99, and then postponed the application of these standards retroactively, from February 1100. In particular, the standard rate shall be 4.4 cubic meters per person per month (if there is a gas stove and hot water supply), 7.1 cubic meters per person per month (if there is a gas stove but no hot water supply), 14 cubic meters per person per month (if there is a gas stove and a boiler).

In April, the Government specified the conditions to ensure uninterrupted gas supply to municipal heating enterprises. The amendments to the Regulations on vesting special obligations on the natural gas market entities101 introduced the supplier’s obligation to provide gas to heat producers in the event of any debts, subject to certain conditions (observance of indebtedness repayment schedule, proper level of current settlements).

Before the heating season, which began on October 15, the Cabinet of Ministers of Ukraine placed additional obligations on Naftogaz of Ukraine NJSC to supply gas for thermal power production for budget-funded organizations (Resolution No. 704102). By another resolution, the government adjusted regulations on transferring funds to the current accounts of thermal power enterprises so that they can pay off with Naftogaz of Ukraine NJSC as a supplier with special obligations, on a timely basis (Resolution No. 706)103).

Completing the preparations for the season, the Cabinet of Ministers of Ukraine took measures to ensure uninterrupted gas supply to thermal power producers (Order of October 5, 2016 No. 742-р104). For this purpose, before the beginning of the season, the Cabinet of Ministers of Ukraine ordered: Naftogaz of Ukraine NJSC and other suppliers to grant nominations to public heating utilities for gas volumes according to the agreements entered into pursuant to Resolution No. 357105 of the Cabinet of Ministers of Ukraine, subject to the principle of non-discrimination; DSOs to ensure gas supply to the public heating utilities; and regional state administrations to ensure systems and equipment readiness, as well as operation of emergency dispatch services.

MPs adopted the law on restructuring public heating utilities’106 debts for consumed energy (including natural gas), which made it possible to unlock accounts of about 100 companies and restore their normal operation107 (the 99 http://www.kmu.gov.ua/control/uk/cardnpd?docid=248912097, http://www.kmu.gov.ua/control/uk/ cardnpd?docid=248912235 100 http://www.kmu.gov.ua/control/uk/cardnpd?docid=249005226 101 http://www.kmu.gov.ua/control/uk/cardnpd?docid=249038213 102 http://zakon5.rada.gov.ua/laws/show/704-2016-%D0%BF 103 http://www.kmu.gov.ua/control/uk/cardnpd?docid=249408771 104 http://www.kmu.gov.ua/control/uk/cardnpd?docid=249408662 105 According to Resolution of the Cabinet of Ministers of Ukraine, dated April 29, 2016, No. 357 106 http://w1.c1.rada.gov.ua/pls/zweb2/webproc4_1?pf3511=60275 107 http://uacrisis.org/ua/48906-borgi-tke

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President signed the law on November 25108). Instead, the Ministry of Energy and Coal Industry developed and published a draft joint order of the Ministry of Energy and Coal Industry and the Ministry of Finance, which provides for amending the Procedure for Settlements for Natural Gas, Heat and Electricity109.

Along with that, the Government has expanded the scope of regulated gas prices for heat generating companies to cover the provision of heating services and hot water supply to the state-financed institutions. Respective amendments to that effect were included in the Regulation on imposing special obligations on the natural gas market players (Resolution No. 937110) which will be in effect until March 31, 2017.

Since as of December 1, 2016, the Underground Gas Storage (UGS) of Ukrtransgaz had the lowest in recent years amount111 – 13.6 billion cubic meters112, then subject to cold weather, already at the beginning of 2017, the situation with Gas Procurement in Ukraine could become problematic.

Anticipating that, on November 30, the Cabinet of Ministers of Ukraine approved the Financial Plan of Naftogaz of Ukraine NJSC for 2016113 (as an individual legal entity) and provided the World Bank with a government guarantee for the loan liabilities of Naftogaz of Ukraine NJSC for the amount of USD 500 million for additional purchase of natural gas for heating purposes (Resolution No. 876114).

Thus, the completion of the legal framework reform requires the following: • final agreement of all legislative acts with the Law «On the Natural Gas Market»; • implementation and further amendments to the Energy Regulator Law (NEURC) with the purpose of strengthening its independence; • legislative recognition of such mechanism of forming natural gas prices that would encourage, not suppress, competition in the gas market; • adoption of legal acts governing ownership right in the sector of gas distribution networks and providing the same objective and fair terms and conditions of their use for all DSOs. 108 http://www.president.gov.ua/news/prezident-pidpisav-zakon-shodo-vregulyuvannyazaborgovanosti-38842 109 http://mpe.kmu.gov.ua/minugol/control/uk/publish/article?art_id=245157595&cat_id=35082 110 http://www.kmu.gov.ua/control/uk/cardnpd?docid=249595270 111 http://utg.ua/utg/media/news/2016/12/opalyuvalnij-sezon-vdbrano-z-gazosxovishh-na-tretinu-blshenzh-tork.html 112 2016/2017 heating season began with the stocks of gas in UGS amounting to 14.7 billion cubic meters compared to 17.1 billion last year 113 http://www.epravda.com.ua/news/2016/11/30/612788/ 114 http://ukranews.com/ua/news/463038-kabmin-nadav-derzhgarantiyu-po-kredytu-naftogazu-v-500-mlnpid-zakupivli-gazu

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Security of Gas Transit to the EU According to Ukrtransgaz115, gas transit through the Ukrainian GTS to European consumers as a whole increased by 23% to 82.2 billion cubic meters in 2016. Ukrtransgaz, traditionally, fulfills requests for gas transportation through Ukraine’s territory on time and in full. The Ukrainian border gas metering stations (GMSs) are reliable enough to maintain contractual pressures, unlike Gazprom, which still fails to do so116. Already on 3 January 2017, the contractual pressure at the Russian border GMS Sudzha was 54.1 atmospheres, which is 10% lower than the pressure required by the contracts117.

In December, the Commission’s monitoring mission visited Ukraine118, and examined the entire information package on the natural gas transits through the Ukrainian GTS, as well as analyzed the problem of failure to maintain adequate pressure on the Russian GMSs. Based on the results of the visit, the parties have agreed on the action plan to prevent degradation of the situation with gas supplies and on the extension of the list of information to be submitted by Ukrtransgaz to the Commission on a daily basis, including data on pressure at the entrance and exit points of the Ukrainian GTS. Thus, Ukrtransgaz secures stability of gas supplies to the EU, despite the failure to maintain the contractual pressure on the part of the Russian side119, and aims at further maintaining reliability of transits. Potential threat to the stability of gas transit to the EU, as already noted, is the Oc115 Ibid.

116 http://utg.ua/utg/media/news/2016/12/gazprom-prodovzhu-porushuvati-texnchn-umovi-tranzitnogodogovoru.html 117 http://utg.ua/utg/media/news/2017/01/u-2016-rocz-tranzit-prirodnogo-gazu-dlya-vropejskixspozhivachv-zrs-na-23.html 118 http://utg.ua/utg/media/news/2016/12/ukranu-vdvdala-montoringova-msya-vropejsko-koms-potranzitu-prirodnogo-gazu.html 119 http://utg.ua/utg/media/news/2016/11/ukrana-zabezpechu-tranzit-gazu-nezvazhayuchi-naporushennya-rosyu-kontraktnix-tiskv.html; http://utg.ua/utg/media/news/2016/12/gazprom-prodovzhuporushuvati-texnchn-umovi-tranzitnogo-dogovoru.html

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tober decision of the European Commission to allow Gazprom to maximize up to 80% the level of using the pipeline OPAL120 (onshore continuation of the Nord Stream - 1 in Germany), made on the proposal of the German energy regulator. The Ministry of Foreign Affairs of Ukraine stated121 that the approval of this kind of decisions without prior consultation with the Ukrainian side constitutes violation of Article 274 of the Association Agreement, which provides for mutual consideration by the parties of the potential and capabilities of their energy infrastructure, coordination of plans and projects, as well as coordination of activities related to the security of energy supplies. Indeed, where Gazprom no more uses Ukrainian transit route and uses Nord Stream 1 – OPAL networks in its stead, the Ukrainian GTS may find itself in a regime of unstable functioning as Gazprom will not maintain proper pressure — this is what happened in the summer122, when Ukrtransgaz covered low pressure at the exit of the Russian pipeline with its own gas in order to meet transit technical conditions and ensure gas flow to the European consumers through the exit points.

Meanwhile, in December, Naftogaz of Ukraine NJSC applied to the German energy regulator (Bundesnetzagentur) 123 requesting the latter to apply the general procedure of decision-making for the agreement regulating conditions of access, which had been concluded between the above-mentioned regulator and Gazprom and its affiliated companies with the view to amending the decision of 2009 concerning OPAL pipeline. Naftogaz requests being allowed to participate in that administrative procedure for the purpose of presenting its official position and gaining access to the texts of the agreement itself and the Commission’s decision of October 28, 2016, which has not been published until now.

In Autumn, the Verkhovna Rada of Ukraine approved the letter to the EU Member States’ parliaments and executive bodies in respect to strengthening co-operation in the area of energy security and managing potential 120 http://ngbi.com.ua/show/analitics/opal--ne-vse-tak-pogano-jak-vidatsja 121 http://mfa.gov.ua/ua/press-center/news/52288-podalyshe-vidkladennya-rishennya-jes-prozaprovadzhennya-bezvizovogo-rezhimu-dlya-gromadyan-ukrajini-je-nepripustimim 122 http://www.naftogaz.com/www/3/nakweb.nsf/0/1A828DDEEF80631BC2258017005F4781?OpenDocu ment&year=2016&month=08&nt=%D0%9D%D0%BE%D0%B2%D0%B8%D0%BD%D0%B8& 123 http://www.naftogaz.com/www/3/nakweb.nsf/0/B64C3EC5E38E92C9C225808100568020?OpenDocu ment&year=2016&month=12&nt=%D0%9D%D0%BE%D0%B2%D0%B8%D0%BD%D0%B8&

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risks arising out of the implementation of projects on construction of transit gas pipelines bypassing Ukraine (Resolution No. 1733-VIII of November 15, 2016124). The letter emphasizes that despite all circumstances (including military aggression on the part of Russia and permanent breach of contract pressure on the part of Gazprom125) Ukraine remains a reliable partner supplying natural gas to the EU and reaffirms its readiness to further coordinated actions aiming at implementing reforms and improving cohesion of the energy policy with the EU policy. The Verkhovna Rada of Ukraine also expressed its deep concern with the intentions to build transit pipelines bypassing Ukraine and considers that implementing such projects and providing Gazprom with the opportunity to pump more gas through the existing pipelines (such as OPAL with respect to which Gazprom already obtained the decision of the EC126) not only brings transit routes through Ukraine and Poland (Yamal – Europe) to naught and jeopardizes energy security of the CEE countries but also casts doubt on creation of liquid interconnected gas market within the Energy Community in particular.

Ukraine together with Poland opposed the decision of the European Commission to expand the access of Gazprom to the OPAL gas pipeline, which would open an opportunity for Russia to increase the volume of gas supplies to Europe bypassing Ukraine. A joint statement of the presidents of both countries points out127 that such decision is unacceptable, both in terms of violations of gas supply through Ukraine and Poland and in terms of energy security of the EU and should be revised.

According to ENTSOG128, from December 22 to December 28, Gazprom increased daily volumes of gas supplies through Nord Stream from 57.1 to 80.5 million cubic meters, with almost all surplus volumes pumped through OPAL. According to Naftogaz’s calculations129, the use of the Nord Stream-OPAL route has increased by 41%, and OPAL’s workload from 50% to over 80%. During that period, daily volumes of transit through the Ukrainian GTS to Slovakia have dropped from 148.9 to 120.8 million cubic meters (-19%), while the general daily volume of gas supplies to Europe has not actually changed. ENTSOG’s data make it possible to assume that there is connection between the increase in use of OPAL and the reduction in gas supplies through Ukraine and Slovakia.

124 http://zakon2.rada.gov.ua/laws/show/1733-viii 125 http://utg.ua/utg/media/news/2016/12/gazprom-prodovzhu-porushuvati-texnchn-umovi-tranzitnogodogovoru.html 126 http://europa.eu/rapid/press-release_IP-16-3562_en.htm 127 http://www.president.gov.ua/news/spilna-zayava-prezidentiv-ukrayini-ta-respubliki-polsha-prij-38922 128 See https://transparency.entsog.eu/ 129 http://www.naftogaz.com/www/3/nakweb.nsf/0/262771BB42E76577C22580990034A9DE?OpenDocu ment&year=2016&month=12&nt=%D0%9D%D0%BE%D0%B2%D0%B8%D0%BD%D0%B8&

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On December 27, the ECJ was reported130 to have ruled in favor of the Polish PGNiG and suspended implementation of the Commission’s decision on allowing Gazprom wider access to OPAL pipeline. Therefore, before considering the claim on the merits, Gazprom will not be able to increase supplies through the pipelines bypassing Ukraine.

Results of International Cooperation In view of the results already achieved in the course of the reform, in pursuance of the commitments Ukraine had undertaken, the need arose to update the strategic goals and ways of co-operation in the energy sector.

During the joint summit in Brussels on November 24, Ukraine and the EU agreed on the relevant changes. To make the approved objectives binding, the Energy Minister Ihor Nasalyk and Commission’s Vice President for the Energy Union Maroš Šefčovič signed the Memorandum of Understanding on a Strategic Energy Partnership between Ukraine and the European Union131. The aim of the updated Memorandum is complete integration of energy markets of Ukraine and the EU. Measures aimed at ensuring Ukraine’s accession to the joint gas market of the Energy Community, in addition to implementing the relevant European standards in the national legislation, included Ukraine’s participation in the international initiatives.

Pursuant to the 2015 CESEC Initiative of the European Commission aimed at enhancing supply security in Central Eastern and South-Eastern Europe, on July 19, TSOs of Ukraine and Romania signed an agreement on connecting the gas transportation systems of both countries at Isaccea, which is located along the gas transportation route from Ukraine to Bulgaria via Romania (came into force in October). The terms and conditions of this agreement are fully compliant with the network code on interoperability and data exchange rules under the Regulation (EU) No. 703/2015132.

Along with the similar agreement between Romania and Bulgaria133, this agreement has become the key step for launching the Trans-Balkan Gas Transportation System between Greece, Turkey, Macedonia and Ukraine, which can be used to transport gas in compliance with the European rules.

Signing of the Memorandum of Understanding134 between Ukrtransgaz 130 http://europa.eu/rapid/press-release_IP-16-4311_en.htm 131 http://mpe.kmu.gov.ua/minugol/control/uk/publish/article;jsessionid=36B7BABE011C6949779CCE3D0 44A6922.app1?art_id=245160000&cat_id=35109 132 http://utg.ua/utg/media/news/2016/07/ukrana-ta-rumunya-pdpisali-ugodu-pro-pdklyuchennyagazotransportnix-sistem.html 133 https://ec.europa.eu/energy/en/news/bulgaria-romania-and-romania-ukraine-sign-gas-agreements 134 https://ec.europa.eu/energy/sites/ener/files/documents/CESEC%202016.09.09%20HLG%20 conclusions%20-%20FINAL.PDF

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and TSOs in Greece (DESFA S.A.), Bulgaria (Bulgartransgaz EAD) and Romania (NGTC TRANSGAZ S.A.) was one of the results of the CESEC group meeting held on 8–9 September in Budapest dedicated to the development of the gas transportation infrastructure in Central and South-Eastern Europe. That document was a result of those countries’ attempt to agree on a plan of establishing a two-way gas transmission corridor135.

Based on the conclusions of the Permanent High Level Group and the Ministerial Council of the Energy Community (October 13–14, Sarajevo), projects of construction of gas interconnections between Poland and Ukraine (creation of capacity), Hungary and Ukraine (development of capacity) were included in the list of Projects of mutual interest (PMIs)136.

Already on December 8, Ukrainian and Polish TSOs — Ukrtransgaz PJSC and GAZ-SYSTEM S.A. — signed the Agreement137 on the rules of integration through the future interconnector between Ukraine and Poland. The agreement provides for co-operation between the TSOs of both countries in performing design and construction works. The integration of Polish and Ukrainian GTS is a part of the North-South Gas Corridor, designed to transport gas from the LNG terminal in Świnoujście across Central and Eastern European countries, with the use of cross-border interconnectors. Construction of the interconnector proposed by the joint initiative of Poland and Ukraine is crucial for enabling the gas transmission from the planned Northern Gate (Norwegian Corridor and LNG terminal) towards Eastern Europe (construction involves construction of a new pipeline between Hermanowice gas node on the Polish side and Bliche Volytsia on the Ukrainian side). The project co-organizers expect that the new interconnection will allow increasing the transmission capacity to a maximum of 5 bcm/year in 2020. Both operators are focusing on ensuring that the Gas Interconnection Poland-Ukraine project will be implemented, and they continue to negotiate on this project with various stakeholders.

The progress in opening the internal Ukrainian gas market to European partners is encouraging. In the framework of Ukraine-France economic forum (October 28, Paris), Ukrainian TSO — Ukrtransgaz PJSC — and Engie (France), as well as its subsidiary established in Ukraine — ENGIE Energy Management Ukraine Ltd138 — signed gas transmission and storage agreements. This signing demonstrates that the largest gas traders in the EU take into account a new business model of Ukrtransgaz139, results of the 135 http://utg.ua/utg/media/news/2016/09/pdpisano-memorandum-pro-spvpraczyu-z-operatorami-gtsbolgar-rumun-ta-turechchini.html 136 https://www.energy-community.org/portal/page/portal/ENC_HOME/DOCS/4364459/3F10145B346970 00E053C92FA8C08EFF.pdf 137 http://utg.ua/utg/media/news/2016/12/integ-ua-pl-2016.html 138 http://utg.ua/utg/media/news/2016/10/ukrtransgaz-and-engie-signed-agreement-on-gas-transmissionand-storage.html 139 http://utg.ua/utg/media/news/2016/10/ukrtransgaz-presented-new-opportuninies-for-europeantraders.html

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gas market reform in Ukraine, and are willing to take part in its further development. Not long after, on November 24, Ukrtransgaz signed three contracts on gas transportation and storage in Ukrainian underground storage facilities140. French ENGIE, Swiss DufEnergy Trading SA and TrailStone Energy LLC (which has an office in Ukraine) that had sold gas to Ukrainian traders on the Ukrainian border before the conclusion of those contracts, were among the contractors. Now they will sell gas directly, both to Ukrainian wholesalers and to end consumers. According to the contracts concluded, test supplies are expected to start in December 2016.

In addition, Ukraine has gained grounds to count on support for the use of Ukrainian UGS facilities by European companies from the EU: the communication “EU Strategy for LNG and Gas Storage Facilities�141 approved by the European Parliament emphasizes the importance of UGSs of Ukraine, indicating that gas supplies from Russia to the EU during peak demand depend on them directly. Besides, the EU specified the tool to overcome the growing dependence on imported gas supply of all members of the Energy Community, that is improving the efficiency of the use of LNG infrastructure. In particular, it is expressly provided that the EU will promote the use of this tool in overcoming Ukraine’s dependence on Russian gas, since Ukraine will soon have to import additional volumes of gas.

140 http://utg.ua/utg/media/news/2016/11/ukrana-vdkrila-svj-gazovij-rinok-vropejskim-postachalnikamukladeno-3-dogovori.html 141 http://www.europarl.europa.eu/news/en/news-room/20161020IPR47881/gas-use-eu-storage-capacityefficiently-and-forge-trade-partnerships-urge-meps

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Conclusion: In the course of reforming the gas infrastructure, Ukraine relied on the following: • conscientious performance of transit obligations to the EU by ensuring reliable transit; • improving business models, given the European standards, which led to a positive result – the first deals with European gas contractors; • international cooperation, providing support for projects to develop the Ukrainian gas infrastructure that are crucial for fulfilling the commitments on the diversification of routes and sources of gas supplies to Ukraine.

One cannot ignore a significant date on the way to a truly competitive gas market in Ukraine – November 24 – the day of opening the Ukrainian domestic gas market to European suppliers. Representatives of three companies (ENGIE, DufEnergy, TrailStone) became able to sell gas in the market instead of the border of Ukraine.

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Electricity and Nuclear Security

48

Dense fog, zero visibility

Electricity and Nuclear Security Directive 2009/72/EC concerning common rules for the internal market in electricity and repealing Directive 2003/54/EC (Articles 269, 273, 274, Chapter 11, Section IV of the Association Agreement) 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 to choose their suppliers, and it allows all suppliers 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.

On January 15, the Verkhovna Rada of Ukraine registered draft Law No. 3774 on amending the draft Law «On Electricity» according to which it is forbidden to disconnect electricity for socially unprotected households in winter period, but the energy supplier may limit electricity consumption if the amount of incomplete payment for consumed electricity exceeds 6-month payment amount. On November 11, the draft law was withdrawn by its author1.

On January 26, the Verkhovna Rada of Ukraine registered draft Law No. 3819 amending the Criminal Code of Ukraine tightening the liability for the production and sale of devices reducing the readings of electricity and heat metering devices2.

On February 25, the NEURC adopted Resolution No. 235 «On Approving Amendments to the Procedure for Setting Tariffs for Licensees to Supply 1 http://w1.c1.rada.gov.ua/pls/zweb2/webproc4_1?id=&pf3511=57673 2 http://w1.c1.rada.gov.ua/pls/zweb2/webproc4_1?id=&pf3511=57734

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Electricity and Nuclear Security

Electricity at a Regulated Tariff and/or Transmit Electricity by Local Electricity Networks in the event of RAB Regulation, which aims to improve the mechanism for implementing RAB regulation and change the timing of applying for revision of tariffs, which will give an opportunity to introduce RAB regulation from any quarter.

On April 21, the Verkhovna Rada of Ukraine registered the draft Law «On Electricity Market of Ukraine» (Reg. No. 4493)3. It was considered and adopted in its first reading on September 22 and it is being prepared for consideration in its second reading.

On August 23, the Cabinet of Ministers of Ukraine adopted Resolution No. 591 «On Amending the Rules of Electricity Use by the Households» which improved and specified the procedure for executing a contract on the use of electricity; specified the technical aspects of the determination of capacity to be specified in the contract, including the cases of the threephase connection; improved and specified the procedure for changing the consumer at the facility, including the cases of regulating relations when the customer has no documents confirming the rights of ownership or use of the facility for the inheritance registration period; detailed the procedure for arranging metering at the facility, both for the first time and subsequently, if there is a need for upgrading or replacing metering devices related to the consumer’s choice or three-zone or two-zone tariffs or arrangement of metering to ensure payments for the electricity generated from alternative sources4. The changes came into force on September 20.

On September 2, the NEURC published the Draft Resolution “On approval of the Procedure of ensuring compliance with electricity supply service quality standards”5, which provides for reimbursements to consumers for failure to comply with the guaranteed electricity quality standards. In September, the NEURC published the draft resolution on amendments to the Methodology of calculation of payments for connecting electricity generating plants to electricity networks.6 That draft document provides for improving the provisions of the Methodology, simplifying and improving the procedure of setting the price for connecting electricity generating plants to electricity networks and improving Ukraine’s ranking in the Ease of Doing Business Index prepared by the World Bank (TWB) and the International Finance Corporation (IFC) on an annual basis.

3 http://w1.c1.rada.gov.ua/pls/zweb2/webproc4_1?pf3511=58829 4 http://www.kmu.gov.ua/control/uk/cardnpd?docid=249303067 5 http://www.nerc.gov.ua/index.php?news=5366 6 http://www.nerc.gov.ua/index.php?news=5383

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Conclusion: The adoption of the Law «On Electricity Market» (as a basis) in its first reading by the Verkhovna Rada of Ukraine can be considered the greatest achievement in the electricity industry in 2016, but it failed to be adopted as a whole, and the Committee on the Fuel and Energy Complex received more than a thousand amendments and postponed consideration and agreement for 2017. The NEURC adopted a work plan on elaborating the draft secondary legislation for implementation of the new market model, some drafts were developed but not published. Market participants believe that the process of developing such acts is not fully transparent.

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 (Articles 270-271, Chapter 11, Section IV of the Association Agreement) This Regulation establishes the rules for cross-border exchanges of electricity with the view to enhancing competition and achieving harmonization within the internal market of electricity. Compared to 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.

In accordance with the NEURC Resolution No. 1492, dated August 30, 2016, Energorynok SE was entitled to create a local authority responsible for issuing energy identity codes ЕІС ENTSO-E (МОВ ЕІС ENTSO-E). The European Network of Transmission System Operators (ENTSO-E) authorized МОВ ЕІС ENTSO-E functioning on the basis of Energorynok SE7.

Conclusion: Further liberalization of cross-border exchange of electricity depends on the adoption of the framework law «On Electricity Market». Working groups elaborated draft network codes, commercial metering code and others, but they have not been published yet, waiting for the adoption of the law on new market.

7 http://www.er.gov.ua/

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Electricity and Nuclear Security

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 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.

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 players. 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, and ensure regular renewal of networks.

On February 8, by its Order No. 64, the Ministry of Energy and Coal Industry approved the Operational Security Standard for the Unified Energy System of Ukraine8.

NPP Load Following Performance In March, the accounts of NNPC Energoatom were blocked, which in its turn, due to the insolvency of NNPC, caused a delay in shipment of the first in the year consignment of spent nuclear fuel (SNF) from Ukraine. In June, the accounts were unblocked, and the company returned to normal business activity9.

Besides, in March, the Ministry of Energy and Coal Industry introduced to the Action Plan of the Cabinet of Ministers of Ukraine for 2016 (CMU Order No. 184-р10) a clause stating that NPPs are to be set to load following mode already in late 2016 – early 201711. This topic caused heated debates both in professional circles and among ordinary citizens during the whole year.

Peak discussions occurred in October, when Prime Minister V. Groysman said that one of the priorities for the government was to increase the capacity of electricity generation at NPPs12.

8 http://mpe.kmu.gov.ua/minugol/doccatalog/document?id=245086751 9 http://www.pravda.com.ua/news/2016/06/29/7113101/ 10 http://zakon3.rada.gov.ua/laws/show/184-2016-%D1%80 11 http://mpe.kmu.gov.ua/minugol/control/uk/publish/article?art_id=245150321&cat_id=245070653 12 http://www.energoatom.kiev.ua/ua/press/nnegc/45940-groyisman_v_nashih_planah_naraschivanie_ moschnosteyi_atomnoyi_elektroenergetiki_budem_ih_uvelichivat_i_vvodit_novye/

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The Ministry of Energy and Coal Industry has already developed an estimated balance of electricity for 2017, according to which it is planned to increase the share of nuclear power plants13. Besides, Energoatom responded to the Government’s plans and warned that the switch of NPPs to load following requires at least two years of careful preparation.14 Besides, the President of NNPC «Energoatom» Yu. Nedashkovskyi assured that in case of switching over to a new regime, load-shedding or loading of power units of Ukrainian NPPs would be made in compliance with all rules and standards of nuclear and radiation safety, and would be accompanied by the safety analysis.15 Energoatom NNEGC intends to have the power unit 2 of Khmelnytskyi NPP switched to the possibility to operate in the load following regime by 2020, with the cost of preparation measures for that regime amounting to UAH 300 million16.

This was not the first time that the subject of switching NPPs to the load following regime had been raised by the Ukrainian Government, but the idea was received poorly by the specialists in the nuclear sector because of the technological context. Transition of NPPs to operation in the load following regime is a world practice17, however it is very complicated in terms of the technological process, and that is why not so many countries actually employ such a regime18.

Cooperation with IFIs (Article 338, Chapter 1, Section V of the Association Agreement) On January 13, the Cabinet of Ministers of Ukraine adopted Resolution No. 32 «On Approving the Procedure for the Developing, Approving and Implementing the Plan for Engaging External Aid of the European Commission within the TAIEX».19 On February 12, by Decree No. 45/2016, the President approved the Annual National Program of NATO-Ukraine cooperation for 2016. 20 This program prescribes «to continue the implementation of measures for fulfilling Ukraine’s commitments under the Protocol on Ukraine’s accession to the Treaty establishing the Energy Community and subject to the relevant provisions of the Association Agreement». In particular, within the energy security: improvement of legislative framework governing operation of fuel and energy complex during a special period; measures for diversifica13 http://economics.unian.ua/energetics/1595521-nastupnogo-roku-chastka-aes-u-virobnitstvielektroenergiji-sklade-53-minenergovugillya.html 14 http://www.unn.com.ua/uk/news/1613192-dlya-bezpechnogo-manevruvannya-aes-ukrayini-potribni-rokipidgotovki-energoatom 15 http://mpe.kmu.gov.ua/minugol/control/uk/publish/article?art_id=245150321&cat_id=245070653 16 http://economics.unian.ua/energetics/1566796-energoatom-mae-namir-do-2020-roku-perevestienergoblok-2-hmelnitskoji-aes-na-mojlivist-roboti-v-manevrovomu-rejimi.html 17 http://www.energoatom.kiev.ua/ua/press/nngc/45216-perehd_energoblokv_ukranskih_aes_tipu_vver_na_ manevroviyi_rejim_roboti_potrebuvatime_ne_menshe_dvoh_rokv_retelno_pdgotovki/ 18 http://www.unn.com.ua/uk/exclusive/1610115-manevruvannya-atomnikh-blokiv-dlya-zaoschadzhennyaelektroenergiyi-ye-skorishe-vinyatkom-nizh-svitovoyu-praktikoyu-ekspert 19 http://www.kmu.gov.ua/control/uk/cardnpd?docid=248793839 20 http://www.president.gov.ua/documents/452016-19779

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tion of sources, suppliers, routes and methods of energy resources transportation into Ukraine; cooperation with the NATO agencies and bodies and member states of NATO in the energy security.

On February 24, in order to improve the government mechanism of approximation of the Ukrainian legislation to that of the EU in accordance with the Association Agreement, the Government adopted Resolution No.160 «On Amending Certain Regulations of the Cabinet of Ministers of Ukraine on the Approximation of the Ukrainian Legislation to That of the EU (Acquis EU)», which improved the content and the procedure for carrying out examination of draft regulatory acts to verify their compliance with the Association Agreement and other commitments in the field of European integration.21 On March 14, Twinning Project «Support the National Energy and Public Utilities Regulatory Commission (NEURC) of Ukraine in the Process of Electricity Market Reform» was launched. The project budget is EUR 1.6 million and the project duration is 24 months22.

On April 1, the Cabinet of Ministers of Ukraine and the Australian Government signed the Agreement for Cooperation in the Peaceful Uses of Nuclear Energy23. This agreement is very important, as it creates preconditions for the supply of uranium to Ukraine, and thus enables diversification of nuclear fuel supplies and decrease of Ukraine’s dependence on the Russian Federation in the nuclear energy sector.

On April 20, the Cabinet of Ministers of Ukraine adopted Order No. 302-p «On Signing the Agreement (in the Form of Letters) between the Government of Ukraine and the European Bank for Reconstruction and Development on the Contribution of Ukraine to the EBRD-managed Nuclear Safety 21 http://www.kmu.gov.ua/control/uk/cardnpd?docid=248882086 22 http://www.nerc.gov.ua/index.php?news=5025 23 http://mpe.kmu.gov.ua/minugol/control/uk/publish/article?art_id=245098540&cat_id=35109

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Account24. This agreement made an additional contribution of Ukraine to the Nuclear Safety Account, which is equivalent to EUR 1.4 million.

On May 25, the Cabinet of Ministers of Ukraine adopted Order No. 384-p «On Approving Draft Additional Agreement No. 2 to the Agreement between the Government of the United States of America and the Government of Ukraine on Tasks in the Field of Development to Support Sustainable Economic Development on a Broad Public Basis as a Means of Ensuring Sustainable Democracy in Ukraine, Executed in Kyiv on September 17, 2014»25.

The agreement was signed for the purpose of increasing the volumes of international technical assistance from the United States for the amount exceeding USD 14 million. Thus, the total volume of such assistance under this agreement shall exceed USD 40 million for the purpose of implementing technical assistance projects (including measures to improve energy security).

On June 1, the Cabinet of Ministers of Ukraine approved Order No. 403-р «On Signing Agreement between the Government of Ukraine and the European Atomic Energy Community on Scientific and Technological Cooperation and Associated Participation of Ukraine in the Euratom Research and Training Program (2014–2018)»26. On September 22, the agreement was ratified by the Verkhovna Rada of Ukraine27.

On September 6, the Government approved the final report on the results of implementation of the project, together with the EBRD and Euratom, on post-construction modernization of the nuclear power unit 2 of Khmelnytskyi NPP and the nuclear power unit 4 of Rivne NPP.28 On September 20, under the Project of the Joint Operational Program Romania–Ukraine–Republic of Moldova 2007–2013 (JOP RO–UA-MD 2007– 2013), technical and economic conclusions were presented as to the possibilities of synchronous interconnection of Ukrainian and Moldovan energy systems with the continental European energy system. In accordance with those conclusions and recommendations, Ukrainian and Moldovan experts will continue further preparation of their energy system for synchronous operation.29 On October 4, the IMF published the Memorandum of Economic and Financial Policies signed by Ukraine within the framework of the co-operation program review. By the end of 2016, the Government expects to receive the fourth tranche from the IMF in the amount of USD 1.3 billion30, but to that end, it has to meet the commitments it has taken, in particular, 24 http://www.kmu.gov.ua/control/uk/cardnpd?docid=248982293 25 http://www.kmu.gov.ua/control/uk/cardnpd?docid=249062988 26 http://zakon3.rada.gov.ua/laws/show/403-2016-%D1%80 27 http://zakon3.rada.gov.ua/laws/show/1542-viii 28 http://mpe.kmu.gov.ua/minugol/control/uk/publish/article?art_id=245140944&cat_id=245070653 29 http://mpe.kmu.gov.ua/minugol/control/uk/publish/article?art_id=245144936&cat_id=35109 30 https://daily.rbc.ua/ukr/show/mvf-ukraina-usloviya-obyazatelstva-mayaki--1475613665.html

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in the energy sector: no moratorium on debt recovery from power generating companies and state-owned enterprises to Naftogaz; monetization of subsidies for housing and public utility services by the end of March 201731.

On October 10, the CMU and the German government-owned development bank KfW concluded a EUR 150 million loan agreement32 for the implementation of the project «Reconstruction of Sub-stations in the East of Ukraine». The loan was agreed upon under the Memorandum of Joint Intent between the governments of Ukraine and Germany on the Untied Financial Loan totaling EUR 500 million to finance measures relating to rehabilitation and modernization of the infrastructure of the eastern part of Ukraine.33 On October 13–14, based on the results of the meetings of the Permanent High Level Group and the Ministerial Council of the Energy Community, the Council decided, among other things, to add reconstruction of the 400 kV aerial electric power transmission line between Mukacheve and Veľké Kapušany on the list of Projects of Mutual Interest (PMIs)34.

On November 24, the Memorandum of Understanding on a Strategic Energy Partnership in the Field of Energy between Ukraine and the European Union together with the European Atomic Energy Community was signed35. It provides for the expansion of cooperation, in particular, to the transit of oil and gas, integration of energy markets and nuclear safety, and adds the issues of increasing energy efficiency, scientific and technical cooperation and recarbonization of the Ukrainian economy. Although the aim of the updated Memorandum is complete integration of energy markets of Ukraine and the EU, it does not consider the format of Ukraine’s membership in the Energy Union and is presented in the context of «joint implementation of principles»36. The term of the agreement expires in 10 years, with the right of review in 5 years.

On November 8, a new EU technical assistance program “Assistance to Ukraine in the process of implementation of energy sector reform in line with Ukraine’s international commitments” was launched. The project with the budget of EUR 2.3 million is for an estimated period of 30 months37.

On November 29, the ceremony of completing the New Safe Confinement sliding over the existing Shelter Object of Chernobyl NPP took place38. 28 donor countries helped Ukraine in constructing the Shelter facility and collected over EUR 1.417 billion. In total, 40 countries took part in that construction project, the EBRD acted as the administrator of funds39.

31 https://www.rbc.ua/ukr/news/memorandum-mvf-ukraina-dolzhna-monetizirovat-1475651990.html 32 http://www.kmu.gov.ua/control/uk/publish/article?art_id=249390826&cat_id=244276429 33 http://mpe.kmu.gov.ua/minugol/control/uk/publish/article?art_id=245149497&cat_id=35109 34 http://mpe.kmu.gov.ua/minugol/control/uk/publish/article?art_id=245150611&cat_id=35109 35 https://ec.europa.eu/energy/en/news/eu-ukraine-summit-eu-and-ukraine-intensify-energy-partnership 36 http://www.eurointegration.com.ua/articles/2016/11/25/7057974/ 37 http://mpe.kmu.gov.ua/minugol/control/uk/publish/article?art_id=245156124&cat_id=35109 38 http://www.snrc.gov.ua/nuclear/uk/publish/article/343590 39 http://dazv.gov.ua/novini-ta-media/vsi-novyny/ukrajina-ta-svit-povinni-mitsno-trimati-ednist-i-solidarnistshchob-zakhistiti-svit-vid-yadernoji-zagrozi-prezident.html

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On November 30 - December 1, an open meeting of the representatives of the EU, the Ministry of Energy and Coal Industry and other stakeholders was held on the state of affairs regarding current and future projects on methods of rehabilitation of the former uranium-processing facility of Prydniprovskyi Chemical Plant. During the meeting, the participants discussed the status of the project of developing a long-term and eco-friendly strategy for putting out of service and rehabilitation of the uranium-processing facility of Prydniprovskyi Chemical Plant (EU-funded project with the budget of UAH 1.1 million). During the implementation of that project, a need arose in taking additional measures for the optimization of public safety and protection of the site. For that purpose, the EU representatives undertook to allocate additional EUR 3.5 million to finance those activities.

At the same time, it was decided to allocate additional EUR 5 million for the INSC 2017 program in order to achieve priority objectives of cleaning up and decommissioning of facilities inherited from the PCP40.

On December 19 in Brussels, the Memorandum of Understanding was signed between the Government of Ukraine and the EIB. The Memorandum’s objective is strengthening co-operation with the EIB and implementation of respective projects in 2017–2020, and in particular in the energy sector41.

40 http://mpe.kmu.gov.ua/minugol/control/uk/publish/article?art_id=245161799&cat_id=35109 41 http://www.kmu.gov.ua/control/uk/publish/article?art_id=249600433&cat_id=244276429

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Coal Market (Article 339, Chapter 1, Section V of the Association Agreement) The parties share information and experience, and provide appropriate support for the process of regulatory reforms, which includes restructuring of the coal sector (energy, coking and lignite) to enhance competitiveness, safety of mines and miners, as well as easing the negative impact on the environment, while taking into account the regional and social impact. In order to improve efficiency, competitiveness and stability, the restructuring process should cover all stages of coal production, particularly from extraction through production and dressing to processing and disposal of coal production wastes and their burning.

During the year, the coal industry was in crisis. The changes of the Government and Heads of the Ministry of Energy and Coal Industry that took place on April 1442, led to the major changes in the overall concept of vision of the Ministry of Energy and Coal Industry regarding the industry development perspectives, which failed to be defined and established by the end of the year43 and therefore there were no clearly-defined proposals to overcome the crisis.

On February 1, the Ministry of Energy and Coal Industry completed the work on the draft Law of Ukraine «On the Coal Market», aimed at establishing rules of trade in the coal market in terms of gradual deregulation of the energy sector, creating transparent market for coal with equal conditions for all business entities, including state-owned enterprises44. However, the document remained at the preparation stage.

On January 12, as part of implementation of the policy of optimization of mining enterprises and engagement of effective management, the Ministry of Energy and Coal Industry published an updated list of managers of companies and organizations regulated by the Ministry of Energy and Coal Industry, including coal mines45. On July 2, as part of reforms in the coal industry, the Ministry of Energy and Coal Industry issued Order No. 433 according to which it is going to examine scientific institutions of the coal industry which are within the jurisdiction of the Ministry46.

Throughout the year, an action plan and strategy to reform the coal industry was under complete uncertainty. Only on November 1 did the Ministry of Energy and Coal Industry officially present an action plan to reform the coal industry. Minister I. Nasalyk specified systemic problems existing in the industry: inappropriate use of funds, significant management costs, loss on tender purchases, selling coal through intermediaries, etc.47 The stance on reforms has determined that the best way to overcome the crisis 42 http://www.kmu.gov.ua/control/uk/publish/article?art_id=248958510&cat_id=244276429 43 http://www.kmu.gov.ua/control/uk/publish/article?art_id=249343697&cat_id=244276429 44 http://mpe.kmu.gov.ua/minugol/control/uk/publish/article?art_id=245084721&cat_id=35109 45 http://mpe.kmu.gov.ua/minugol/control/uk/publish/article?art_id=245078388&cat_id=35109 46 http://mpe.kmu.gov.ua/minugol/doccatalog/document?id=245127446 47 http://mpe.kmu.gov.ua/minugol/control/uk/publish/article?art_id=245154331&cat_id=35109

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in the industry would be to optimize the structure of coal mines and other enterprises in the industry by creating a single legal entity consisting of all the businesses as separate units without corporate rights, namely the National Coal Company SE48.

Draft CMU Order “Certain Issues of Further Operation of Coal-mining Companies” regarding the establishment of the National Coal Company was submitted to the Cabinet of Ministers of Ukraine in December. On November 2, Ihor Nasalyk presented a concept of post-reorganization structure of 33 state-owned coal industry enterprises49. The Ministry of Energy and Coal Industry already has UAH 300 million and plans to raise another UAH 1 billion of state support to increase coal production and modernize mines.

In particular, it is expected that following implementation of necessary measures, gas-type coal mining output will double in 1.5 years. As a result of reorganization, it is planned to reuse materials of the existing mines, optimize administrative personnel and receive annual savings of around UAH 150 million50.

The Government also planned to complete the construction of the Mine No. 10 in Novovolynsk and put it into operation, as it would make it possible to create jobs, on the one hand, and, on the other hand, it will make it possible to close down those mines that are unprofitable51. The Ministry of Energy and Coal Industry planned annual reduction by 30% of dependence on the anthracite coal group, which is supplied from the anti-terrorist operation area52.

In 2016, many problems arose due to coal shortage caused by the events in the East of Ukraine and increased load on TPPs in the summer. To stabilize the situation, on August 16, the Ministry of Energy and Coal Industry issued Order No. 521 «On Approving the Procedure for Preparing Annual and Monthly Estimated Balances of Electric Energy in the Unified Energy System (UES) of Ukraine», according to which the management of power generating companies must agree in the Ministry and coordinate with the NEURC the schedules of coal accumulation at the warehouses of TPPs according to the new procedure, as well as ensure the observance of such schedules according to the estimated balance of electric energy in the UES of Ukraine53.

48 Letter No. 05/18-13089 of the Ministry of Energy and Coal Industry of Ukraine, dated December 16, 2016 49 http://zhytlo.in.ua/assets/images/news/11_2016/03-11-16-05.png 50 https://www.oporaua.org/zhytlo/43408-opora-vymahaie-opryliudnennia-ta-hromadskoho-obhovorenniaprohramy-reformuvannia-vuhilnoi-haluzi 51 http://www.kmu.gov.ua/control/uk/publish/article?art_id=249459441&cat_id=244276429 52 http://mpe.kmu.gov.ua/minugol/control/uk/publish/article?art_id=245166988&cat_id=35109 53 http://zakon2.rada.gov.ua/laws/show/z1224-16

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In addition, during the period of preparation for the heating season, the Government has been forced to reactivate, for the first time during the last four years, the heavy oil/gas units of TPPs54 and ordered to create the fuel oil reserve as well as to increase the plan of natural gas injection up to 17 billion cubic meters55. To reduce the dependence of the energy generating group on the anti-terrorist operation area, that is on anthracite coal grades, the Government intended to implement the projects aimed at using at domestic TPPs gas-type coal instead of scarce anthracite coal, as well as increasing the production of domestic coal56 and purchasing anthracite group from other sources57 (South Africa, Australia, New Zealand and North America)58. In particular, more than 560,000 tons of anthracite group coal supplied from alternative sources were chartered.

Besides, one of the main business areas is the transition of power units to burning gas-type coal59. In particular, the Minister stated that on March 1, the 2nd power unit of the Zmiyivska TPP which is a part of the state-owned company Tsentrenergo, will be switched to gas coal, to be followed by the 5th power unit within the following three-month period. According to him, this will enable the reduction of anthracite coal purchases by 1.5–2 million tons annually. 60 In December, the State Fiscal Service of Ukraine informed that during the period from January to November 2016, import of bituminous coal and anthracite in monetary terms amounted to USD 43.3 million, and compared to the same period of the past year, it reduced by 14.2% — down to USD 1.295 billion. The largest importers of coal to Ukraine during that period were Russia (63.1% of total supplies, which amounted to 817.4 million USD), the USA (14.7%, which amounted to 190.8 million USD) and Australia (5.9%, 54 https://daily.rbc.ua/ukr/show/gori-vse-nakanune-otopitelnogo-sezona-strane-1473370308.html 55 http://www.kmu.gov.ua/control/ru/cardnpd?docid=249295853 56 http://mpe.kmu.gov.ua/minugol/control/uk/publish/article?art_id=245144961&cat_id=35109 57 http://mpe.kmu.gov.ua/minugol/control/uk/publish/article?art_id=245133518&cat_id=35109 58 http://ua.interfax.com.ua/news/general/366836.html 59 http://mpe.kmu.gov.ua/minugol/control/uk/publish/article?art_id=245155399&cat_id=35109 60 https://www.rbc.ua/ukr/news/nasalik-rasskazal-ukraina-perestanet-zaviset-1482415606.html

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which amounted to 76.2 million USD), and other countries (16.3%, which amounted to 210.6 million USD)61. At the same time, the total production of energy and coking coal in Ukraine in January – November 2016 increased by 1.8% compared to the same period of the past year — up to 37.002 million tons from 36.351 million tons62. However, coal mining companies subordinated to the Ministry of Energy and Coal Industry reduced their output during the above-mentioned period by 14.3% (by 877.2 thousand tons) — down to 5.2761 million tons63.

In general, the supply of coal from uncontrolled territories was a real problem. According to government officials, Ukraine consumes 24.5 million tons of coal per year, of which 9.2 million tons of anthracite coal, which is mined outside the territory controlled by Ukrainian authorities64. The Ministry of Energy and Coal Industry assured that coal is supplied from those mines that were re-registered in the territory under control and pay their taxes to the State budget of Ukraine.

Toward the heating season, the Ministry of Energy and Coal Industry faced several challenges that directly influenced lagging behind the schedule and imbalance with the rate of coal accumulation. The first one is a result of operation of Ukrzaliznytsia that fails to transport the contracted volumes of coal in time due to the shortage of freight cars65. The other reason is related to the depletion of coal stocks as a result of the increased load on TPPs in summer due to prolonged repairs at NPP units, in particular, with the view of increasing their lifespan66.

For the purpose of effective resolution of problems with coal stocks, on November 21, the NEURC, by its Resolution No. 2007, approved the decision of the Wholesale Electricity Market Council of Ukraine of November 18, 2016 which introduced new rules of operation of the Wholesale Electricity Market in Ukraine for the period until February 28, 2017, in accordance with which the dispatcher of Ukrenergo, in order to cover base load, will primarily switch into the network power units of those TPPs whose coal reserves in their storage facilities exceed those authorized for them by the Ministry of Energy and Coal Industry67.

On December 12, the NEURC set a tariff for 34 CHPPs and co-generation installations for heat and electric power from January 1, 201768, having fixed an average market price for coal on the European market (based on aver61 http://economics.unian.ua/energetics/1667927-ukrajina-z-pochatku-roku-skorotila-import-kamyanogovugillya-ta-antratsitu.html 62 http://ua-energy.org/post/64047 63 http://ua-energy.org/post/64114 64 http://mpe.kmu.gov.ua/minugol/control/uk/publish/article?art_id=245155399&cat_id=35109 65 http://economics.unian.ua/energetics/1596191-zapasi-vugillya-na-ukrajinskih-tes-i-tets-zrosli-do-68-vidplanu.html 66 http://www.epravda.com.ua/rus/publications/2016/10/20/608470/ 67 http://www.nerc.gov.ua/?id=22206 68 http://interfax.com.ua/news/economic/390135.html

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age АРІ2 indexes on CIF terms in major ports of Western Europe for the period from November 2015 to November 2016): for the anthracite group — UAH 1,757/ton, VAT excluded, for gas coal group — UAH 1,641/ton, VAT excluded69.

The problem with arrears to workers of the coal industry remained one of the key issues during the whole year. Thus, by the end of December, the debt amounted to over UAH 1 billion70. However, the Minister of Energy, based on the Law of Ukraine “On the State Budget of Ukraine for 2016” providing for the support of coal producers71, promised to repay all the debts to the miners72. He also stated that the budgetary legislative package provides for the next year UAH 1 billion for material support of mines under the mechanism of state guaranties, UAH 1 billion for compensation of difference between the coal price and its production cost, and UAH 800 million for restructuring of the coal industry73.

Conclusion: Despite the overall stable performance of the United Energy System of Ukraine, as well as setting up a system of cooperation with international financial institutions to strengthen security of supplies (in terms of implementation of infrastructure projects and programs for strengthening NPP safety), the coal market has not overcome the crisis in supplies. The issue of the switch of NPPs to load following failed to be solved, because it requires serious professional discussion and technical training.

69 http://www.nerc.gov.ua/data/filearch/Materialy_zasidan/2016/12.12.2016/p2-12-12-2016.pdf 70 http://www.unn.com.ua/uk/news/1629841-zaborgovanist-iz-zarplati-shakhtaryam-derzhashakhtstanovitime-ponad-1-mlrd-grn-do-kintsya-roku-m-volinets 71 http://w1.c1.rada.gov.ua/pls/zweb2/webproc4_1?pf3511=59271 72 https://www.rbc.ua/ukr/news/minenergo-pogasit-dolgi-zarplate-pered-shahterami-1482415081.html 73 http://ua-energy.org/post/64359

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Council Directive 2014/87/Euratom amending Directive 2009/71/Euratom establishing a Community framework for the nuclear safety of nuclear installations (Article 342, Chapter 1, Section V of the Association Agreement) The Directive establishes the European framework for maintaining and promoting consistent improvement of nuclear safety and its regulation, as well as takes necessary measures to ensure that EU member states approve the relevant national provisions in order to provide increased security for the population and workers from the harmful effects of ionizing radiation emanating from the nuclear installations. The Directive applies to any civil nuclear installation subject to licensing.

The Directive was to be implemented in accordance with Order No. 110 of the Cabinet of Ministers of Ukraine «On Approving Plans Developed by the State Nuclear Regulatory Inspectorate for Implementing Certain Legislative Acts of the EU»74, dated February 18, 2015, and according to the Performance Schedule approved by Order No. 54 of the SNRIU, dated March 24, 2015.

One of the main requirements of the Directive is the creation of an independent regulatory body for nuclear and radiation security and adoption of an appropriate regulatory framework that will guarantee its independence in making regulatory decisions. Currently, a draft law «On the National Commission for State Regulation of Nuclear Energy Use Safety» has been developed. To adopt the document, SNRIU develops amendments to other laws in the field of licensing and supervision that will enable to determine a special status of the National Commission and specific features of the regulation of activities in the field of nuclear energy security at the legislative level.

The work is also performed on detailing the list of activities, which are subject to state regulation in the field of nuclear energy use and functions of the National Commission. According to SNRIU, at the end of December, the final provisions of the project with respect to amendments to some laws in the field of nuclear energy use were finalized75. In addition, the fact that the Law on the NEURC76 is adopted inserts a positive impact on the adoption of such law in future, and this resolves a legal conflict which existed in the legislation regarding the status of regulatory authorities.

74 http://www.snrc.gov.ua/nuclear/uk/publish/article/272141;jsessionid=E82F6424D6592EEA7DDD9A722A 46D470.app1 75 http://www.snrc.gov.ua/nuclear/uk/publish/article/344273 76 http://zakon0.rada.gov.ua/laws/show/1540-19

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In order to optimize the use of public funds allocated by SNRIU and efficient management of territorial bodies, on June 8, by its Resolution No. 358 «On Operation of Territorial Bodies of the State Nuclear Regulatory Inspectorate»77 the Government liquidated inter-regional territorial bodies of the State Nuclear Regulatory Inspectorate as legal entities of public law.

They are now operating as structural subdivisions of the SNRIU. On January 27, 2016, by its Resolution No. 89 «On Amendments to the Procedure for Developing and Approving Regulations, Rules and Standards on Nuclear and Radiation Safety»78 the CMU approved amendments to the procedure developed by the SNRIU in 1997. On March 22, the Requirements for Nuclear Power Plant Safety Evaluation79 were amended on the basis of Order No. 15 of the SNRIU, dated February 11, 201680. On October 18, by its Order No. 176 the SNRIU approved the «Procedure for Developing and Publishing Rules and Regulations on Nuclear and Radiation Safety by the State Nuclear Regulatory Inspectorate of Ukraine» 81. At the end of October 2016, the restated draft «Basic Provisions for Safe Dry Cask Storage of Spent Nuclear Fuel» approved by the SNRIU were finalized and recognized as containing no regulatory impact.

In order to implement the Directive and harmonize it with the current IAEA standards and WENRA documents, in 2016 the development of the following regulations82 was completed, and they have been approved, have come into effect and shall be binding83: • Requirements for the Systems of Nuclear Fuel Emergency Cooling and Transferring Heat to the Ultimate Heat Sink (approved by Order No. 233 of the SNRIU on December 24, 2015)84; • Requirements for Electricity Supply Systems Important for Nuclear Power Plant Safety (approved by Order No. 234 of the SNRIU on December 24, 2015)85; • Requirements for Nuclear Power Plant Safety Evaluation (amendments approved by Order No. 15 of the SNRIU on February 11, 2016)86; • Requirements for Seismic Design and Evaluation of Seismic Safety of Power Units of Nuclear Power Plants (approved by Order No. 175 of the SNRIU on October 17, 2016)87; • Requirements for NPP Crisis Centers (amendments, approved by Order No. 201 of the SNRIU on December 9, 2016)88.

77 http://www.kmu.gov.ua/control/uk/cardnpd?docid=249107664 78 http://zakon3.rada.gov.ua/laws/show/89-2016-%D0%BF 79 http://zakon1.rada.gov.ua/laws/show/z0964-10 80 http://zakon1.rada.gov.ua/laws/show/z0303-16 81 http://www.snrc.gov.ua/nuclear/doccatalog/document;jsessionid=66C362A89BC88B8F3B3EB82D780F2 41B.app2?id=347043 82 http://www.snrc.gov.ua/nuclear/uk/publish/article/325791 83 http://www.snrc.gov.ua/nuclear/uk/publish/article/325791 84 http://zakon3.rada.gov.ua/laws/show/z0077-16 85 http://zakon3.rada.gov.ua/laws/show/z0078-16 86 http://zakon5.rada.gov.ua/laws/show/z0303-16 87 http://zakon5.rada.gov.ua/laws/show/z1449-16 88 http://search.ligazakon.ua/l_doc2.nsf/link1/RE29855.html

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In addition, by its Order No. 33, dated March 3, 2016, the SNRIU recognized the following regulations of the former Soviet Union as not applicable in the territory of Ukraine: • PNAE G-5-020-90, the Rules for Design and Safe Operation of Systems of Nuclear Fuel Emergency Cooling and Transferring Heat to the Ultimate Heat Sink, approved by Resolution No. 3 of the USSR Committee for Supervision of the Safe Conduct of Work in Industry and Atomic Energy on May 4, 1990; • PNAE G-9-026-90, the General Regulations on Design and Safe Operation of Emergency Electricity Supply Systems of Nuclear Power Plants approved by Resolution No. 2 of the USSR Committee for Supervision of the Safe Conduct of Work in Industry and Atomic Energy on April 26, 1991; • PNAE G-9-027-91, the Rules for Designing Emergency Electricity Supply Systems of Nuclear Power Plants approved by Resolution No. 11 of the USSR Committee for Supervision of the Safe Conduct of Work in Industry and Atomic Energy on October 28, 199189.

At the end of December 2016, the following projects were on the stage of approval and revision: • General requirements for aging management and long-term operation of nuclear power stations; • Requirements for modifications of nuclear facilities and the procedure for their safety evaluation; • Requirements for the structure and content of the report on NPP safety analysis90.

Conclusion: In general, the adaptation of laws to Council Directive 2014/87/Euratom was conducted actively and almost within the planned deadlines with positive practical results which have already come into force and are binding. However, one of the most important issues, namely the establishment of an independent regulatory body for nuclear and radiation safety, was not completed in 2016.

89 Information received from the report of the State Nuclear Regulatory Inspectorate on monitoring the EUUkraine Association Agreement implementation monitoring in 1Q2016, and from the report of the Ukrainian Centre for European Policy "Ukraine and the Association Agreement: Implementation Monitoring (July 1 November 1, 2016)", http://ucep.org.ua/en/wp-content/uploads/2017/04/Zvit_2_UCEP_ENG_WEB.pdf 90 http://www.snrc.gov.ua/nuclear/uk/publish/article/344273

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Council Directive 2013/59/Euratom establishing basic safety standards for protection against the dangers arising from ionizing radiation and repealing Directives 89/618/Euratom, 90/641/Euratom, 96/29/ Euratom, 97/43/Euratom and 2003/122/Euratom (Article 342, Chapter 1, Section V of the Association Agreement) The Directive establishes uniform basic safety standards to protect the health of persons exposed to occupational radiation exposure, exposure for medical purposes, as well as exposure of the population and directed against hazards associated with ionizing radiation.

The Directive concerns planned, existing or emergency situation which involves a risk to ionizing radiation. In particular, it applies to: the manufacture, production, processing, handling, disposal, use, accumulation, storage, holding, transport, import to and export from the EU of radioactive material; the manufacture and operation of electrical equipment emitting ionizing radiation; human activities with natural radiation sources that could lead to a significant increase in the exposure of employees or the public; domestic exposure to radon gas in indoor air and external exposure to gamma radiation from building materials; managing long-term emergency exposure situations that require measures to protect the public and personnel.

The Directive was to be implemented in accordance with Order No. 110 of the Cabinet of Ministers of Ukraine «On Approving Plans Developed by the State Nuclear Regulatory Inspectorate for Implementing Certain Legislative Acts of the EU»91, dated February 18, 2015, and according to the Performance Schedule approved by Order No. 54 of the SNRIU, dated March 24, 2015.

During the year, none of the regulations was adopted, only drafted. In particular, the draft Law of Ukraine on amendments to the laws «On Nuclear Energy Use and Radiation Safety»; «On Permissive Activities in the Field of Nuclear Energy Use»; «On Human Protection against Impact of Ionizing Radiation» was developed; with respect to: • Handling of materials containing naturally occurring radionuclides (Articles 15 and 16 of the Directive); • Education and training on nuclear and radiation security (Articles 14, 34, 79, 82, 83); • Medical radiation exposure (Chapter 7 of the Directive); • Exposure dose calculations (Chapter 7 of the Directive); • Other (Articles 11, 26, 31, 32, 33, 35, 52 of the Directive); 91 http://www.snrc.gov.ua/nuclear/uk/publish/article/272141;jsessionid=E82F6424D6592EEA7DDD9A722A 46D470.app1

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That draft law was submitted to the Verkhovna Rada of Ukraine on February 1, 2016 under No. 385892. Due to changes in the government, the draft law was withdrawn93 and only on December 16, after passing reapproval and additional legal expertise, it was registered with the Verkhovna Rada of Ukraine under No. 555094. The draft law provides for: • settling nuclear and radiation safety issues insofar as they concern reduction of risks of long-term radon exposure; settling issues relating to radiation protection in case of medical radiation exposure; • improvement of state regulation of operations relating to uranium ore mining and processing, and introduction of licensing for uranium ore processing, account taken of specific aspects of the technology of production of uranium concentrate.95 Besides, in accordance with Chapter 7 of the Directive, the second restated draft resolution of the Cabinet of Ministers of Ukraine «On Approving the Procedure for Creation of a Unified State System for Monitoring and Accounting of Individual Exposure Doses» was developed, which is to be approved by the relevant authorities.

The examination revealed that the current Regulation on the State Nuclear Regulatory Inspectorate of Ukraine, approved by Resolution No. 363 of Cabinet of Ministers of Ukraine on August 20, 2014, takes into account all the functions and responsibilities of the state regulatory authority for nuclear and radiation safety defined by the provisions of the Directive and does not require any revision or amendment. Therefore, the corresponding tasks will be excluded from the implementation plan as being taken into account in the national legislation96.

A draft joint order of the Ministry of Healthcare and the SNRIU «On Approving General Regulations for Radiation Safety of Using Ionizing Radiation Sources in Medicine» was developed. Registration of this document with the Ministry of Justice of Ukraine was scheduled for January 2017.

In addition, the Requirements for Administrative Monitoring of Uranium Facilities within the Limited Release from Regulatory Control and Regulations for Radiation Safety of Using Ionizing Radiation Sources in Brachytherapy, which are under internal approval, were developed.

Conclusion: Unfortunately, the work on implementing the rules and regulations of the Directive is moving very slowly. None of the regulations was adopted during the year.

Besides, the exeution on a large part of tasks has not been started yet, particularly as regards ensuring of radiation security in the situations of existing, planned and emergency exposure.

92 http://w1.c1.rada.gov.ua/pls/zweb2/webproc4_1?id=&pf3511=58006 93 http://www.snrc.gov.ua/nuclear/uk/publish/article/344273 94 http://w1.c1.rada.gov.ua/pls/zweb2/webproc4_1?id=&pf3511=60744 95 http://www.snrc.gov.ua/nuclear/uk/publish/article/345950 96 http://www.snrc.gov.ua/nuclear/uk/publish/article/349340

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Council Directive 2006/117/Euratom on the supervision and control of shipments of radioactive waste and spent fuel (Article 342, Chapter 1, Section V of the Association Agreement) 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.

Implementation of activities provided for by the Directive Implementation Plan (Order No. 110 of the CMU «On Approving Plans Developed by the State Nuclear Regulatory Inspectorate for Implementing Certain Legislative Acts of the EU», dated February 18, 2015) completed by the end of 2015. As a result, the SNRIU developed a draft Resolution of the CMU «On Amending the Procedure for Authorizing International Transportation of Radioactive Materials». This project is still under approval because for the major obstacle to the completion of such task was the refusal of the State Regulatory Services (SRS) to approve the project – in particular, until bringing Law No. 1370-XIV «On Permissive Activities in the Field of Nuclear Energy Use», dated January 11, 2000 in line with the Law «On Administrative Services». That is, it will be possible after the adoption of draft Law No. 3858 «Draft Law on Amending Some Laws of Ukraine in the Field of Nuclear Energy Use» which was re-registered under No. 5550 on December 16, 201697.

Conclusion: Due to political changes, namely the change of the Government, there was a delay in amending the relevant laws, which in turn caused a delay in the implementation of the rules and provisions of the Directive.

97 http://w1.c1.rada.gov.ua/pls/zweb2/webproc4_1?pf3511=58006

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Cooperation in the nuclear security sector (Article 342, Chapter 1, Section V of the Association Agreement) Cooperation in the civil nuclear sector must ensure a high level of nuclear security and peaceful use of nuclear energy. The cooperation covers the entire range of activities in the field of civil nuclear energy and all stages of the fuel cycle, in particular production of and trade in nuclear materials, security aspects of nuclear energy, emergency preparedness and health issues, environmental protection and non-proliferation of nuclear weapons. In this context, such cooperation also includes further development of policies, legal and regulatory framework, based on the EU legislation and practice, as well as standards of the International Atomic Energy Agency (IAEA). The Parties should support civil scientific research in the field of nuclear safety, including joint research and development, training and mobility of researchers.

During the year, numerous scheduled inspections of Ukrainian NPPs were carried out by IAEA inspectors within the Agreement between Ukraine and the IAEA for the application of safeguards in connection with the Treaty on Non-Proliferation of Nuclear Weapons. Besides, reviews were performed by the experts of the World Association of Nuclear Operators (WANO) within the activities aimed at improving the safety and reliability of nuclear power plants. The SNRIU and the State Scientific and Technical Center for Nuclear and Radiation Safety (SSTC NRS), in their turn, also conducted inspections of compliance, rules, regulations and standards for nuclear and radiation safety in operating the power units.

Modernization of the normal operating system important for the turbine house safety, turbine mechanical control system, and automatic control and remote control system, as well as introduction of technological equipment for the protection, blocking and security alarm98 were carried out in December at the Unit No. 3 of Rivne NPP in the course of the implementation of the Complex Consolidated Safety Upgrade Program which is implemented at the expense of loan funds of the EBRD/Euratom.

On July 13, the Cabinet of Ministers of Ukraine adopted Resolution No. 434 «On Approving the Use of Funds Provided in the State Budget for Securing Uranium Facilities»99, and on July 22, the CMU adopted Order No. 501-p «On Approving a Comprehensive Action Plan for the Implementation of the Project Threats for Nuclear Facilities, Nuclear Materials, Radioactive Waste and Other Sources of Ionizing Radiation in Ukraine»100.

During the year, the Government continued its work to reduce dependence on Russian nuclear fuel by implementing the policy of diversification of fuel supplies to Ukraine. In particular, Ukraine made an agreement with 98 http://www.energoatom.kiev.ua/ua/press/nngc/46180-na_energoblotc__raes_triva_modernzatcya_ obladnannya_sistem_kontrolyu_ta_upravlnnya/ 99 http://zakon3.rada.gov.ua/laws/show/434-2016-%D0%BF 100 http://www.kmu.gov.ua/control/uk/cardnpd?docid=249211652

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American Westinghouse in August on increasing fuel supplies101 and the future construction of nuclear fuel production plant in Ukraine102. On August 18, URENCO, a company owned by the UK, Germany and the Netherlands, and Energoatom National Nuclear Energy Generating Company signed a supply agreement for enriched uranium103. Under the program for diversification of sources of nuclear fuel for Ukrainian nuclear power plants, the share of Russian fuel in procurements reduced to 64% during the last 9-month period, and 35.9% were imported from Sweden104. Besides, modernization of South Ukraine and Zaporizhzhia NPPs went on; as a result, its completion will make it possible to increase the share of nuclear fuel produced by Westinghouse in the structure of supplies.105 On August 31, Energoatom and Korea Hydro & Nuclear Power (KHNP) signed a Memorandum of Understanding to expand cooperation in the nuclear energy sector106. On September 1, Energoatom concluded an agreement with Merrill Lynch, Pierce, Fenner & Smith Inc. acting in the capacity of Bank of America Merrill Lynch, on coordination of USD 250 million investment for the nuclear waste repository107. On September 19, the Ministry of Energy and Coal Industry, CNBM International Corporation (China) signed the Memorandum of cooperation and implementation of common projects in the energy sector. The planned size of CNBM’s investments is expected to be up to USD 2 billion108.

On November 9, the Cabinet of Ministers of Ukraine adopted the Concept of the State Target Economic Program for Developing the Nuclear Power Complex by 2020109. This program provides for establishing nuclear fuel production as well as producing its components in Ukraine with the view to ensure diversification of its supply and import substitution to fully satisfy needs of the national NPPs in domestic fuel110.

On September 28, Energoatom NNEGC and Westinghouse agreed to start works on the Efficiency Improvement Program (EIP) for Ukrainian NPPs, which will include a number of measures taking into account security aspects to ensure compliance with the particular EU standards. The above measures will be supplementary to the ongoing works on improvement 101 http://mpe.kmu.gov.ua/minugol/control/uk/publish/article?art_id=245133420&cat_id=35109 102 http://ua.interfax.com.ua/news/general/361940.html 103 http://www.energoatom.kiev.ua/ua/press/nngc/45743-energoatom_ta_urenco_uklali_ugodu_pro_ postachannya_zbagachenogo_uranu__/ 104 http://economics.unian.net/energetics/1647931-ukraina-s-nachala-goda-importirovala-iz-shvetsii-36yadernogo-topliva.html 105 http://www.energoatom.kiev.ua/ua/press/nngc/46118-na_pershomu_spetckorpus_zaporzko_aes_ vstanovleno_kantuvach_dlya_paliva_westinghouse/ 106 http://www.energoatom.kiev.ua/ua/press/nngc/45785-energoatom_ta_koreyiska_khnp_pdpisali_ memorandum_pro_vzamorozumnnya_v_galuz_atomno_energetiki/ 107 https://www.rbc.ua/ukr/news/bank-of-america-pomozhet-energoatomu-privlech-1473070906.html 108 http://mpe.kmu.gov.ua/minugol/control/uk/publish/article?art_id=245143861&cat_id=35109 109 http://zakon5.rada.gov.ua/laws/show/943-2016-%D1%80 110 https://www.rbc.ua/ukr/news/pravitelstvo-razreshilo-proizvodstvo-dernogo-1478703976.html

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of security within the framework of the Complex Consolidated Safety Upgrade Program supported by the EBRD and Euratom111.

According to the National Action Plan for Ukraine and based on the results of «stress tests»112, in 2016, the efforts to implement measures to improve nuclear power plants security were taken in 2016. In particular, much attention was paid to the results of «stress tests» for power units No. 1 and No. 2 at Zaporizhzhia NPP and according to the results of measures taken to improve security. As regards the extension of the operation of these units, the condition and the results of the implementation of such measures played an important role in making the decision. On September 21, power unit No. 1 of Zaporizhzhia NPP got started beyond the projected period based on the license issued by the State Nuclear Regulatory Inspectorate of Ukraine (SNRIU) regarding extension of the service life until December 23, 2025113. On October 6, power unit No. 2 of Zaporizhzhia NPP was connected to power networks based on the license issued by the State Nuclear Regulatory Inspectorate of Ukraine (SNRIU) regarding extension of the service life until February 19, 2026114.

On October 4, the Verkhovna Rada of Ukraine adopted the Law No. 4612 «On Amending Article 265 of the Criminal Code of Ukraine as Regards Voluntary Surrender of Radioactive Materials»115. This measure will facilitate voluntary surrender, registration and examination of radioactive waste, 111 http://www.energoatom.kiev.ua/ua/press/nngc/45900-joint_statement_of_se_nnegc_energoatom_and_ westinghouse_on_expansion_of_cooperation_on_the_occasion_of_the_visit_of_secretary_of_commerce_ penny_pritzker/ 112 http://www.snrc.gov.ua/nuclear/doccatalog/document;jsessionid=A9F32556956ED98DB4654E99D1C2 5E7C.app1?id=269953 113 http://www.energoatom.kiev.ua/ua/press/nngc/45871-energoblok__zaporzko_aes_pristupiv_do_ roboti_v_ponadproektniyi_strok/ 114 http://www.energoatom.kiev.ua/ua/press/nngc/45932-energoblok__zaporzko_aes_pdklyucheno_do_ energomerej_pslya_prodovjennya_termnu_yiogo_ekspluatatc/ 115 http://zakon5.rada.gov.ua/laws/show/1638-viii

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registration thereof with the national accounting system and transfer to controlled storage. In addition, the SNRIU, together with the respective bodies of other central executive authorities of Ukraine, continued their activities aiming at detection of illicit trafficking of radioactive materials outside effective regulatory control116.

Since July, Ukraine has been submitting data to the European Radiological Data Exchange Platform (EURDEP) in real time in the testing regime, in accordance with the EU standards for protection of the population against the dangers arising from exposure to ionizing radiation. This enhances the opportunities for making assessment and prognosis in radiological emergency cases and provides free access of the public to the radiological information117. To prove free access of the public to radiological information, the SNRIU made it possible for anyone to monitor real-time information from the Automated Radiation Monitoring System in the control area of all NPPs of Ukraine, which is published in real time118.

Conclusion: Overall, Ukraine and its partners have been successfully developing their cooperation in matters of diversification of nuclear fuel supplies, improvement of NPPs safety, sharing of radiological data and joint research in the field of nuclear safety.

116 Â https://www.facebook.com/%D0%94%D0%B5%D1%80%D0%B6%D0%B0%D0%B2%D0%BD%D0 %B0-%D1%96%D0%BD%D1%81%D0%BF%D0%B5%D0%BA%D1%86%D1%96%D1%8F-%D1%8F%D0%B 4%D0%B5%D1%80%D0%BD%D0%BE%D0%B3%D0%BE-%D1%80%D0%B5%D0%B3%D1%83%D0%BB% D1%8E%D0%B2%D0%B0%D0%BD%D0%BD%D1%8F-%D0%A3%D0%BA%D1%80%D0%B0%D1%97%D0 %BD%D0%B8-%D0%94%D0%B5%D1%80%D0%B6%D0%B0%D1%82%D0%BE%D0%BC%D1%80%D0%B 5%D0%B3%D1%83%D0%BB%D1%8E%D0%B2%D0%B0%D0%BD%D0%BD%D1%8F-171734492888296/ photos/?tab=album&album_id=1288500367878364 117 http://www.snrc.gov.ua/nuclear/uk/publish/article/334369 118 https://www.facebook.com/171734492888296/photos/a.413769242018152.96129.171734492888296/ 1199684440093291/?type=3&theater

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Cooperation in solving the problems caused by the Chernobyl accident, and decommissioning of the Chernobyl Nuclear Power Plant (Article 342, Chapter 1, Section V of the Association Agreement) Cooperation aims at resolving problems caused by the Chernobyl accident and putting Chernobyl NPP out of operation, including: a) Shelter Implementation Plan (SIP) for transforming the existing destroyed 4th block (Object «Shelter») into an environmentally safe system; b) spent nuclear fuel handling; c) area decontamination; d) radioactive waste handling; e) environmental monitoring; f) other matters as may be jointly agreed, for example, medical, scientific, economic, social and administrative aspects of activities aimed at minimizing the consequences of disasters.

During the year 2 projects were implemented by the SNRIU in cooperation with the EBRD119: Chernobyl Shelter Fund: Licensed Consultant and Chernobyl NPP Nuclear Safety Project.

Within the scope of the first project, the SNRIU performed technical evaluations (nuclear and radiation safety examinations) of the documents within the Shelter Implementation Plan. In particular, the SNRIU completed the review and approved technical solutions to optimize the fire alarm system and foam fire extinguishing system as part of the start-up complex of the New Safe Confinement (NSC). In addition, in February, the SNRIU issued a separate permit to operate the Integrated Automated Monitoring System for Chernobyl NPP Shelter (IAMS). The IAMS consists of four monitoring systems: nuclear safety monitoring, radiation monitoring, monitoring of structures and seismic monitoring. This system is designed to perform Shelter monitoring and raise the status of nuclear and radiation safety and general technical safety of the site, including improvement of emergency preparedness.

119 Letter No. 07-28/8159-40 from the SNRIU, dated December 7, 2016.

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Within the scope of the second project, the SNRIU supervised the construction of a Dry Cask Storage of Spent Nuclear Fuel at Chernobyl NPP, which was carried out in accordance with the terms and conditions of License No. 001002 of the SNRIU «Construction and Commissioning of a Nuclear Facility (Interim Spent Fuel Storage Facility (ISF-2)) issued by SSE ChNNP on February 20, 2013. During the year, the SNRIU carried out the review of technical specifications (TS) for systems and equipment important in terms of ISF-2 safety, as well as programs for testing such systems and components. In addition, the SNRIU approved 32 equipment testing programs out of 33 scheduled programs and 2 TSs for equipment out of 41 developed TSs. Besides, it conducted 30 factory acceptance tests for equipment out of 33 scheduled120.

On March 16, the Government approved the Resolution No. 181 «On Amending Resolution No. 234 of the Cabinet of Ministers of Ukraine, dated February 28, 2011» which increased funding of activities aimed at maintaining power units and Shelter Object in safe condition and taking measures to prepare for putting Chernobyl NPP out of operation121. On April 13, the President issued Decree No. 141/2016 «On Additional Measures to Transform Shelter Object into an Ecologically Safe System and Revive the Territory Affected by Radioactive Contamination as a Result of the Chernobyl Disaster»122. On April 21, the Verkhovna Rada of Ukraine adopted the Law No. 1339-VIII to eliminate discriminatory treatment of the citizens involved in the nuclear emergency response, nuclear tests and military training exercises involving nuclear weapons123.

On July 14, the Verkhovna Rada of Ukraine adopted the Law No. 1472VIII «On Amending Certain Laws and Regulations of Ukraine to Regulate Certain Issues of Legal Regime in the Territory Affected by Radioactive Contamination as a Result of the Chernobyl Disaster»124. This Law shall regulate the performance of scientific, environmental activities in the exclusion zone, as well as regulate powers of the executive authorities in the 120 Ibid.

121 http://www.kmu.gov.ua/control/uk/cardnpd?docid=248902014 122 http://www.president.gov.ua/documents/1412016-19918 123 http://zakon5.rada.gov.ua/laws/show/1339-19 124 http://zakon3.rada.gov.ua/laws/show/1472-19

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area. The document came into force on August 4, 2016125 and creates conditions for the allocation of land in the exclusion zone for the construction of CSNFSF. On October 5, the Cabinet of Ministers of Ukraine adopted Order No. 721р «On redemption and provision of parcels of land for permanent and change of their designated use»126, by which it changed designated use of land plots situated in the Chernobyl exclusion zone with the purpose of construction of the CSNFSF127 and allotted land plots with the total area of 45.2 ha for its construction128.

At the same time, Decree No. 174 of the President of Ukraine “On Establishing Chernobyl Radiation and Environmental Biosphere Reserve”, dated April 26, 2016, came into force that aims to facilitate preservation of the most typical natural habitats of Polissia region, provide support to and enhance the barrier function of the zones of exclusion and unconditional (compulsory) resettlement, ensure stabilization of the hydrological regime and rehabilitation of territories contaminated with radionuclides, facilitate the organization and conducting of international scientific research129.

In September, State Agency of Ukraine on the Exclusion Zone Management (SAEZM), Chernobyl Research and Development Institute and EasyBusiness presented a teaser they made for an investment project Chernobyl Solar which concerns construction of a solar power plant in the exclusion zone. The project is at the stage of development, and both domestic and foreign investors are invited to take part in it.130. Taking into account that the Government’s strategic objective is the transformation of the exclusion zone into an area attractive to investments (in particular, this initiative will be supported by adopting relevant decisions to allow leasing out the state property in the Chernobyl exclusion zone taking into account reduction factor in respect of the rent131), on December 14, the SAEZM called for bids to claim land parcels for construction of solar power generation facilities, from the investors interested in the exclusion zone132. According to the Minister of Ecology and Natural Resources of Ukraine Ostap Semerak, the available infrastructure makes it possible to construct a solar power plant in Chernobyl whose power may be 1/4 of ChNPP capacity. Therefore, it is planned that the development of renewable energy in the Chernobyl exclusion zone will become a key direction of using thereof133.

125 http://www.energoatom.kiev.ua/ua/press/nnegc/45688-prezident_pdpisav_zakon_yakiyi_dozvolit_vidliti_ zemlyu_v_zon_vdchujennya_pd_shovische_vdpratcovanogo_yadernogo_paliva/ 126 http://zakon0.rada.gov.ua/laws/show/721-2016-%D1%80 127 http://www.energoatom.kiev.ua/ua/press/nnegc/45930-pravitelstvo_izmenilo_tcelevoe_ispolzovanie_ zemelnyh_uchastkov_dlya_soorujeniya_tchoyat/ 128 http://mpe.kmu.gov.ua/minugol/control/uk/publish/article?art_id=245150772&cat_id=245070653 129 http://dazv.gov.ua/novini-ta-media/vsi-novyny/glava-derzhavi-pidpisav-zakon-shchodo-vregulyuvannyapitan-pravovogo-rezhimu-teritoriji-zabrudnenoji-vid-chornobilskoji-katastrofi.html 130 http://dazv.gov.ua/novini-ta-media/vsi-novyny/vidnovlyuvalna-energetika-u-zoni-vidchuzhennya-novimozhlivosti-dlya-sektoru-energetiki.html 131 http://www.kmu.gov.ua/control/uk/publish/article?art_id=249627729&cat_id=244276429 132 http://dazv.gov.ua/vidnovliuvalna-enerhetyka/dazv-ogoloshue-pro-pochatok-prijmannya-zayavok-naotrimannya-v-koristuvannya-zemelnikh-dilyanok-dlya-budivnitstva-ob-ektiv-sonyachnoji-generatsiji-vidzatsikavlenikh-investoriv.html 133 https://www.rbc.ua/ukr/news/chernobyle-mozhno-sozdat-solnechnuyu-elektrostantsiyu-1480427149. html

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On October 19, the CMU decided to additionally allocate UAH 93,5774 million for 2016 under the budgetary program KPKV (Code under the programbased classification of budget) 2408110 “Maintaining an Environmentally Safe Situation in the Exclusion and Compulsory Evacuation Zones”134.

On November 29, the sliding of the New Safe Confinement (NSC) Arch over the Shelter over the ruined 4th power unit of Chernobyl NPP took place135.

The next stage, after the sliding of the NSC is completed, will start in 2017.

During the second phase it is planned to develop, by 2023, the infrastructure for dismantling of unstable structures of the Shelter facility and carry out dismantling thereof. The third phase provides for removal of fuel-capacious materials and long-living radioactive wastes from the power unit ruined as a result of explosion, with their subsequent conditioning and storage in the radioactive waste storage facilities136. The final objective of the project is minimization of negative impact of the ruined power unit on the environment not only during the lifespan of the NSC (100 years) but also for generations to come137.

Financing of the operation of the new safe confinement will cost Ukraine about UAH 600 million a year. This money Ukraine will start spending after the commissioning of the Shelter. The Shelter facility is planned to be put onto Ukraine’s balance in November 2017138. From that moment on, Ukraine will cease contributing to the international funds financing the construction139.

134 http://dazv.gov.ua/novini-ta-media/vsi-novyny/ostap-semerak-uryad-vidiliv-dodatkovikh-93-6-miljonagriven-na-virishennya-potochnikh-problem-u-zoni-vidchuzhennya.html 135 http://www.snrc.gov.ua/nuclear/uk/publish/article/343590 136 http://www.kmu.gov.ua/control/uk/publish/article?art_id=249539885&cat_id=244276429 137 http://dazv.gov.ua/novini-ta-media/vsi-novyny/vitalij-petruk-pro-podalshi-kroki-pislya-protsesunasuvannya-arki-na-ob-ekt-ukrittya.html 138 https://www.rbc.ua/ukr/news/ebrr-rasskazali-novoe-ukrytie-chaes-peredadut-1480421719.html 139 http://www.ukrinform.ua/rubric-economics/2129973-nove-ukritta-na-caes-kostuvatime-ukraini-600miljoniv-na-rik.html

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Conclusion: Along with the international projects for transforming Chernobyl NNP into an environmentally safe site, which were quite successful, the Government has plans related to the exclusion zone which may lead towards some positive changes and the possibility for the territory to obtain the status of a special industrial-purpose territory.

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Cloudy, short rains with a chance of «warm» loans

Energy Efficiency and Social Issues 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 EU in order to ensure the achievement of the Union’s 20% target on energy efficiency by 2020. Pursuant to the Directive, all EU countries must use energy more efficiently at all stages of the energy chain from its production to final consumption. National measures should provide for significant energy savings both for consumers and for the industry. They provide, in particular, for energy savings in transmission and distribution, enhancing energy performance of heating systems, purchase of buildings, products and services with high energy-efficiency performance by public bodies in the EU, the annual energy saving repairs, expanding rights and possibilities of consumers in the area of energy management, national incentives for small and medium-sized enterprises to conduct energy audit.

«Warm Loans» Program Because of the lack of fully operational and efficient mechanisms of the implementation of energy efficiency measures provided for by EU directives that have not yet been implemented so far, the role of particular existing support programs increases. In particular, the public’s trust in the governmental «warm loans» program is gradually increasing which is demonstrated by the national research data of the governmental program (November 2016) — as many as 155,000 households received state support in the form of energy efficiency loans totaling over UAH 2.5 billion.1 1 http://saee.gov.ua/sites/default/files/DG.pdf

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In the course of the Program implementation the borrowers received reimbursements amounting to UAH 1,019,930,000, namely: • UAH 74,630,000 – for the purchase of boilers; • UAH 932,250,000 – for energy efficient products, • UAH 13,050,000 – for co-owners associations and house development cooperatives.

In order to meet the demand for the program, the state budget for 2016 envisaged UAH 893.8 million for reimbursements under the «warm loans» program, which is three times in exceed of the amount envisaged for 2015.

In 2016, 216 local programs were developed and adopted for reimbursing part of interests or the amount of «warm loans» to the households. This is 2.7 times more than in 2015 (81 programs). The funds envisaged in the local budgets also increased: UAH 34 million were allocated for the programs implementation in 2015, and UAH 71 million – in 2016.2 Due to the high demand for the state support of individuals, especially for purchasing energy efficient materials and equipment with 30% reimbursement, the Program funds envisaged for the respective objectives were taken up during the first half of the year.

Subject to the foregoing, the Program, in terms of providing reimbursements to individuals from the state budget, was suspended on July 6, 2016. Given the demand for the Program and the opportunity to influence the issue of funding the relevant events, government officials repeatedly stressed the need for additional funds from the state budget for the extension of the program. During its meeting on July 27, 2016, the Government adopted amendments (Resolution No. 589 of the CMU) in terms of adjusting the allocation of funds for individuals to implement energy saving meas2 http://saee.gov.ua/uk/news/1521

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ures and the amount of the compensation on the part of the loan amount in percent. However, having reduced the amount of the compensation at the expense of the budget, the Government allocated no additional funds for the restoration of the government program. Instead, the program funds were redistributed so that a larger proportion are allocated for financial compensation of energy efficiency measures taken by individuals.

Through a series of unjustified bureaucratic delays, the Program was actually restored only on October 6, 2016. Lost time period for obtaining loan funds, which amounted to almost 4 months, demonstrates the lack of consistency and continuity in the actions performed by officials in pursuance on the state policy in the field of energy efficiency. In addition, the motivating measures of easy-term lending for the households were not available for the time when the implementation of energy efficiency measures by the households is mostly justified, that is before the heating season. Moreover, these changes to the Program were published on the official website of the CMU only in September, thought they were adopted on July 27, 2016.

Upon the Government decision to redistribute funds within the «warm loans» program, aimed at the implementation of energy efficiency measures, in particular for individuals, the demand for purchasing non-gas/ non-electric boilers significantly increased. The need to reimburse the loan amount according to the program was higher than the balances. So, on November 23, the Cabinet of Ministers of Ukraine decided to redistribute additional UAH 20 million within the Program to encourage and support co-owners associations and house development cooperatives.

In addition to prolonging the “warm loans” program, the Prime Minister V.Groysman ordered that regional state administrations together with local self-governing authorities accelerate the process of approval of local programs of co-financing of energy efficiency measures for households and called on heads of regional state administrations and mayors to provide more active support to households in energy modernization of their housing.

The draft law «On State Budget for 2017» envisaged no expenditures on «warm loans» program in 2017, that caused concern among the public, experts and representatives of co-owners associations. After a series of information events, meetings and parliamentary inquiries, and public appeal on the results of the round table «How to Stop Burning Money?», the Cabinet of Ministers of Ukraine made a decision to allocate funding for the program in the amount of UAH 400 million. These funds were included in the state budget for 2017 approved by the Verkhovna Rada of Ukraine expenditures for financing the State Target Economic Program on Energy Efficiency and Development of Energy Generation from Renewable Energy Sources and Alternative Fuels for 2010–2017.

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However, according to the calculations of the State Agency for Energy Efficiency and Energy Saving, the minimal amount necessary for the implementation of the Program in 2017 is about UAH 2 billion3. During the presentation of the draft law «On Energy Efficiency Fund» at the meeting of the Cabinet of Ministers of Ukraine on December 7, 2016, the Prime Minister V.Groysman publicly promised to consider amendments to the state budget and allocate more funds for the «warm loans» program (take them from other expenditure items) on the results the program in the first half of 2017.

Bureaucratic obstacles rather unexpectedly hindered the continuation of the program, even in those rather insufficient amounts. A draft resolution of the CMU on extending the program for at least 2017 was submitted to the Ministry of Energy and Coal Industry for review and approval only on December 28, 2016. The first version of the draft resolution provided for the involvement of residential property managers and energy service companies (ESCOs) and its extension for two years - until the end of 2018. However, in the process of approval of the resolution, as restated, by the central executive authorities, the extension term of the Program has changed only for 2017, and ESCOs and residential property managers were excluded from the list of state support recipients. In addition, the restated resolution includes provisions for mandatory use of the communal heat metering unit as a precondition for receiving compensation, which will help to regulate monitoring of the efficient use of budgetary funds by co-owners associations under the Program.

However, the delay in launching the Program has already become traditional. Because of a series of bureaucratic obstacles in the past years, the Program was constantly launched with delay (in 2015 – from June, in 2016 – from May). But the continuation of the measures from the start of the year is now even more urgent, because many co-owners associations have already attracted loans, but have not been included in the compensation registers due to their failure to provide supporting documents in time. This can result in overpayment of interest until all the procedural issues are resolved – from adopting the Resolution to approving the budget programs passport and entering into agreements on cooperation with the banks. In addition, since the relevant Government resolution on the extension of the Program has not been adopted yet, the adoption of local budgets takes place 3 http://saee.gov.ua/sites/default/files/DG.pdf

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without considering the costs of the local energy efficiency programs for the households. This situation may result in the loss of a significant positive dynamics in increasing the total funds provided for to encourage the implementation of energy saving and energy efficiency measures.

Indisputable positive aspects of the program implementation include the fact that it is actually the only state program supporting energy efficiency measures in housing, and that the funds provided for to finance the Program in 2016, have been provided and used in full. Despite the fact that the Program has its drawbacks, a record demand for the Program among the households was registered in 2016. Besides, we should recognize the work of officials who, though with a delay, tried to manually manage the functionality of the Program according to the unexpectedly high demand.

At the same time, due to lack of mechanisms for monitoring the reduction in heat consumption and determination of the level of energy efficiency after the relevant measures are taken, and due to improper administration of the Program, which caused its suspension in 2016 for two times, one cannot say that it was as effective as possible. Undoubtedly, the main provisions of the ÂŤwarm loansÂť program need improvement.

Energy Efficiency Fund Despite the fact that the creation of a unified centralized structure for public funding of energy efficiency measures is not binding, but is recommended by Directive 2012/27/EU, establishment of the Energy Efficiency Fund formation was considered the major task of the Government for this year4. Unfortunately, as of the end of the year we can say that we failed to cope with successfully. Development of a relevant draft law on Energy Efficiency Fund was included in the Action Plan of the Cabinet of Ministers of Ukraine for 2016 in March,5 but it was completed only by the very end of the year.

Following the trend of the previous years, during all twelve months, the responsible officials regularly presented the concept of the Energy Efficiency Fund6, gave numerous comments on specific features of its future performance, but managed to complete and submit the relevant draft law to the Verkhovna Rada of Ukraine for consideration only in the last working days of December.7 However, the registration of the revised8 draft law with the Verkhovna Rada of Ukraine can be considered a success, which can provide, albeit with a significant delay, for the creation of the Energy Efficiency Fund.

4 https://www.oporaua.org/zhytlo/43325-tepli-kredyty-vs-fond-enerhoefektyvnosti-realii-reformy 5 http://www.kmu.gov.ua/control/uk/cardnpd?docid=249104044 6 In particular, the Fund concept was presented in January, February, July and October.

7 http://w1.c1.rada.gov.ua/pls/zweb2/webproc4_1?pf3511=60811 8 The text of the draft law submitted to the Verkhovna Rada of Ukraine differs in some way from the draft law presented to the public on October 18, 2016 (http://www.minregion.gov.ua/press/video-press/forumenergonezalezhnist-stvorennya-fondu-energoefektivnosti/)

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The process of developing the draft law cannot be called consistent. So, in an attempt to formalize and speed up the introduction of the Energy Efficiency Fund, in July the Government adopted, by the relevant Order, an overall Concept of the introduction of mechanisms of stable financing of the energy efficiency measures (creation of the Energy Efficiency Fund).9 However, the Ministry of Regional Development has not published an action plan for the implementation of this Concept as is provided for in the second clause of the relevant Order. A working group organized by Vice Prime Minister H. Zubko in March also failed to complete the draft law development in time.10 According to the relevant order, the group includes representatives from various related ministries and the EBRD, consulting companies, and commercial banks.

The urgent need for establishing such a Fund, a great responsibility for significant financial resources, including donor funding to be accumulated in it, demand adoption of a separate special law that would regulate all the details of the Fund’s operation and especially would ensure its independence. Despite the obviousness of this statement, as of December 2016, the responsible committees of the Verkhovna Rada of Ukraine – for the fuel and energy complex, nuclear policy and nuclear safety and for housing and public utilities – have not managed to eliminate fragmented and obsolete provisions of governmental draft Law No. 4149 «On Energy Efficiency of Buildings»11, concerning the establishment of the Energy Efficiency Fund.

Moreover, in the first half of the year the Ministry of Regional Development considered the possibility of creating such an institution by the order of the Cabinet of Ministers of Ukraine, which in many ways could compromise the idea of​creating such an institution. Inconsistent actions taken by the Government and responsible ministries in the last six months should also be noted, since both draft laws – the mentioned draft law No. 4149 and specialized draft law «On Energy Efficiency Fund» – are government draft laws, and at the same time they are not properly coordinated.

The need to create proper regulatory environment for the Fund’s operation can be considered a certain hampering factor in the creation of the Fund.

In particular, Vice Prime Minister and Minister of Regional Development, Construction and Housing and Utilities Ukraine G. Zubko called the laws «On Commercial Metering of Public Utility Services», «On Energy Efficiency of Buildings» and «On Housing and Public Utility Services» prerequisites for the proper functioning of the Energy Efficiency Fund. A similar position has been expressed by other stakeholders, including experts. At the same time, the failure to adopt such laws cannot be considered a significant obstacle for finalizing the draft law on the Fund, because such legal framework determines the Fund’s ability to fulfill its duties effectively, and 9 http://www.kmu.gov.ua/control/uk/cardnpd?docid=249189954 10 http://www.minregion.gov.ua/wp-content/uploads/documents/%D0%9D%D0%B0%D0%BA%D0%B0%D0 %B7%2050.zip 11 http://w1.c1.rada.gov.ua/pls/zweb2/webproc4_1?pf3511=59631

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does not determines the possibility to establish the Fund as an institution.

The cornerstone of the Fund creation will be the format of its operation – as a financial or non-financial institution – as well as specific features of financial products or tools through which it will carry out its activities. No matter how important these issues are, as of mid-June, when the presentation of its concept was held at the Ukrainian Energy Efficiency Forum ‘16 «Energy Efficiency Fund: Key Start-up of Ukraine», Vice Prime Minister Zubko was not ready to provide detailed information on those issues. The draft law on the Fund, which was presented on October 18, 2016, at the Forum “Energy Independence. Creation of the Energy Efficiency Fund” with the participation of the United Nations, international financial institutions and donor countries, also contained no specific features and fundamental provisions for the Fund’s operation, according to the draft law, must be developed by the management bodies of the Fund.12 The only certain achievement is that the Ministry of Regional Development finalized the draft law, which was subsequently approved by the Cabinet of Ministers of Ukraine on December 7, 201613 and submitted to the Verkhovna Rada of Ukraine on December 26, 2016. However, although throughout 2016 Vice Prime Minister G. Zubko repeatedly expressed his hope that the draft law would be adopted as a whole in 2016 for the Fund to be able to start operation by the end of the first quarter of 2017, this did not happen. Due to extreme organizational complexity of the establishment of such institution and the importance of maintaining high standards of transparency and impartiality in the use of funds, it is difficult to predict how much time will be required after the adoption of the relevant law, which itself is a long-term task.

12 http://www.minregion.gov.ua/press/video-press/forum-energonezalezhnist-stvorennya-fonduenergoefektivnosti/ 13 http://www.kmu.gov.ua/control/uk/publish/article?art_id=249562603&cat_id=244276429

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Conclusion: In the field of energy efficiency development, the year 2016 can be characterized as ÂŤmarking timeÂť.

Against the backdrop of generally properly defined priorities, which primarily include the development and adoption of framework legislation in this field, the process of their implementation was delayed throughout the year, whereby no fundamentally important law has been adopted by the Verkhovna Rada of Ukraine.

Directive 2010/30/EU on the indication by labeling and standard product information of the consumption of energy and other resources by energy-related products This Directive regulates labeling 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 labeled with the information about their consumption of 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 of 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.

As regards the fulfillment of its obligations under Directive 2010/30/EC and the relevant delegated regulations, Ukraine started 2016 in good position, since the major part of the work had already been done. For example, the general Technical Regulations for energy labeling of energy-related products, Technical Regulations for energy labeling of household electric refrigerators and household washing machines were approved long ago in 201314. In addition, in 2015 the CMU, by its two respective Resolutions, approved technical regulations for energy labeling of light bulbs and electric lamps, as well as household dishwashers.

Unfortunately, since the beginning of 2016, the government has lost a significant pace of implementation. Out of five technical regulations, the 14 http://zakon3.rada.gov.ua/laws/show/702-2013-%D0%BF

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adoption of which would enable Ukraine to fulfill its appropriate obligations, no one was adopted, not even moved to the next step in its coordination. In particular, technical regulations for energy labeling of the following products are developed but not adopted: • TV sets; • household drum drying machines; • household ovens and cooker hoods; • air conditioners; • vacuum cleaners.

In accordance with the response of the State Agency for Energy Efficiency and Energy Saving of Ukraine to a request, all the draft CMU resolutions approving the above regulations have already been partially approved by various regulatory agencies, but due to amendments to the draft technical regulations themselves were sent for re-approval. As of December 2016, all draft regulations were under consideration in the State Service of Ukraine for Food Safety and Consumer Protection.

December 8 saw the final meeting of the Interdepartmental Working Group for the development of regulatory acts on setting requirements to ecodesign15. The European experts involved in the FINTECC project supported by the EBRD, have provided substantial assistance in the development of the draft Article on ecodesign (to be included in the future Law «On Energy Efficiency»), draft framework technical regulation on ecodesign and drafts of other specific regulations. The latter, however, do not apply to TV sets, ovens, dryers and washing machines or vacuum cleaners. Therefore, even if adopted, those new regulations will not help eliminate significant delay in fulfilling respective commitments related to the implementation of the EU acquis.

Conclusion: The major barriers on the way to adoption of the technical regulations for energy labeling included the change of the government, and adoption of the relevant restated EU legislation, which led to the need for going through repeated coordination process. Given the lack of any progress in this internal approval process in 2016, all related parties should promote the soonest adoption of the relevant draft regulatory acts.

15 http://saee.gov.ua/uk/news/1468

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Directive 2010/31/EU on the energy efficiency 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.

The national authorities should set minimum cost-effective requirements for energy efficiency, covering heating, hot water supply, cooling and large ventilation systems that should be revised every 5 years.

New buildings must meet minimum standards and have highly effective systems of alternative energy, whereby buildings used by public bodies should reach nearly zero level of energy consumption starting from December 31, 2018, and other new buildings – 2 years later.

Governments should introduce energy efficiency certification systems. Certificates shall provide information to potential buyers or tenants on the facilities’ energy consumption, as well as recommendations for its rational reduction. Certificates must be included in all commercial advertising in the media when the premises are offered for sale or lease.

Energy Characteristics of Buildings During the 2016, the adoption of the draft law «On Energy Efficiency of Buildings» had the same meaning for the public as the creation of the Energy Efficiency Fund. In addition to the fact that this law has to implement the provisions of the Directive, it also gained support from the Energy Community, in particular, from the Director of the Secretariat Janez Kopač, and became one of the preconditions for obtaining the next tranche within the cooperation with the International Monetary Fund16.

It is difficult to overestimate the importance of the adoption of this law, because this is the main framework act in the package of laws needed for the launch of full-scale programs to improve energy efficiency in the residential sector. Notably, the initial certification of buildings and individual apartments will create the proper environment for a wide range of technical tools because it will enable you to check their efficiency in an easy and secure way. In addition, the law will create a significant market services, and the overall capacity of the market of the energy modernization of the residential sector is evaluated by the government experts as amounting from EUR 35 billion17 to almost EUR 87 billion18. The key focus is given to 16 https://www.ukrinform.ua/rubric-politycs/2045786-kopac-zakon-pro-energoefektivnist-osnovna-umovatretogo-transu-mvf.html 17 http://www.kmu.gov.ua/control/uk/publish/article?art_id=248793784&cat_id=244276429 18 http://www.minregion.gov.ua/press/news/ukrayina-yde-yevropeyskim-shlyahom-shhodovprovadzhennya-naykrashhih-energoefektivnih-praktik/

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the energy efficiency of the residential sector in the draft Energy Strategy of Ukraine by 203519,20.

At the beginning of the year, experts of the State Agency for Energy Efficiency and Energy Saving of Ukraine made the development and support of the draft law’s approval by the Verkhovna Rada of Ukraine the priority of their activities for 201621. In March, the CMU just introduced the issue of its development, approval and submission to the Verkhovna Rada of Ukraine in the Action Plan for 2016, and the government had to complete all that by the end of the same month22.

In fact, the draft law was approved by the Cabinet of Ministers of Ukraine and submitted for consideration to the Verkhovna Rada of Ukraine only in July23. It should be noted that the draft law No. 4941, which was put to the vote on November 17, failed to get the required number of votes, even in its first reading and was sent back for revision to the Committee on Housing and Utility Services. Besides, the Verkhovna Rada of Ukraine also registered alternative draft law No. 4941-1, and its author argues his legislative initiative with the desire to find compromise solutions on those issues that made it impossible to adopt the law.

No progress was recorded in the development of secondary legislative acts. Despite the tasks announced by the State Agency for Energy Efficiency and Energy Saving of Ukraine in the first quarter of 2016, aimed at supporting the increase in the number of buildings with almost zero energy consumption24, according to the agency’s response to the request, no secondary legislation has been developed. Officials refer to the fact that the basic laws forming the basis of the relevant work, namely the draft law «On Energy Efficiency» and the draft law «On Energy Efficiency of Buildings», are under development and reconsideration at the Verkhovna Rad Committee on Housing and Utility Services, respectively.

ESCOs The mechanism of ESCO contracts, according to which commercial companies provide services to improve energy efficiency of buildings and facilities on account of the part of money saved due to reduction in energy consumption, has particularly attractive prospects in the public sector. Unfortunately, the actual launch of such model was in 2016 and remains now complicated due to the conflict between different regulations. However, 19 http://enref.org/news/enerhoefektyvnist-vyznaly-priorytetnym-napryamkom-rozvytku-sektoruenerhetyky/ 20 http://mpe.kmu.gov.ua/minugol/doccatalog/document?id=245165790 21 http://saee.gov.ua/sites/default/files/Plan2016.pdf 22 http://www.kmu.gov.ua/document/248890505/%D0%9F%D0%9B%D0%90%D0%9D%20 %D0%94%D0%86%D0%99.doc 23 http://w1.c1.rada.gov.ua/pls/zweb2/webproc4_1?pf3511=59631 24 http://www.kmu.gov.ua/control/uk/publish/article?art_id=248951126&cat_id=244277212

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despite the above, as of the end of the year, in Ukraine successfully concluded a number of ESCO contracts executed in the public sector, which, however, does not mean the removal of all administrative and regulatory barriers.

In connection with the adoption of the Law «On Public Procurement», by which the legislator made it actually impossible to carry out efficient purchases of services from an energy service company at the budgetary costs, the State Agency for Energy Efficiency and Energy Saving of Ukraine conducted an expert discussion of the draft law on technical amendments to the Law No. 327-VIII «On Introducing New Investment Opportunities, Guaranteeing the Rights and Legitimate Interests of Business Entities to Carry out Large-Scale Energy Modernization”.

The developed draft law provided for technical amendments and improvement of certain provisions on the procedure for energy service procurement. The relevant draft law «On Amending the Law «On Introducing New Investment Opportunities, Guaranteeing the Rights and Legitimate Interests of Business Entities to Carry out Large-Scale Energy Modernization (regarding energy service procurement mechanism)» (Reg. No. 4549, dated April 29, 2016) was submitted by a group of MPs to the Verkhovna Rada of Ukraine. In October, it was adopted in its first reading, and is being preparing for the second reading.

At the same time, the State Agency for Energy Efficiency and Energy Saving signed memoranda of partnership with the local authorities for the introduction of energy service to raise energy efficiency of public buildings.

The agency has undertaken to advise local authorities on complicated energy service issues which, in their turn, have undertaken the implementation of ESCO projects.

At the same time, the restated Law of Ukraine “On Public Procurement”25 became fully effective on August 1, 2016 and repealed the previous specific law which made the procurement of energy services impossible. This effectively removed the largest regulatory barrier to mass engaging of commercial contractors in the energy modernization of buildings of state-financed institutions and other buildings owned mostly by the state or community.

25 http://zakon0.rada.gov.ua/laws/main/922-19

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The State Agency for Energy Efficiency and Energy Saving offered to attract managers of multistoried buildings and ESCO companies to the government programs on energy efficiency. Officials refer to the fact that it is insufficient to attract co-owners associations to the modernization of 75,000 multistoried buildings in Ukraine, because they make up only 20%. The agency offered favorable conditions to such participants of the government program, in particular regarding the payback period, and informed about the development of loan models together with the banks.

In 2016, the State Agency for Energy Efficiency and Energy Saving worked on the development of recommendations to the parties of the agreement on procurement, creation of market incentives for developing energy service market and lending products for ESCOs, as well as expected to create a new ESCO market with the volume of EUR 4.4 billion, which will help to save 700 million cubic meters of gas annually. Despite the incomplete harmonization of regulations on public procurement and energy service contracts execution regime, the first such contract in the public sector should have been signed in September, namely with respect to a secondary school in Odessa region, where energy consumption should reduce at least by 28% within 10 years.

In addition, the State Agency for Energy Efficiency and Energy Saving developed the draft Order of the CMU «On Approving the Action Plan for Implementing Energy Management in Public Institutions»26 which has been under approval at the central government agencies for a long time and is now being prepared for submission to the Cabinet of Ministers of Ukraine.

Commercial Metering It is difficult to talk about the effective implementation of energy saving measures without complete metering of energy resource. Organizational and legal framework for providing commercial metering of heating supply, hot water supply, centralized water supply and providing appropriate metering information to the consumers of such services are defined in the draft law «On Commercial Metering of Public Utility Services,» which was submitted by an MP for consideration to the Verkhovna Rada of Ukraine in July (reg. No. 4901, dated July 6, 2016)27.

The draft law determines mandatory collective and individual commercial and split-up instrumental metering, and sets deadlines for the implementation of metering for non-residential buildings – up to October 1, 2017, and for residential buildings – up to October 1, 2018, generally in line with 26 http://network.bellona.org/content/uploads/sites/3/2016/05/3d-Forum_SAEE_presentation_3dEnergyClimate-Dialogue.pdf 27 http://w1.c1.rada.gov.ua/pls/zweb2/webproc4_1?pf3511=59553

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the requirements of the Directive. In addition, the draft law defines mechanisms for implementing the commercial metering of existing, new, reconstructed and capitally repaired buildings, payment for the installation, replacement and maintenance of metering units, legal relationships in terms of operation, inspection and replacement of metering units. In addition, the draft law implements the procedure for accessing metering units, determines the amount of the required information to create accounts and access to such information, as well as responsibility for any violation of legislation on commercial metering of public utility services.

On October 18, 2016, during the Energy Efficiency Day, the Verkhovna Rada of Ukraine adopted the draft law in the first reading, and since then no progress related to the adoption has been recorded.

The Head of the State Agency for Energy Efficiency and Energy Saving S. Savchuk promised to make the adoption of the draft law a priority task.

The NEURC that developed one of the versions of the draft law, reported that in April last year it set commercial metering as a priority in the development of investment programs. According to the NEURC, as of November 2016, the number of households equipped with heat metering devices increased up to 61% and was to reach 88% by the end of the year.28.

Conclusion: Despite favorable conditions and significant energy saving potential, Ukraine has not adopted the draft laws «On Energy Efficiency of Buildings» and «On Commercial Metering of Public Utility Services», which are fundamental for the launch of full-scale energy efficiency programs in the residential sector. This, therefore, hinders the development of bylaws. However, due to efforts of the State Agency for Energy Efficiency and Energy Saving of Ukraine, the model of ESCO contracts was launched in the public sector, although not all regulatory barriers are eliminated.

28 https://economics.unian.ua/realestate/1650791-v-ukrajini-bilshe-60-bagatopoverhivok-osnascheniteplovimi-lichilnikami.html

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Social protection of consumers (Article 3 of Directives 2009/72/EC and 2009/73/EC) The EU member states shall ensure that all consumers have the right to choose electricity and gas suppliers, and have an opportunity to change it within 3 weeks as a maximum. They should also ensure that all consumers receive relevant information about their consumption.

They should also put into effect an independent mechanism (in the form of an institute of energy ombudsman or a consumer rights protection agency) for efficient processing of complaints and resolving conflicts.

Social protection of energy consumers is not explicitly defined in the Association Agreement as a liability of Ukraine, but is required by separate provisions of the directives constituting the Third Energy Package, as well as the Memorandum of Understanding on social issues within the Energy Community.

In particular, Article 3 of Directives 2009/72/EC and 2009/73/EC contains a number of legal remedies to protect the rights of electricity and natural gas consumers, respectively. However, all such rights and legal remedies directly resulted from the market liberalization and modification of the role, function and responsibilities of the regulator.

In this context, it is fair to say that the commitments to protect vulnerable consumers of natural gas in Ukraine were generally implemented with the adoption of the Law «On the Natural Gas Market.» Among other things, this opinion is also supported by the Energy Community Secretariat in its annual report on the implementation evaluation29. On the other hand, the Ukraine’s failure to adopt the relevant draft law on electricity market makes the country’s commitments to the protection of vulnerable consumers in this sector unfulfilled.

At the same time, since the essence of responsibility and appropriate standards for providing energy services in accordance with the Third Energy Package are defined and controlled by the regulator, Ukraine will be able to fulfill its obligations on social protection of consumers due to the adoption of Law No. 1540-VIII «On the National Energy and Public Utilities Regulatory Commission» (as a whole)30.

Due to decisive steps to introduce market based gas prices, the government is expected to introduce a «substitution therapy» of subsidies. In 2015, the state budget allocated only UAH 14 billion for the purposes of public subsidies and incentives, then in 2016 the state budget increased that amount 29 https://www.energy-community.org/portal/page/portal/ENC_HOME/DOCS/4332394/3D790302C9FD502 4E053C92FA8C0D492.pdf 30 http://zakon3.rada.gov.ua/laws/show/1540-19

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up to UAH 35 billion31. The state budget allocated about UAH 47 billion for subsidies in 201732. While the need for a transitional period is not doubted, the major concern is raised by the inability of the CMU to show tangible results in the optimization of the system of subsidies throughout the year.

The main criticism of the government’s actions in this respect is the unwillingness to choose monetization model, thereby indulging inefficient conversion of clearing to substantial amounts of money. Moreover, the situation that has developed, often makes it impossible for the public heating utilities to receive adequate liquidity, which only increases large debts to the suppliers accumulated during the previous periods. In fact, the need for monetization of public subsidies is recognized by both experts33 and the relevant Vice Prime Minister G. Zubko34. It is noteworthy that the government considered this system ineffective from the very beginning35, but as of the start of 2017 no optimization was implemented, and even no model was selected to carry out such monetization36. Another problem is, in fact, the lack of an effective system of verification of recipients of subsidies who quickly allocate the funds appropriated for such purposes due to the most simplified procedure for obtaining subsidies.

31 http://www.kmu.gov.ua/control/uk/publish/printable_article?art_id=248867547 32 http://w1.c1.rada.gov.ua/pls/zweb2/webproc4_1?pf3511=60032 33 http://zhytlo.in.ua/ua/novini/socalnij_zahist1/gromadskst_vimaga_ogolositi_plan_monetizac_subsidj. html 34 http://www.epravda.com.ua/publications/2016/12/22/615570/ 35 http://ua-energy.org/post/58949 36 http://zik.ua/news/2016/11/29/minsotspolityky_sogodni_nerealno_zdiysnyty_monetyzatsiyu_ subsydiy_999813

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Conclusion: The current system of social protection of vulnerable consumers does not provide for a gradual reduction in the size of this support, and therefore, does not promote the reduction in energy consumption. During 2016, the Ministry of Social Policy and the Cabinet of Ministers of Ukraine took no steps to optimize the system of subsidies that would help to free up funds to finance energy efficiency programs.

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Partly cloudy, no legislative showers

Environment and Renewable Energy Directive 2011/92/EU on the Assessment of the Effects of Certain Public and Private Projects on the Environment (Codification) (Article 363 of the AA) The Directive introduces an important instrument of environmental policy - environmental impact assessment. Its main objective is to ensure that projects which may have a significant impact on the environment (in particular, due to their nature, size or location) are subject to the development consent (permission) and to the assessment of their impact on the environment. The Directive contains two lists of projects that have a real environmental impact (from nuclear power plants, gas pipelines, etc. to large pig farms). An important element is the stringent requirements for transparency, including civil society participation in the environmental impact assessment.

The work to adopt a legal act for the implementation of the European model of environmental impact assessment in Ukraine has become the implementation basis for Directive 2011/92/EU. In particular, according to the Directive implementation plan1 approved by CMU Order No. 371 of April 15, 2015, all the planned norm-setting, institutional, organizational, and coordination measures were to be implemented in 2015-2016. In particular, the development and adoption of a law «introducing clear requirements for the EIA procedure, including transboundary impact, and amending and supplementing the applicable legislation in connection with the adoption of this law» was scheduled for June 2015.

1 http://www.kmu.gov.ua/kmu/control/uk/publish/article?art_id=248102785&cat_id=247984327

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Directive 2011/92/EU is also among the commitments taken within the Energy Community. Due to Ukraine’s failure to implement the environmental impact assessment procedures, the Energy Community Secretariat initiated a case against Ukraine, sending it a formal letter in September 2016.

In its implementation report for 2015-2016, the Energy Community Secretariat cited two cases (regarding sulfur content and EIA) initiated against Ukraine, making the country one of the worst environmental regulation implementers in the Energy Community2.

The basic legal act to implement the key provisions of the Directive was drafted as the law «On Environmental Impact Assessment»3 in 2015, registered by a number of MPs and sent for a repeated first reading in the autumn of 2015.

The Parliament Committee on Environmental Policy, Nature Resources Utilization and Elimination of the Consequences of Chernobyl Catastrophe finalized the draft law and submitted it on February 18, 2016 to the Parliament for consideration, taking into account the comments and suggestions by Ukrainian MPs and central executive bodies, as well as those made at the plenary meeting of November 26, 2015.

The explanatory memorandum, among other things, pointed out that in finalizing the draft law, the terminology was improved, the list updated of activities and objects covered by the draft law, the public information and debate procedure clarified, along with the content of impact assessment report, and significant amendments made to the articles that determined the impact assessment decision-making procedures, consideration of the environmental impact assessment results when deciding on economic activities to be undertaken and appealing against decisions, actions or omissions in the environmental impact assessment.

The draft law is important and integral, it generally reflects the model and provisions of the Directive. At the same time, it is too complicated, fails to take into account the national specifics (especially the specifics of the design and construction permit acquisition procedures), and contains a number of corruption risks. On May 19, 2016, the Parliament failed to adopt the draft law, and it was again returned for a repeated first reading.

On July 12, 2016, the Verkhovna Rada of Ukraine approved in principle the draft Law «On Environmental Impact Assessment» (No. 2009а-д)4, and on October 4, 2016, the Europe Day, the Parliament adopted the law in the second reading and as a whole.

2 https://www.energy-community.org/portal/page/portal/ENC_HOME/DOCS/4332394/3D790302C9FD5024 E053C92FA8C0D492.pdf 3 http://w1.c1.rada.gov.ua/pls/zweb2/webproc4_1?pf3511=58257 4 http://w1.c1.rada.gov.ua/pls/zweb2/webproc4_1?pf3511=58257

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Nonetheless, on October 28, the President vetoed the law and returned it to the Verkhovna Rada for revision along with his proposals. The proposals, among other things, stated: «Supporting in general the need to improve the legislative regulation of the environmental impact assessment of business activities in order to bring it into line with the international obligations of Ukraine and ensure the inclusion of the public opinion in the relevant decision-making, I cannot agree with the means proposed by the law to achieve the goal.»

The President’s proposals are set out in very general terms and related primarily to «the performance specifics of certain business activities intended to satisfy the needs of national security and defense, activities in the exclusion zone..., as well as the need for urgent implementation of large ... infrastructure projects, including construction ones.» Attention is also drawn to possible corruption risks, arising, in particular, from the fact that the Law fails to provide an exhaustive list of grounds for refusing to issue an environmental impact assessment opinion and to establish environmental assessment criteria for such opinions. The President brings to notice the imperfection of the mechanisms of review, processing, and inclusion of the public opinion. Finally, he points to a lack of clarity in certain provisions, which, as a result, fail to meet the principle of legal certainty.

At its December 7, 2016 meeting, the Parliament Committee considered the President’s proposals and decided that since «the comments from the President are not properly formulated, the text of the proposed amendments has not been presented ..., the Committee is unable to adopt an opinion upholding or declining the proposals in the form of a comparative table.» The Committee does not support the re-adoption of the law as a whole (overcoming of the veto) without its improvement, and proposes that the Parliament returns it to the Committee for revision. If the Parliament does not adopt such a decision, the work on the draft law will have to be restarted from the very beginning.

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Among the environmental issues raised in the communiquĂŠ published upon the results of the third meeting of the EU-Ukraine Association Council (December 19, 2016) there is one that concerns ÂŤthe need to expedite the adoption in Ukraine of the legislative acts, which are currently under consideration, addressing effective environmental management.Âť5 Conclusion: Regardless of the considerable efforts to implement in Ukraine such important instrument of environmental policy as the environmental impact assessment, the issue is still pending. The future of the vetoed draft law is unclear, and the possibility of its improvement taking into account the comments from the President looks questionable as well. However, the timeframes set in the AA, the default on the commitments taken within the Energy Community, and the inclusion of the environmental component in the Memorandum of Understanding on a Strategic Energy Partnership between the Ukrainian Government and the European Union are clearly arguments in favor of continued activity to implement the European model of environmental impact assessment in Ukraine.

5 http://mfa.gov.ua/ua/press-center/news/53311-spilynij-pres-reliz-za-pidsumkami-tretyogo-zasidannyaradi-asociaciji-ukrajina-jes

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Directive 2001/42/EC on the Assessment of the Effects of Certain Plans and Programmes on the Environment (Article 363 of the AA) The Directive introduces an important instrument of environmental policy - strategic environmental assessment. An environmental assessment must be carried out of certain state plans and programmes during their preparation. Such assessment includes the preparation of the strategic environmental assessment report (that must contain detailed information on the likely significant environmental effects and reasonable alternatives) and consultations with the concerned authorities and the public. Where a transboundary impact is possible, transboundary assessment and consultations are required.

In 2016, the main efforts to implement the Directive were aimed at preparing and advocating for the adoption of the draft Law «On Strategic Environmental Assessment» (No. 3259)6. According to the Directive implementation plan7 approved by CMU Order No. 371 of April 15, 2015, all the planned norm-setting, institutional, and organizational measures were to be implemented in 2015-2016. In particular, the strategic environmental assessment procedure and basic requirements should have been incarnated in the draft law «On Strategic Environmental Assessment,» whose adoption was scheduled for December 2015.

The draft law was registered on October 8, 2015 by a group of MPs. It determines the scope and procedure of strategic environmental assessment, mechanism for transboundary consultations, decision reporting, and monitoring of the implementation impact of state planning document on the environment. The document generally meets the requirements of Directive 2001/42/EC and provisions of the Protocol on Strategic Environmental Assessment to the Convention on Environmental Impact Assessment in a Transboundary Context, to which Ukraine is a party. The biggest challenge in terms of compliance of the draft law with the Directive is that almost all urban planning documentation has been removed from the scope of the law, including the master plans of cities (population centers), whereas in the EU, the vast majority of all strategic environmental assessments are conducted in relation to area planning.

On July 12, 2016, the Verkhovna Rada of Ukraine approved in principle the draft Law «On Strategic Environmental Assessment,» and on October 4, 2016, the Europe Day, the Parliament adopted the law in the second reading 6 http://w1.c1.rada.gov.ua/pls/zweb2/webproc4_1?pf3511=56730 7 http://www.kmu.gov.ua/kmu/control/uk/publish/article?art_id=248102785&cat_id=247984327

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and as a whole. Nonetheless, on October 28, the President vetoed the law and returned it to the Verkhovna Rada for revision along with his proposals.

The President’s proposals are rather general. Among other things, they point out that the law does not set clear criteria for state planning documents to go into the category of those that do not require a strategic environmental assessment for their approval, and does not contain effective mechanisms for taking into account proposals of the public in state planning documents. The proposals also state that «most provisions of the law are declarative, unclear, incoherent, and not fully consistent with other legislative acts, and as such will hardly sustain the effective implementation of the state policy on strategic environmental assessment.»

The Parliamentary Committee considered the President’s proposals and argued the impossibility to adopt an opinion upholding or declining the proposals in the form of a comparative table, citing the absence of properly formulated comments from the President. The Committee does not support the re-adoption of the law as a whole (overcoming of the veto) without its improvement, and proposes that the Parliament returns it to the Committee for revision. If the Parliament does not adopt such a decision, the work over the draft law will have to be restarted from the very beginning.

The issue remains on the agenda. According to the decision of the Ministerial Council of the Energy Community, the obligation to implement Directive 2001/42/EC will be among the commitments taken within the Energy Community8.

Conclusion: Despite the work carried out in 2016 by both the Parliament and the Ministry of Ecology and Natural Resources, the strategic environmental assessment procedure has not been implemented in Ukraine due to the veto on the law. The timeframes set in the AA for the implementation of this Directive have not been observed. The issue remains on the agenda of priority environmental reforms in Ukraine, since important strategic documents are still developed and adopted in Ukraine without such an important procedure as strategic environmental assessment.

8 https://www.energy-community.org/portal/page/portal/ENC_HOME/DOCS/4364434/3F0F5060F0D82062 E053C92FA8C00B86.pdf

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Directive 2003/4/EC on Public Access to Environmental Information and Repealing Council Directive 90/313/EЕС (Article 363 of the AA) The Directive implements the provisions of the Aarhus Conventions relating to public access to environmental information. It aims to guaranteed public access to environmental information owned by public authorities - both upon request and through its intensive dissemination. Requested information must be made available to an applicant within one month after the receipt of the applicant’s request. A request for environmental information may be refused if it is, for example, formulated in too general terms, concerns an unfinished document or an internal communication.

According to the AA and the Directive implementation plan approved by CMU Order No. 371 of April 15, 20159, the provisions of the Directive should have been implemented within two years after the effective date of the Agreement. The legislative work includes, in particular, the development of amendments and supplements to the applicable legislation of Ukraine concerning the definition of environmental information, determination of a responsible public authority, impossibility of not responding to an environmental request, as well as the creation and operation of an automated information and analytical system of environmental monitoring, electronic access to environmental information, and publication of environmental information. The implementation of the Directive 2003/4/EC does not require any systemic changes in the applicable legislation.

A working group under the Ministry of Ecology and Natural Resources has developed a draft law with the necessary amendments to the applicable legislation to bring it in line with the Directive, but the text of the draft law is not published yet.

The coordinating measures include monitoring of the implementation in Ukraine of the requirements for public access to environmental information, provided by the Convention on Access to Information, Public Participation in Decision-Making and Access to Justice in Environmental Matters (Aarhus Convention), as well as preparation and submission to the UNECE Secretariat of a national report on the implementation of the Aarhus Convention in Ukraine, although such measures are only indirectly relevant to the implementation of the Directive.

9 http://www.kmu.gov.ua/kmu/control/uk/publish/article?art_id=248102785&cat_id=247984327

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According to Clause 9 of Decision V/9m regarding Ukraine’s compliance with the Aarhus Convention, Ukraine should have submitted a progress report on the implementation of the recommendations by October 31, 2016, but the report is still not submitted10. As part of its regular reporting, Ukraine has to submit the national report on the implementation of the convention by March 10, 2017, but no public consultations on the draft report have been held in Ukraine so far.

In 2016, the Ministry of Justice published the draft law «On Public Consultations» and held public consultations thereon11. The draft law determines the procedure for public consultations when drafting legislative and regulatory acts and national and regional policy papers to take into account the public opinion and introduce modern standards of drafting regulations mandatory for central government and local authorities, promising to create an effective mechanism of interaction between its institutions with public authorities on the principles of partnership and mutual responsibility.

As for electronic access to environmental information, the Ministry of Ecology and Natural Resources announced in February 2016 that it had published 46 datasets on the open data portal (data.gov.ua), including the cadastre of objects of the nature reserve fund, register of pesticides, registers of licensees, etc. Currently, the portal has nearly 100 datasets posted.

Nonetheless, the publication of all this information is only a first step, as in fact most of the presented information was earlier available on the website of the State Statistics Service12.

Conclusion: The content of the provisions of the Directive does not require any urgent steps to implement it, although formally the implementation schedule has been broken. The implementation of the Directive is important in view of the need to implement the provisions of the Aarhus Convention in so far as relevant to public access to environmental information, especially against the background of Ukraine’s breach of its obligations related to this international legal instrument.

10 http://www.unece.org/fileadmin/DAM/env/pp/mop5/Documents/Post_session_docs/Decision_excerpts_ in__Russian/Decision_V_9m_on_compliance_by_Ukraine_rus.pdf 11 http://civic.kmu.gov.ua/consult_mvc_kmu/news/article/img_lst/2778 12 http://www.ukrstat.gov.ua/

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Directive 2003/35/EC on Public Participation in the Preparation of Certain Plans and Programmes Relating to the Environment, and Amending and Supplementing Directives No. 85/337/EEC and 96/61/EC with Regard to Public Participation and Access to Justice (Article 363 of the AA) The Directive addresses the implementation of the Aarhus Conventions in respect of public participation and access to justice. The Directive sets the requirements for implementing mechanisms of informing the public, holding consultations with the public, and taking account of comments and proposals of the public in decision-making. The state 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 set out in Annex I to the Directive.

According to the AA and the Directive implementation plan approved by CMU Order No. 371 of April 15, 201513, the provisions of the Directive should have been implemented during 2015-2016.

The implementation of Directive 2003/35/EC is in close connection with the implementation of the Aarhus Convention in Ukraine, in particular the provisions relating to public participation and public access to justice, as well as with the implementation of Directive 2001/42/EC on the assessment of the effects of certain plans and programmes on the environment in so far as relevant to public participation in strategic environmental assessment. Therefore, the efforts to implement the Directive in 2016 can be associated with the completed work on the adoption of the Law «On Strategic Environmental Assessment,» which was in the end vetoed by the President.

13 http://www.kmu.gov.ua/kmu/control/uk/publish/article?art_id=248102785&cat_id=247984327

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Work to improve public participation was also carried out as part of the legislative initiative to improve urban development. In particular, on June 26, 2016 the draft law «On Amendments to Certain Legislative Acts of Ukraine Regarding the Improvement of Urban Development» (No. 4733-2) was registered14. This law proposes that the rights of municipalities be extended to include urban planning, providing for public hearings to be included as detailed provisions in the Law of Ukraine «On Urban Development Regulation.»

Such hearings were proposed for territorial planning schemes at the regional level, population centers’ master plans, zoning plans, detailed area plans, design documentation for individual construction projects of urban development if the construction requires a construction permit. In the case of two-stage development of population centers’ master plans, subject to public hearings would be the draft development concept of a population center and its draft master plan. However, on July 12, 2016, this draft law was rejected and draft law No. 4733-115 adopted in principle, which had no provisions expanding public participation.

Conclusion: The legislative initiative to expand public participation in urban planning has not found support and the Law «On Strategic Environmental Assessment,» which would almost fully implement the Directive, was vetoed by the President and is now returned to the Parliament for revision.

14 http://w1.c1.rada.gov.ua/pls/zweb2/webproc4_1?pf3511=59483 15 http://w1.c1.rada.gov.ua/pls/zweb2/webproc4_1?pf3511=59319

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Directive 2008/50/EC on Ambient Air Quality and Cleaner Air for Europe (Article 363 of the AA) This Directive establishes ambient air quality standards and quality management standards. For this purpose, it establishes upper and lower assessment thresholds, target and threshold values, sets objectives for reducing the effect of particulate matters, defines and classifies zones and agglomerations, establishes a public information system and a system of ambient air quality assessment with respect to various pollutants. Where, in a given zone or agglomeration, there is a risk that the level of pollutants will exceed the alert thresholds, short-term action plans must be drawn up.

According to the Association Agreement between Ukraine and the EU and the Directive 2008/50/EC Implementation Plan approved by No. 371 of the Cabinet of Ministers of April 15, 201516, the provisions of the Directive must be implemented primarily during 2017-2019. Measures planned for 2015-2016 were of institutional nature (strengthening the institutional capacity to monitor the ambient air through amendments to the regulations of the Ministry of Ecology and Natural Resources, State Emergency Service of Ukraine, and Ukrainian Hydrometeorological Institute and reorganizing the relevant structures) and organizational measures (analysis of the compliance of the existing air quality monitoring network with the requirements of the Directive and creation of a new monitoring network).

In 2016, the implementation of this Directive was not in focus - there were only isolated measures taken or measures indirectly related to those necessary to implement the Directive.

Although the published non-paper for the second meeting of the UkraineEU Association Committee, which was held on July 5-6 , 2016, refers to the completed analysis of the compliance of the existing monitoring networks with the requirements of the Directive, a preliminary version of air quality plan development methodology developed for zones and agglomerations, and a draft environmental monitoring procedure for enterprises, institutions, and organizations whose operation has a negative environmental impact, these documents are not available in the public domain.

According to the State Emergency Service, its specialists analyzed the compliance of the existing network of air pollution monitoring in the cities of Ukraine with the requirements of Directive 2008/50/EC in 201517. The main conclusion of this analysis is that there is a sufficient number of en16 http://www.kmu.gov.ua/kmu/control/uk/publish/article?art_id=248102785&cat_id=247984327 17 This information has been obtained from the State Emergency Service through a request for information.

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vironmental monitoring stations, but the state hydro-meteorological observation network does not have the necessary instrumentation base, the content of fine dust particles RM2.5 and RM10, ozone, and benzene is not measured, and there is a difference in the methodology for allocation of air pollution monitoring stations, air sampling regulations, and air quality assessment criteria relative to the main pollutants.

Back in 2015, an inter-agency working group was created under the Ministry of Ecology and Natural Resources to fulfill the plans to implement Directives 2008/50/EC and 2004/107/EC. According to the ministry, the group drafts at its meetings the legal and regulatory acts referred to in the implementation plan and has developed a methodological guidance for drawing up air quality monitoring plans for the zones and agglomerations where the pollution levels exceed the maximum allowable concentrations; this document, after some improvement, will be published on the Ministry of Ecology and Natural Resources website for public discussion18.

In 2016, another working group was created to implement Directives 2008/50/EC and 2004/107/EC19. According to the State Emergency Service, the group holds meetings on a regular basis, considering rule-making issues and development of guidelines for establishing zones and agglomeration, a technical document to determine the upper and lower pollutant concentration thresholds, monitoring station allocation requirements, etc.

However, the information about the group’s work and results is not available in the public domain20.

Ukraine has joined other countries and supported the Batumi Action for Cleaner Air which was reviewed at the Eighth Ministerial Conference ÂŤEnvironment for EuropeÂť (June 8-10, 2016).21. The 44 UN ECE member countries adopted the Batumi Action for Cleaner Air for 2016-2021. The document proposes that governments take a series of actions to establish a systematic, comparable, and transparent monitoring and emission inventories, develop national air pollution programs; increase public awareness, as well as the potential and technical support, and intensify policy-making in this field. The document also provides a standard information form for voluntary commitments under the Batumi Action for Cleaner Air. 18 This information has been obtained from the Ministry of Ecology and Natural Resources through a request for information.

19 http://document.ua/pro-stvorennja-robochoyi-grupi-doc277769.html 20 This information has been obtained from the State Emergency Service through a request for information.

21 https://www.unece.org/fileadmin/DAM/env/documents/2016/ece/ece.batumi.conf.2016.7.e.pdf

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On October 13, 2016, the Minister of Ecology and Natural Resources O.Semerak gave a political presentation of the draft Concept of Environmental Control Reform22, which provided for the dissolution of the State Environmental Inspectorate and creation of a new environmental authority. The minister links the control system reform with the implementation of an effective monitoring of emissions.

On July 21, the Ministry of Ecology and Natural Resources released for public comments the draft CMU Order ÂŤOn Approving the Concept of Reform of the State Environmental Monitoring SystemÂť23. The Concept establishes key reform directions for state environmental monitoring: optimization of the existing monitoring system, transition from inter-agency monitoring to comprehensive assessments, creation of a unified monitoring network and conditions for the technical upgrading of the monitoring system, scientific and methodological support for improvements in the monitoring system, and compliance with the international obligations to provide environmental information.

Conclusion: The implementation of the Directive is at the early stage. The reform of state environmental control started by the Ministry of Ecology and Natural Resources is coupled with the implementation of an effective monitoring system, but at this early stage of reform planning, it is difficult to say whether it will take into account the key requirements of the relevant European legislation. An important step was the development and discussion of the Concept of the State Environmental Monitoring System Reform. The operation of the working group established to implement the Directive is not public, and the series of announced documents developed by the group are not in the public domain.

22 http://www.menr.gov.ua/press-center/news/123-news1/5358-kontseptsiya-reformuvannia-systemyderzhavnoho-nahliadu-kontroliu-u-sferi-okhorony-navkolyshnoho-seredovyshcha-v-ukraini 23 http://www.menr.gov.ua/public/discussion/archive/2167-proekt-rozporiadzhennia-kabinetu-ministrivukrainy-pro-skhvalennia-kontseptsii-reformuvannia-derzhavnoi-systemy-monitorynhu-dovkillia

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Directive 1999/32/EC on Reducing the Sulfur Content of Certain Liquid Fuels and Amending Directive 93/12/EEC, as Amended

by Regulation (EC) 1882/2003 and Directive 2005/33/EC (Article 363 of the AA) The purpose of this Directive is to reduce the emissions of sulfur dioxide resulting from the combustion of certain types of liquid fuels and thereby reduce the harmful effects of such emissions on man and the environment. The Directive sets the maximum sulfur content in heavy fuel oil, gas oil and marine fuel. It also specifies methods of sampling and analysis of sulfur content in fuels to check compliance with the requirements.

In addition to commitments under the AA, this Directive should have been implemented as part of the commitments within the Energy Community by 1 January 2012. Due to the failure to meet the relevant requirements, this issue is under consideration of the Energy Community Secretariat conducting special proceedings.

In its implementation report for 2015-2016, the Energy Community Secretariat cited two cases (regarding sulfur and the EIA) initiated against Ukraine, making the country one of the worst environmental regulation implementers in the Energy Community24.

During the year, there was no step taken to implement this Directive, and only on November 3, 2016, the Ministry of Energy and Coal Industry released for public discussion the draft CMU Resolution «On Amendments to Cabinet of Ministers Resolution No. 573, dated June 1, 2011, and No. 927, dated August 1, 2013»25. The document is designed to implement in Ukraine the key requirements of Directive 1999/32/EC and stop the proceedings initiated within the Energy Community against Ukraine for violation of its obligations.

But as of late 2016, the resolution was not adopted. Instead, the government issued a resolution on December 22 concerning the sulfur issue, but doing nothing for the implementation of Directive 1999/32/EC. According 24 https://www.energy-community.org/portal/page/portal/ENC_HOME/DOCS/4332394/3D790302C9FD502 4E053C92FA8C0D492.pdf 25 http://mpe.kmu.gov.ua/minugol/control/uk/publish/article?art_id=245160191&cat_id=35082

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to the CMU Resolution «On Amending Clause 2 of the Technical Regulation Regarding Requirements for Motor Gasolines, Diesel, Marine and boiler Fuels», the circulation of boiler fuel (fuel oil) with a sulfur content exceeding 1% is temporarily - from January 1, 2017 through December 31, 2017 - permitted for use by thermal power plants, combined heat and power plants, and boiler rooms of stationary heat and power installations, and production of boiler fuel (fuel oil) by oil and gas refineries located in Ukraine. The production and circulation of boiler fuel (fuel oil) with a sulfur content exceeding 1% will be possible on the condition of compliance with the effective requirements for maximum sulfur dioxide emissions into the atmosphere. This decision is based on the need to ensure a stable heating period to avoid any threats to national energy security.

Conclusion: The development and publication of the draft resolution amending the Technical Regulation Regarding Requirements for Motor Gasolines, Diesel, Marine and boiler Fuels is an important step towards the implementation of sulfur content standards meeting the requirements of Directive 1999/32/EC. After its adoption, the Energy Community Secretariat will have every reason to stop the proceedings for Ukraine’s failure to implement its obligations.

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Directive 2009/147/EC on the Conservation of Wild Birds (Article 363 of the AA) This Directive relates to the conservation of all species of naturally occurring birds in the wild state in the European territory of the EU 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 protected areas (SPA) need to be established based on ornithological criteria. Special measures also need to be taken to protect migratory bird species naturally occurring in the territory of a particular state, especially in wetlands.

Except for the AA, the implementation of this Directive is an obligation within the Energy Community in the context of Article 4.2 of the Directive.

For this reason, the implementation term of this article differs from the general implementation requirements set in the AA. The implementation plan for this Directive, approved by CMU Order No. 371 of April 15, 201526, includes a number of legislative, institutional, organizational coordination measures, but the important obligation to create special protected areas is not reflected anyhow therein.

In 2016, a number of environmental regulations were developed, which, nevertheless, do not ensure the implementation of the Directive, but if adopted and properly implemented, they will promote the protection of wild birds in general.

On June 24, 2016, the draft Law «On Amendments to Certain Legislative Acts (Regarding Strengthening of Measures to Protect the Environment)» (No. 4869) was registered27. The draft law amends the Law «On the Red Book of Ukraine» and the Forest Code. Both latter laws provide for special protection of the nesting areas of the rare species that are in the Red Book of Ukraine, such as the white-tailed eagle, spotted eagle, black stork, gray 26 http://www.kmu.gov.ua/kmu/control/uk/publish/article?art_id=248102785&cat_id=247984327 27 http://w1.c1.rada.gov.ua/pls/zweb2/webproc4_1?pf3511=59498

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crane, and others. The draft law amends the Law «On Wildlife,» prohibiting the transportation and forwarding of poaching tools, and the Law «On the Nature Reserve Fund of Ukraine,» prohibiting the felling of hollow trees where Red Book birds nest in natural reserves. But this draft law is yet to be considered by the Parliament.

On the Environment Day (October 4, 2016), the Parliament adopted in the first reading a number of draft laws concerning various issues of protection of flora and fauna and nature reserve areas, including: •

draft Law on Amendments to the Law «On Nature Reserve Fund of Ukraine» (regarding powers in the field of environmental protection»(No. 4551)28. The main purpose of this draft law is to regulate the transfer of powers from territorial bodies of the Ministry of Ecology and Natural Resources to oblast (regional) and the Kyiv and Sevastopol city state administrations.

•

draft Law «On Amendments to Certain Legislative Acts of Ukraine (regarding strengthening the protection of the Econet) (No. 1769)29. The draft law is aimed at developing the ecological network and improving its protection. It proposes amendments to the laws «On the Ecological Network of Ukraine», «On Hunting Management and Hunting», and «On the Nature Reserve Fund of Ukraine», which determine, in particular, the powers of local executive authorities in determining the legal principles and functioning of areas and objects of the nature reserve fund, special use of natural resources within such areas, and clarify the procedure for creating or declaring such areas and objects.

•

draft Law on amendments to certain legislative acts of Ukraine (regarding the implementation of the Convention of 1979 on the Protection of Wild Flora and Fauna and Natural Habitats in Europe (No. 2023)30.

The objectives of this draft law is to protect the habitats of rare species listed in the Bern Convention, especially their habitats in forests and in state natural reserve territories; to strengthen measures to protect bottlenose dolphins, brown bears, bats, black storks, ospreys; prohibit the use of indiscriminate means to catch game animals such as traps; and to intensify the fight against poaching.

•

draft Law on amendments to certain legislative acts of Ukraine (regarding the protection of flora and fauna in accordance with international agreements (No. 3445)31. In pursuance of the African-Eurasian Migratory Waterbird Agreement, amendments are proposed to Article

28 http://w1.c1.rada.gov.ua/pls/zweb2/webproc4_1?pf3511=58936 29 http://w1.c1.rada.gov.ua/pls/zweb2/webproc4_1?pf3511=53595 30 http://w1.c1.rada.gov.ua/pls/zweb2/webproc4_1?pf3511=53825 31 http://w1.c1.rada.gov.ua/pls/zweb2/webproc4_1?pf3511=57014

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20 of the Law «On Hunting Management and Hunting» which prohibits the use of lead shot in hunting within areas of all special sanitary regime to protect drinking water sources (the use of metal shot is permitted). The draft law also provided for the prohibition of gas and poison against wild animals and destruction of natural habitats of wild animals (as the Berne Convention requires) to be introduced in the laws «On Fauna» and «On Protection of Animals from Abuse». The draft law supplements Article 20 of the Law «On Hunting Management and Hunting» and Article 52-1 of the Law «On Wildlife» to prohibit the use of traps, cold projectile weapons, etc.

•

draft Law on amendments to certain legislative acts of Ukraine (regarding the implementation of European environmental norms on protection of the habitat of rare animals and plants) (No. 2604)32. The purpose of the draft law is to implement the European environmental rules of protection of rare animals and plants. It protects from destruction the habitats (growing areas) of the fauna and flora representatives listed in the Red Book of Ukraine.

In line with the decision of the Standing Committee of the Convention on the Conservation of European Wildlife and Natural Habitats, 271 natural environmentally protected sites of Ukraine were included in the so-called Emerald Network Europe33. The inclusion of Ukrainian sites covering approximately 10% of the country’s territory in this list grants them the international status of special environmental significance. Henceforth a system of management and monitoring of rare and endangered species of plants and animals is to be created, including natural habitats in need of conservation measures to meet the Berne Convention requirements. Such a solution will help protect wild birds in Ukraine, but it may not be regarded as an alternative to special protected areas to be created in pursuance of the Wild Birds Protection Directive.

On December 29, 2016, the Minister of Ecology and Natural Resources O.Semerak signed the order «On Additional Measures to Conserve Rare and Endangered Species of Animals and Plants»34. The minister thereby bound the Carpathian Biosphere Reserve and national parks under the management of the ministry to create protected areas to preserve the growing areas of plants and the habitation, breeding, and wintering areas of rare and endangered animals, including the birds under the protection of the Red Book of Ukraine and a number of environmental conventions.

32 http://w1.c1.rada.gov.ua/pls/zweb2/webproc4_1?pf3511=54723 33 http://www.kmu.gov.ua/control/uk/publish/article?art_id=249515281&cat_id=244277212 34 http://menr.gov.ua/normakty/60-9/acts/5664-nakaz-vid-29-12-2016-557

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A working group under the Ministry of Ecology and Natural Resources works to implement the Directive on the conservation of wild birds and the Directive on the conservation of natural habitats and of wild flora and fauna, which has developed a draft law introducing the requirements of the Directive into the legislation of Ukraine. In the words of Deputy Minister for European Integration M.Kuzio, the Ministry of Ecology and Natural Resources has developed a conceptual model of implementation of the Wild Birds Conservation Directive and the Natural Habitat Conservation Directive. However, there is no information about the activities of this working group, and the results of its work, including the draft law, are not available in the public domain.

Conclusion: The Directive implementation plan does not provide for measures to create and manage special protected areas as required by Article 4.2 of the Directive. Such work requires appropriate political, institutional, and legislative decisions and may not be substituted by the development of other legislative and regulatory acts or creation of other objects. If fully adopted and implemented, the nature protection draft laws developed and adopted in the first reading will help protect wild birds in Ukraine.

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Directive 2010/75/EU on Industrial Emissions (Integrated Pollution Prevention and Control) (Article 363 of the AA) In order to control industrial emissions, the EU has developed a general prevention and control system based on the integrated approach in permitting. This Directive requires an integrated approach to permitting the activities listed in Annex I thereto. All installations covered by this Directive must prevent or reduce pollution through the use of the best available techniques, efficient energy consumption, and emission prevention and control. Transparency of the integrated permitting is ensured by public participation.

The obligation to implement the Directive is not only in the AA, but also in the Treaty establishing the Energy Community. The legislative, institutional, organizational, and coordination actions envisaged in the Directive implementation plan, which was approved by CMU Order No. 371 of April 15, 201535, are scheduled primarily for 2016, but as far as large combustion plants are concerned in connection with the obligations undertaken before the Energy Community, the implementation deadlines were postponed at the request of Ukraine for a time period between 2029-2033.

In 2016, the development of the National Emission Reduction Plan of Major Pollutants from Large Combustion Plants remained on the agenda. The draft National Emission Reduction Plan has already been developed and discussed with the public as of late 2015, but contrary to expectations, it was not approved. Later, on November 8, 2016, a round table was held within the framework of the XIV International Forum ÂŤFuel and Energy Com35 http://www.kmu.gov.ua/kmu/control/uk/publish/article?art_id=248102785&cat_id=247984327

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plex of Ukraine: Present and Future» to consider the issue of adoption of the National Emission Reduction Plan. The event participants agreed that the Ukrainian side had taken into account all the comments from the Energy Community to this document, and the Energy Community Secretariat Director J.Kopac confirmed that the presented version was fully consistent with the organization’s methodology. The Ministry of Energy and Coal Industry has already developed a draft order to approve this document.

In parallel to the development of the National Emission Reduction Plan of Major Pollutants from Large Combustion Plants, mining and metallurgical enterprises announced work to develop a separate National Emission Reduction Plan for the Mining and Metallurgical Complex. In the words of Ukrmetalurgprom Association president O.Kalenkov, the document will include environmental, economic, and technological aspects of the transition of mining and metallurgical enterprises to new environmental standards in accordance with Directive 2010/75/EC. According to the latest update, Ukrmetalurgprom has submitted the draft plan to the Ministry of Ecology and Natural Resources36. However, the text of the document is not available, therefore it is difficult to say how well it will be harmonized with the draft National Emission Reduction Plan of Major Pollutants from Large Combustion Plants.

Another important component of Directive 2010/75/EC is the integrated approach to permitting. To implement this component, the Ministry of Ecology and Natural Resources had until August 2016 to draft the Law «On Integrated Permitting». For now, there is no information about such a draft law.

The first step towards the implementation of the integrated approach was work on the permit for the special water use resources. On October 4, 2016, the Parliament adopted in the first reading the draft Law «On Amendments to Certain Legislative Acts of Ukraine Governing the Relations Connected with Obtaining Permissive Documents (for Special water use Resources)» (No. 3323)37. The draft law proposes to simplify the permitting procedure for special water use, in particular, to transfer the relevant powers from the central executive body (the State Water Resources Agency) to the oblast (regional), Kyiv and Sevastopol city state administrations, as well as to the Council Ministers of the Autonomous Republic of Crimea; not to include the water users consuming less than 5 cubic meters per day (in addition to the amount used for the production of beverages and bottled water) to the category of special users of water resources; to establish an exhaustive list of documents submitted by water users applying for the special water use permit and set out all grounds for the revocation of the right for special water use, and to determine the revocation procedure. The text of the draft law is now ready for the second reading.

36 http://uaprom.info/news/155852-ukrmetallurgprom-podal-soglasovanie-minprirody-proekty-evropejskihprirodoohrannyh-normativov.html 37 http://w1.c1.rada.gov.ua/pls/zweb2/webproc4_1?pf3511=56820

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Conclusion: The current measures taken to implement the Directive are insufficient for its timely and effective implementation.

The intensified efforts to develop and adopt the National Emission Reduction Plan of Major Pollutants from Large Combustion Plants promises its adoption in the nearest future. But the work on the implementation of the integrated approach to permitting is too slow.

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 (Article 338 of the AA) The Directive lays down a general framework for energy production from renewable energy sources (RES). The document provides for mandatory national targets for renewable energy in the total energy output, formed on the basis of statistical data and each country’s potential. These targets must guarantee by 2020 a 20 percent share of energy from RES in the total energy consumption of the countries that are Energy Community members, and a 10 percent of this type of energy in the transport sector of each country that is a party to the Treaty. The Directive, in particular, introduces rules for joint projects between Member States and third-party countries in the «green» sector and rules of access to power grids for energy from RES.

Regardless of the need to reach by 2020 the 11% RES share in final energy consumption, the process is really slow. In particular, in the first six months of 2016 Ukraine completed as few as 14 new renewable energy projects with a total capacity of a little less than 39 MW38. Over this period, only EUR 42 million was invested in «green» projects. It should be noted that the main contributors to the growth of this industry were solar power companies, which built in January-June 12 new power plants with a total capacity of 37 MW. In the first half of 2016, no new large-scale wind energy facilities and small hydropower projects were put into operation, and in the second half of the year, 11.6 MW of new capacity was launched.

In November, Law No. 1711-VIII, a legal act very important for the implementation of this Directive, was adopted39, extending the list of renewable energy sources with such as forms of energy as hydrothermal and aerothermal. In addition, the document establishes that the heat produced by 38 http://ua-energy.org/post/63173 39 http://zakon2.rada.gov.ua/laws/show/1711-viii

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heat pumps from aerothermal, hydrothermal, or geothermal energy must be deemed energy produced from RES. In addition, on November 1, the Verkhovna Rada of Ukraine adopted Law No. 1713-VIII «On Amendments to Article 8 of the Law of Ukraine ‘On Alternative Fuels’»40, its main idea is to simplify business in the biofuel production sector by abolishing the provision establishing a register of producers of liquid biofuels and biogases and requiring that all such producers be entered into this register.

At the same time, according to statistics, the Law No. 514-VIII, which was adopted last June and introduced a feed-in tariff for households that install solar panels, increased the interest in renewable energy not only from investors but also from households: the number of those intending to switch to renewable energy immediately increased by 40.4%, and a quarter later by 84.8%41.

To intensify the development of «green» energy, Ukraine signs important international agreements and joins the world’s largest RES agencies Ukraine entered the list of 20 world countries and became one of the three European countries that were first to ratify the Paris Agreement42. This evidences the country’s readiness to develop its renewable energy sector, meaning that the national economy will be oriented to a low-carbon model of development. In July 2016, the Verkhovna Rada adopted the Law No. 1469-VIII ratifying the Paris Agreement43, and in August this law was signed by the President44.

On May 10, the President signed the Decree No. 200/2016 «Issues of Ukraine’s Accession to the Statute of the International Renewable Energy Agency (IRENA)»45, instructing thereby the government to file an application for Ukraine’s membership in this organization. Ukraine’s accession to the IRENA Statute will allow the country to apply to the Abu Dhabi Fund for Development (ADFD) for soft loans, have access to all RES information available at IRENA, and the latest research results and innovative financing mechanisms for renewable energy development.

Ukraine’s application for accession to IRENA is approved by the Agency’s member states. The next step will be the adoption of the draft law «On Ukraine’s Accession to the Statute of the International Renewable Energy Agency (IRENA)», developed by the State Agency for Energy Efficiency and Energy Saving. Currently this document is pending its approval from central executive authorities46.

40 http://zakon2.rada.gov.ua/laws/show/1713-19 41 http://saee.gov.ua/uk/news/1411 42 http://menr.gov.ua/press-center/news/123-news1/5154-ostap-semerak-ukraina-stala-u-riad-tykh-krainiaki-formuvatymut-svitovyi-trend-zberezhennia-klimatu 43 http://w1.c1.rada.gov.ua/pls/zweb2/webproc4_1?pf3511=59666 44 http://www.president.gov.ua/news/prezident-zatverdiv-ratifikaciyu-parizkoyi-ugodi-37767 45 http://www.president.gov.ua/documents/2002016-20070 46 http://jkg-portal.com.ua/ua/publication/one/ukrajina-prijednalas-do-mzhnarodnogo-agentstva-zvdnovljuvanih-dzherel-jenergji-48373

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The government is looking for ways to incentivize production and consumption of heat from alternative energy sources On March 30, a draft law was submitted to the to Parliament, titled «On Amendments to the Law of Ukraine ‘On Heat Supply’ to Stimulate Heat Production from Alternative Energy Sources» (Reg. No. 433447). It is aimed to promote the production of heat from alternative sources. In September the draft law was adopted in first reading and is currently being prepared for second reading.

On May 4, the Verkhovna Rada registered the draft law «On Amendments to the Law of Ukraine ‘On Heat Supply’ Regarding Transfer of the Authority of Tariff-Setting and Licensing the Production of Heat from Alternative Energy Sources» (Reg. No. 458048). The amendments concern approval of the procedure for RAB regulation of tariffs for heat produced from alternative energy sources and transfer of the tariff-setting authority from the National Energy and Utilities Regulatory Commission (NEURC) to local governments and the authority to license heat production from renewable energy sources to local administrations.

The government and financial institutions gradually simplify the conditions and create new business opportunities in renewable energy sector.

In May, the International Finance Corporation (IFC) and Ukrgazbank signed a cooperation agreement49 intended to simplify access to financial resources for companies that implement renewable and energy efficient technologies. The project is part of the IFC program to promote sustainable financing in Ukraine, which is being implemented in partnership with the Austrian Federal Ministry of Finance and the Ministry of Economic Affairs of the Netherlands. It will help to increase lending to SMEs in areas such as renewable energy, environment-friendly transport, energy saving, efficient water use, and waste management.

At the same time, loans for «green» projects become more affordable for SMEs – Ukrgazbank decided to reduce its interest rates on loans for environment-friendly projects: from 24 to 20.5 percent in UAH, from 10 to 7.7 percent in USD, and from 9 to 6.7 percent in EUR50.

The gradual simplification of the business environment in the sector fuels the investors’ interest in implementing «green» projects in Ukraine: specifically, Lithuanian investors are interested in wind and solar energy projects, as well as projects of heat and electricity production from local 47 http://w1.c1.rada.gov.ua/pls/zweb2/webproc4_1?pf3511=58568 48 http://w1.c1.rada.gov.ua/pls/zweb2/webproc4_1?pf3511=58966 49 http://www.kmu.gov.ua/control/uk/publish/article?art_id=249039009 50 http://www.kmu.gov.ua/control/uk/publish/article?art_id=249132877&cat_id=244277212

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fuels51. In addition, domestic «green» projects were noticed by Spanish ACCIONA52, a world leading investor in renewable energy projects. Interest in Ukraine’s wind energy market has been expressed by such world market players as German Siemens, Danish Vestas, and Spanish Gamesa.

In early November, a Memorandum of Understanding in the Fields of Energy Efficiency, Renewable Energy and Alternative Fuels was signed between the State Agency for Energy Efficiency and Energy Saving and the Ministry of Infrastructure of the Republic of Slovenia53. This cooperation is expected to allow the parties to study the feasibility of joint energy efficiency and renewable energy projects. During a December meeting to discuss the future implementation of the signed Memorandum, the Ambassador of Slovenia to Ukraine N.Prah noted that the Environmental Fund of the Republic of Slovenia (Eko Sklad), which provides loans at low interest rates for «green» projects, intended to hold negotiations with the State Agency for Energy Efficiency and Energy Saving of Ukraine54. In the meantime, Ukraine drafted a Memorandum of Understanding in the Fields of Energy Efficiency, Renewable Energy and Alternative Fuels to be signed with the Ministry of Economic Affairs and Employment of the Republic of Finland and already sent it for consideration to the Finnish side55.

In view of the growing investors’ interest to the sector, a special unit has been created within the State Agency for Energy Efficiency and Energy Saving to provide advice on the development and implementation of «green» projects56, and for better understanding of the situation on the renewable energy market, an interactive map of energy efficiency and renewable energy projects (UAMAP)57 has been put into operation for businesses, consumers, and investors. It accumulates information about energy efficiency and renewable energy projects in Ukraine and aims to improve communication between the initiators of such projects and investors to draw investments to these sectors.

51 http://saee.gov.ua/uk/news/1449 52 http://saee.gov.ua/uk/news/1427 53 http://saee.gov.ua/uk/news/1417 54 http://saee.gov.ua/uk/news/1465 55 http://saee.gov.ua/uk/news/1503 56 http://saee.gov.ua/uk/news/1424 57 http://www.uamap.org.ua/

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At the same time, to attract investments, the Ministry of Ecology and Natural Resources intends to employ the potential of the Chernobyl exclusion zone for «green» energy development. In July, the Parliament of Ukraine adopted the Law No. 1472-VIII «On Amendments to Certain Legislative Acts of Ukraine Regarding Regulation of Certain Legal Issues on the Territory Radioactively Contaminated by the Chernobyl Disaster»58. It regulates the disposal of state-owned land, urban planning, and issue of permits for the use of water in the exclusion zone.

It is worth noting that foreign investors keep showing interest in implementing «green» projects in the Chernobyl exclusion zone. In particular, two investment companies from the U.S. and four Canadian energy companies expressed interest in building solar power plants59. In addition, Danish Nordic Power Partners expressed in November its interest in the project to develop a solar power park with a capacity of at least 100 MW in the Chernobyl exclusion zone60.

The Cabinet of Ministers Stakes on Hydropower By its Order No. 552-p of July 13, 2016, the government approved the program of hydropower development in Ukraine by 202661. According to this program, the share of load following capacities of HPP and PSPP is planned to be brought up to 15.5% in the total energy balance. The program promises to create an optimum balance among different types of energy generation facilities, achieve an economically reasonable electricity price, and reduce combustion emissions of thermal power plants62. However, during the approval stage, the Ministry of Ecology and Natural Resources sent an official letter with comments and proposals to the developer of the program - the Ministry of Energy and Coal Industry. In particular, the Ministry of Ecology and Natural Resources noted that its approval of the document in point was subject to the following three conditions: state environmental review of the draft program; assessment of the anticipated impact on the environment and the objects of natural reserve fund within the area of effect of the projected hydropower facilities; and compliance with the international obligations (related to transboundary impact of facilities), including those provided by the Espoo Convention63.

58 http://www.kmu.gov.ua/control/uk/publish/article?art_id=249188229&cat_id=244277212 59 http://menr.gov.ua/press-center/news/123-news1/5156-ostap-semerak-soniachni-elektrostantsii-v-zonividchuzhennia-nablyziat-ukrainu-do-zaprovadzhennia-ekolohichno-chystoi-enerhetyky 60 http://www.kmu.gov.ua/control/uk/publish/article?art_id=249526865&cat_id=244277212 61 http://www.kmu.gov.ua/document/249220030/R0552.doc 62 http://www.kmu.gov.ua/control/uk/cardnpd?docid=249220047 63 http://menr.gov.ua/images/blog/news/12_07_2016/Program_gidroenergetyky.pdf

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In reporting on the first hundred days of work and energy sector prospects, the Energy Minister I.Nasalyk said that the energy generation best suitable for the economic development of Ukraine and satisfactory environmental condition should be 70% nuclear power and 30% hydropower64. He also noted that Ukraine could not be separate from Europe, and therefore in the future the country would be working to bring its nuclear power output to approximately 60% and hydropower output to 15.5% by 2026, targets approved by the government.

Conclusion: Despite the official statements in support of «green» energy and the need to achieve the ambitious targets of the National Renewable Energy Action Plan by 2020, the government’s policy actually implies greater support for other types of generation (nuclear, in particular), and the slow pace of the process threatens the implementation of the NREAP. A positive signal here is that despite the political instability, the gradual approximation of Ukraine’s «green» legislation to the European one drives up the interest of foreign investors in Ukraine.

64 http://112.ua/ekonomika/optimalnaya-generaciya-energii-dlya-ukrainy-70-atomnoy-energetiki-i-30gidroenergetiki-nasalik-329552.html

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Oil 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 AA) The Directive provides for the adoption of such laws, regulations and administrative provisions as may be appropriate in order to ensure that the total oil stocks maintained at all times 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.

The provisions of this Directive need to be reflected in the legislation of Ukraine within 3 years from the effective date of the Association Agreement and implemented within 11 years of the effective date of the Association Agreement.

According to Clause 1.1.1 of the Directive 2009/119/EC implementation plan, the Ministry of Energy and Coal Industry in cooperation with the Energy Community Secretariat had to develop and the Cabinet of Ministers to adopt in December 2015 a legal act on Ukraine’s preferred model of oil and petroleum products stocks1.

By its Oder No. 412, dated July 2, 2015, the Ministry of Energy and Coal Industry created a working group to create oil and petroleum products stocks. Its meetings, which took place with the participation of experts from the Energy Community Secretariat and the International Energy Agency, determined that the minimum stocks of oil and petroleum products in Ukraine must total 1.97 million tons in oil equivalent, in particular, 580,000 tons of crude oil, 460,000 tons of diesel fuel, and 930,000 tons of gasoline. A funding source for the work to create such stocks may be an additional charge imposed on petroleum products market participants in the amount of UAH 0.40 per liter of gasoline and diesel fuel sold in 2017-20232.

1 http://www.kmu.gov.ua/document/248091904/Dir_2009_119.pdf 2 http://interfax.com.ua/news/economic/346294.html

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The proposal stirred an agitated discussion in the Ukrainian media. In particular, a concern was raised that the stock formation model would ignore the interests of the majority of market participants. It was pointed out that the responsibility for creating an effective stock formation mechanism must be primarily on the government rather than taxpayers3.

With this in mind, European experts proposed a mixed stock management system based on cooperation between the government and market participants and regulated by an independent entity, an agency. This agency may have the authority to acquire and sell oil and petroleum products, conclude storage agreements with market participants and the State Reserve Agency, and sign option contracts for the supply of such products4.

Contrary to these recommendations, the State Reserve Agency developed and agreed with the Ministry of Economic Development and Trade and the Ministry of Energy and Coal Industry a draft CMU Order «On Approving the Implementation Plan Developed by the State Reserve Agency for Directive 2009/119/EC dated September 14, 2009 Imposing an Obligation on Member States to Maintain Minimum Stocks of Crude Oil and/or Petroleum Products». In the meantime, the Government Office for European Integration drafted CMU order «On Amendments to Cabinet of Ministers Order No. 847 of September 17, 2014». If adopted, these documents will authorize the State Reserve Agency to create the minimum security stocks of oil and petroleum products at its sites, despite the fact that: • of the 1.97 million tons of oil equivalent of stocks to be created, «the State Reserve Agency can store approximately 1 million tons,» for which purpose it is establishing the state enterprise «Naftorezerv»5. However, there is no information as to who has taken inventory of existing storage capacities and when. Therefore, the claim that the State Reserve Agency is capable of storing 1 million tons of petroleum products is ungrounded; •

According to the published plan, the State Reserve Agency intends to purchase in 2017 103,000 tons of diesel fuel, 51,000 tons of motor gasoline, and 580,000 tons of crude oil6. But these purchases require at least UAH 8.8 billion, whereas the State Budget of Ukraine for 2017 (Appendix 3) provides for only a UAH 0.18 billion allocation for the accumulation (augmentation) of the state material reserve7;

•

The decision of the commission created by Order No. 198 of the National Agency of Ukraine on Civil Service, dated September 27, 2016, qualified the actions of V. Mosiichuk as State Reserve Agency Head as contradicting the oath of civil servant8.

3 http://www.unn.com.ua/uk/news/1578792-vid-efektivnosti-modeli-formuvannya-naftorezervuzalezhatimut-i-tsini-na-palne-ekspert 4 http://interfax.com.ua/news/economic/346294.html 5 http://www.gosrezerv.gov.ua/reserv/control/uk/publish/article?art_id=167780&cat_id=158724 6 http://www.gosrezerv.gov.ua/reserv/control/uk/publish/article?art_id=167629&cat_id=45334 7 http://zakon2.rada.gov.ua/laws/show/1801-19 8 http://economics.unian.ua/finance/1653202-naslidki-skandalu-v-derjrezervi-golovu-agentstva-virishili-nezvilnyati-obmejilisya-doganoyu.html

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According to Clause 1.1.2 of the Directive 2009/119/EC implementation plan, the Ministry of Energy and Coal Industry had to draft a law of Ukraine on maintenance of the minimum stocks of oil and petroleum products9 and the Verkhovna Rada to adopt the act as a whole in December 2016.

Instead, according to the draft CMU order «On Amendments to Cabinet of Ministers Order No. 847 dated September 17, 2014» prepared by the State Reserve Agency in pursuance of CMU Order No. 22373/1/1-16 dated June 17, 2016, the authority to develop the relevant draft law is planned to be shifted to the State Reserve Agency. However, according to its regulation10, the said state body is only authorized to implement the state policy concerning the state material reserve. Therefore, making it responsible for policy-making in this field violates Clause 2, Article 1 of the Law «On Central Bodies of Executive Power»11.

Independent experts consider as dangerous the attempts by the management of the State Reserve Agency to turn this state body into the «key initiator»12 and single implementing body of the Directive 2009/119/EC implementation plan, especially in view of the fact that the draft law «On Strategic Reserves» prepared and presented on March 15, 2016 by the State Reserve Agency contains «a great number of conceptual errors»13.

A number of questions remain open with regard to the Concept of Ukraine’s State Reserve Reform whose draft was approved by on December 27, 2016 at the board meeting of this agency14. In particular, the document: • excludes the possibility to use the agency-created stocks to stabilize commodity markets, because, in the opinion of the State Reserve Agency Head, this issue is «no longer relevant»; 9 http://www.kmu.gov.ua/document/248091904/Dir_2009_119.pdf 10 http://zakon2.rada.gov.ua/laws/show/517-2014-п 11 http://zakon5.rada.gov.ua/laws/show/3166-17 12 http://www.kmu.gov.ua/control/uk/publish/article?art_id=248887547&cat_id=247229077 13 http://agroportal.ua/publishing/lichnyi-vzglyad/mnimaya-borba-s-korruptsiei-otsutstvie-reform-pripustykh-skladakh-gosrezerva/ 14 http://www.gosrezerv.gov.ua/reserv/control/uk/publish/article?art_id=169389&cat_id=45334

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• •

denies the need to form a mobilization reserve; provides for «the consolidation of oil storage assets into sectoral holding company assets in line with best European practices».

But the latter contradicts the government’s decentralization course and is «economically infeasible» because the state enterprises within this holding company would be unable to pay land tax15.

Serious concern is raised by the fact that due the immaturity of Ukrainian terminology, domestic politicians and civil servants do not always distinguish between the concept of state material reserve and minimum stocks of oil and/or petroleum products, stabilization and mobilization reserve, - a factor threatening mistakes in the formation and implementation of the state policy in this field.

According to Clauses 4 and 5, Section 1.2 of the Directive implementation plan, the Ministry of Energy and Coal Industry has undertaken to construct additional storage tanks to keep the minimum stocks of crude oil and/or petroleum products16. As part of this work, in 2016 «two oil tanks are planned to be constructed with a capacity of 50,000 tons each»17. However, the only known plan in this area is a 21-month project to construct a vertical steel tank with floating roof РВСПП-50000 in the village of Smilne, Brody raion (district), Lviv region, with a capacity of 50,000 cubic meters of oil18. In addition, as the mentioned oil tank will replace the four tanks put out of operation earlier, the state oil depot capacity will increase only by 10,000 (not 100,000) cubic meters.

In view of the above, the September 1, 2016 report of the Energy Community Secretariat noted that Ukraine had «no progress» in creating the stocks, and «none of last year’s priorities has been fulfilled, being instead delayed indefinitely»19.

Conclusion: The government has failed to fulfill any of the priorities set in the Directive 2009/119/EC implementation plan for 2015-2016.

15 http://agroportal.ua/publishing/lichnyi-vzglyad/mnimaya-borba-s-korruptsiei-otsutstvie-reform-pripustykh-skladakh-gosrezerva/ 16 http://www.kmu.gov.ua/document/248091904/Dir_2009_119.pdf 17 http://www.ukrtransnafta.com/ru/press_center/company_news/?id=191 18 http://mpe.kmu.gov.ua/minugol/doccatalog/document?id=245131366 19 https://www.energy-community.org/portal/page/portal/ENC_HOME/DOCS/4332394/3D790302C9FD502 4E053C92FA8C0D492.pdf

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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 The Directive provides for mandatory national targets for renewable energy in the total energy output, formed on the basis of statistical data and each country’s potential. These targets must guarantee by 2020 a 20 percent share of energy from RES in the total energy consumption of the EU countries that are parties to the Treaty Establishing the Energy Community, and a 10 percent of this type of energy in the transport sector.

On October 10, 2016, the relevant authorities received for approval the draft law «On Amendments to Certain Legislative Acts of Ukraine Regarding Fostering the Production of Liquid Biofuels» developed by the State Agency for Energy Efficiency and Energy Saving20. It required the addition of bioethanol and biodiesel to petroleum products sold within the customs territory of Ukraine and introduction of administrative liability for failure to comply with this requirement.

The developers of the draft law argued that such steps were intended to implement Directive 2009/28/EC, although all consumers in the EU Member States are guaranteed retention of the supply of traditional petroleum products for non-flexible vehicles. The forced, under penalty, addition of bio-components discriminates not only against market participants, but also against 60% of Ukrainian motorists whose vehicles are not adapted to mixed fuels. In addition, the requirements of the draft law contradict Article 18-3 of the Commercial Code, 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 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 entrepreneurs21». In view of this, the Ministry of Energy and Coal Industry, Ministry of Economic Development and Trade, and State Regulatory Service refused to approve the draft law prepared by the State Agency for Energy Efficiency and Energy Saving.

On November 1, 2016, the Law No. 1713-VIII «On Amendments to Article 8 of the Law of Ukraine ‘On Alternative Fuels’» was adopted, simplifying 20 http://saee.gov.ua/sites/default/files/Draft_BE.doc 21 http://oilreview.kiev.ua/2016/10/24/lobbiruya-interesy-budushhix-vladelcev-ukrspirta-gaee-soznatelnoobmanyvaet-rukovodstvo-strany/

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business conditions for biofuel production by abolishing the requirement for a state register of producers of liquid biofuels and biogas to be kept by a body authorized by the Cabinet of Ministers registering therein business entities engaged in in the production, storage, and distribution of liquid biological fuels and biogas22. The law was adopted in pursuance of Clause 103 of the Action Plan for the Deregulation of Business Activities approved

by Order No. 357-p of the Cabinet of Ministers, dated March 18, 2015.23.

On December 22, 2016, the Ministry of Energy and Coal Industry presented the national initiative Electro Today (E2D) aimed to encourage citizens of Ukraine to switch from gasoline and diesel vehicles to electric ones. A large working group is to be created within the framework of this Initiative to develop the «Electric Strategy for Ukraine’s Global Transition to Electric Vehicles»24.

However, despite the ambitious goals, the said initiative is not reflected at all in strategic documents of the Ministry of Infrastructure, including the draft Energy Strategy of Ukraine by 2035 published on December 22, 201625.

Conclusion: Under the pretext of implementing Directive 2009/28/EC, certain financial-industrial groups periodically attempt to achieve their own business goals. In view of this fact, it is necessary to strengthen CSOs control over their actions and prevent the adoption of any legislative acts that eliminate competition.

22 http://zakon2.rada.gov.ua/laws/show/1713-viii 23 http://zakon3.rada.gov.ua/laws/show/357-2015-%D1%80 24 http://mpe.kmu.gov.ua/minugol/control/uk/publish/article;jsessionid=B2F4BE8845E3A44BAA3235DEDC 39074B.app1?art_id=245166868&cat_id=35109 25 http://mpe.kmu.gov.ua/minugol/doccatalog/document?id=245165790

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Directive 2003/96/EC Restructuring the Community Framework for the Taxation of Energy Products and Electricity (Annex XXVIII, Article 353 of the AA) The taxes applied to energy products and electricity (in particular, motor fuels) may not be lower than the minimum taxes provided in the Directive (specifically, EUR 359 and 330 per 1,000 liters and EUR 125 per 1,000 kg for unleaded petrol, diesel fuel, and liquid petroleum gas respectively.

The provisions of this Directive will be implemented gradually, proceeding from Ukraine’s future environmental protection and energy efficiency needs as they turn out to be after 2012 following international negotiations on climate change.

Full compliance with the requirements of Directive 2003/96/EC is likely to be postponed indefinitely due to the low purchasing power of Ukrainian consumers.

However, on December 20, 2016, the Verkhovna Rada of Ukraine adopted the Law No. 1791-VIII «On Amendments to the Tax Code of Ukraine Regarding Measures to Ensure the Balance of Budgetary Receipts in 2017». The document increases from January 1, 2017 the excise tax on motor gasolines, middle distillates (diesel fuel), and liquefied petroleum gas to EUR 213.50, 139.50, and 52 per 1,000 liters respectively, abolishing at the same time the tax on retail sales of these products, amounting to EUR 0.042 per liter26. Thus, the excise tax rates are approximated to the minimum rates stipulated by the Directive (EUR 359 and 330 per 1,000 liters and EUR 125 per 1,000 kg respectively), although these changes were explained not as much by the need to fulfill Ukraine’s international obligations, but as an attempt to increase budget revenues.

At the same time, the excise tax on middle distillates has been unified at EUR 139.50 per 1,000 liters (regardless of sulfur content). As a result, the retail price for diesel fuel may increase in Ukraine by UAH 1 per liter, adversely affecting the economic situation in the country27.

On November 9, 2016, the government issued Resolution No. 785, bringing into line with applicable legislation the procedure for calculating the adjustment factor applied to royalty (rent) rates if the tariffs for oil and petroleum products transportation change. The resolution will reduce the tax burden on businesses engaged in the transportation of oil and petroleum products. In particular, a provision was removed from the relevant proce26 http://zakon4.rada.gov.ua/laws/show/1791-viii 27 http://interfax.com.ua/news/economic/386400.html

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dure regarding the application of the adjustment factor to royalty (rent) rates if tariffs of ammonia transit and oil transportation by main pipelines to consumers in Ukraine change28.

Conclusion: Due to the low purchasing power of Ukrainian consumers, the issue of increasing motor fuel tax to the minimum level stipulated by Directive 2003/96/EC is not on the government’s agenda.

Directive 99/32/ЕС on Reducing the Sulphur 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 For the fuels used for any purposes that fall within the scope of the Treaty establishing the Energy Community, all the provisions of the Directive had to be implemented by January 1, 2012, as stated in the Protocol on Ukraine’s accession to this Treaty.

For fuels used for other purposes, the following provisions must be implemented: adoption of national legislation and establishment of an authorized body (bodies) (within 2 years of the effective date of the AA); establishment of an effective system of sampling and appropriate methods of analysis (Article 6) (within 2 years of the effective date of the AA); prohibition to use heavy diesel fuel, gas, and oil with a sulfur content exceeding the set threshold​(Article 3.1 and 4.1) (within 6 years of the effective date of the AA); application of thresholds to the sulfur content of marine fuels (Article 4a and 4b) (within 6 years of the effective date of the AA).

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»29. This draft act refers motor gasolines, diesel, marine, and boiler fuels to the purview of the State Service for Food Safety and Consumer 28 http://www.kmu.gov.ua/control/uk/cardnpd?docid=249476246 29 http://mpe.kmu.gov.ua/minugol/control/uk/publish/article?art_id=245160232&cat_id=167475

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Protection as a state market supervision body. However, the work on this document was delayed and it came for approval to the State Regulatory Service as late as November 28, 2016.

In pursuance of the requirements of Directive 99/32/EC as regards the establishment of an effective system of sampling and relevant methods of analysis, the Ministry of Energy and Coal Industry had to adopt and implement 36 national standards for motor fuels and test methods for motor gasolines, diesel, marine, and boiler fuels needed for the application of the Technical Regulation Regarding the Requirements for Motor Gasolines, Diesel, Marine, and Boiler Fuels30. However, as a result of the dissolution of SE Research Institute of Oil Refining and Petrochemical Industry «MASMA,» a developer of most standards, further work to implement this component of Directive 99/32/EC stalled.

Despite the prohibition imposed by Directive 99/32/EC on the use of petroleum products with a sulfur content exceeding the set threshold, the Cabinet of Ministers issued on December 22, 2016 Resolution No. 973 extending until December 31, 2017 the Technical Regulation on the use of heating oil and fuel oil with a sulfur content exceeding 1% in Ukraine. This decision was explained by the need to ensure a stable heating period to avoid any threat to national energy security31. Meanwhile, the Parliament adopted on December 20, 2016 the Law No. 1791-VIII «On Amendments to the Tax Code of Ukraine Regarding Measure to Ensure the Balance of Budgetary Receipts in 2017». It provides for unification of the excise tax on Euro 4 and Euro 5 middle distillates from January 1, 2017 to Euro 3 emission standard32. This will increase the consumption of cheaper, lower standard diesel fuel by postponing Ukraine’s compliance with Directive 99/32/EC. Conclusion: The excessive number of undertaken commitments, a lack of resources and lack of succession in the activities of Ukraine’s governments has resulted in most of the tasks set by Directive 99/32/EC being removed from control, with their deadlines being passed a year or more ago.

30 http://zakon.rada.gov.ua/go/927-2013-п 31 http://zakon2.rada.gov.ua/laws/show/973-2016-п 32 http://zakon4.rada.gov.ua/laws/show/1791-viii

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Directive 98/70/EC Relating to the Quality of Petrol and Diesel Fuels and Amending Council Directive 93/12/EEC 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) The Directive provides for: adoption of national legislation and establishment of an authorized body (bodies); assessment of national fuel consumption; installation of a fuel quality monitoring system (Article 8); prohibition of leaded gasoline sales (Article 3.1); the possibility of selling unleaded gasoline and diesel fuel for off-road vehicles and agricultural and forestry tractors only if the products meet the established requirements (Articles 3 and 4); establishment of a system of legal regulation covering exceptional cases and domestic fuel quality data collection systems (Articles 7 and 8).

These provisions of the Directive must be implemented within 3 years of the effective date 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 Ukraine33. However, no document has been released yet. Only the draft resolution of the Cabinet of Ministers «On Amendments to Cabinet of Ministers Resolutions No. 573 dated June 33 http://www.kmu.gov.ua/document/248091869/Dir_98_70.pdf

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1, 2011 and No. 927 of August 1, 2013» has been published34. It provides that compliance control authorities must report twice a year to the Ministry of Energy and Coal Industry on the activity to check conformity of fuels with the Technical Regulation requirements.

Some optimism in this regard comes only from the fact of signing by business entities operating on the petroleum products market of the Rules of Professional Ethics in Competition to Promote Honesty and Transparency on the Retail Market of Fuels in Ukraine35. These rules provide for these companies to voluntarily create a non-governmental petroleum products quality and safety monitoring system.

The implementation of Directive 98/70/EC in Ukraine is in fact stalled after the dissolution of SE Research Institute of Oil Refining and Petrochemical Industry «MASMA,» the main implementing body of all the tasks set in the implementation plan, including: • development of national DSTU standard EN 14274 «Motor Fuel. Gasoline and Diesel Fuel Quality Assessment. Ongoing Fuel Quality Control System» and DSTU standard EN 14275 «Motor Fuel. Gasoline and Diesel Fuel Quality Assessment. Sampling of Fuel from the Retail Pumps and Nozzles of the Fuel Dispensers at Commercial Filling Stations» harmonized with the relevant European standards effective from 2013 (deadline - December 2016); • implementation of petroleum products quality and safety monitoring (deadline - December 2017); • operation of the system of inter-laboratory comparisons of test results to assure quality testing (deadline - December 2017); • development of national standards, harmonized with European ones, to enable the application of the Technical Regulation Regarding the Requirements for Motor Gasolines, Diesel, Marine, and Boiler Fuels (deadline - December 2016).

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 Fuels36 and which the Ministry of Energy and Coal Industry undertook to adopt and implement by December 2016, only one is ready for release, with 21 being in the final editing stage and 9 returned for revision. The development of the remaining five standards has not even started yet37.

Conclusion: After the dissolution of SE Research Institute of Oil Refining and Petrochemical Industry «MASMA», the main implementing body of all the tasks set in the implementation plan, the work to implement Directive 98/70/EC in Ukraine has stalled.

34 http://mpe.kmu.gov.ua/minugol/control/uk/publish/article?art_id=245160232&cat_id=167475 35 http://www.amc.gov.ua/amku/doccatalog/document?id=130996&schema=main 36 http://zakon.rada.gov.ua/go/927-2013-п 37 http://uas.org.ua/files/2016/06_14/Zvit_vikon_Program_2016-06.xlsx

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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 (EC) 1882/2003 (Annex ХХХ, Article 360-363, 365, and 366 of the AA) The Directive provides for: adoption of national legislation and establishment of an authorized body (bodies) (within 2 years of the effective date of the AA); identification of all oil tank farms for storing and loading petroleum products (Article 2) (within 2 years of the effective date of the UA); installation of technical means to reduce oil leakage from tanks at oil tank farms and filling stations during loading/unloading (Articles 3, 4, and 6 of Annex III) (within 9 years of the effective date of the UA); bringing all tanks and loading/unloading devices into compliance with the requirements (Articles 4 and 5) (within 9 years of the effective date 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 overdue38. Despite this, the Cabinet of Ministers has 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.

Even the mistakes resulting from the inaccurate translation of Directive 94/63/EC into the Ukrainian language have not been corrected. These errors are repeated in the translation of this directive posted on the Verkhovna Rada website39.

Conclusion: The implementation of Directive 94/63/EC is impossible without prior correction of the numerous errors in its official translation.

38 http://www.kmu.gov.ua/document/248091862/Dir_94_63.pdf 39 http://zakon.rada.gov.ua/laws/show/ru/994_439

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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) The Directive introduces unified rules to ensure: equal conditions in obtaining permits for the prospecting, exploration, and production of hydrocarbons for all organizations that possess the necessary resources; granting such permits on the basis of objective, published criteria; timely communication of all necessary information to every organization involved in the established procedures (Articles 1-6).

The provisions of the Directive must be implemented within 3 years of the effective date of the AA.

According to the Directive 94/22/EC implementation plan, a new version of the Subsoil Code should have been adopted by the end of 201640. It, in particular, shall define the terms «operator functions», «contractual joint venture», «special permits transfer mechanism», «concepts of minimum work program and minimum work obligation», «mandatory regulation of the production specifics of unconventional hydrocarbons», and regulate the issue of disclosure, to the extent permitted by applicable law, of geological information concerning strategic resources such as oil and gas.

But according to the Cabinet of Ministers, the drafted Subsoil Code is still «under consideration by concerned authorities»41. According the State Service for Geology and Mineral Resources, the draft law was submitted on March 23, 2016 to the State Commission on Mineral Resources, the Ukrainian State Geological Prospecting Institute, and SRPE Geoinform of Ukraine for expert and scientific evaluation. As of early January 2017, proposals were received from the Ukrainian State Geological Prospecting Institute and the State Commission on Mineral Resources, and it was planned to invite «representatives of stakeholder companies, institutions, and organizations» to discuss the draft law42.

On October 21, 2016, the State Service for Geology and Mineral Resources reported that it was working over the document43. However, according to the report, the implementation of the TAIEX project, within whose framework «experts from the European countries that already have positive experience of implementing such directives will visit Ukraine», was sched40 http://www.kmu.gov.ua/document/248102926/Dir_94_22.pdf 41 http://www.drs.gov.ua/deregulation/plan-deregulyatsiyi-2016-2017-rr/ 42 Ibid.

43 http://www.geo.gov.ua/novyna/derzhgeonadra-pracyuye-nad-novoyu-redakciyeyu-kodeksu-pro-nadraukrayiny

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uled for January 2017. But according to its regulation44, the State Service for Geology and Mineral Resources is only authorized to implement the state policy in the field of geological study and effective use of subsoil.

Therefore, making it responsible for policy-making in this field violates Clause 2, Article 1 of the Law «On Central Bodies of Executive Power»45.

The implementation of a simplified land use procedure for geological prospecting is delayed. For this purpose, it is necessary to develop and submit to the Cabinet of Ministers by April 1, 2017 the draft law «On Amendments to the Land Code of Ukraine and the Law of Ukraine «On State Registration of Proprietary Rights to Real Estate and Their Encumbrances». In December 2016, the Ministry of Agrarian Policy and Food, believing that this issue is already «legally regulated and does not require any further simplification», addressed the Cabinet of Ministers and the Ministry of Economic Development and Trade, asking for appointing the Ministry of Ecology and Natural Resources the responsible implementing body of this task46.

The field development rules have also not been adopted and harmonized with EU norms, since the Ministry of Ecology and Natural Resource failed to process timely the draft prepared by the State Service for Geology and Mineral Resources and submitted with Letter No. 15254/13/04-16 dated August 29, 201647. The announcement of the start of public discussion of the draft order «On Approving the Oil and Gas Field Development Rules» of the Ministry of Ecology and Natural Resources was posted on the ministry’s website as late as November 10, 201648. The Ministry of Ecology and Natural Resources sent the revised draft rules «to the concerned state authorities» in a letter dated November 22, 201649.

In September 2016, the agenda of Parliament sessions featured the draft law No. 3849 «On Amendments to Certain Legislative Acts of Ukraine Regarding Promotion of Oil and Gas Prospecting and Production in Ukraine»50.

It proposed to resolve the issue of related minerals that are technically impossible or commercially impractical to separate during the extraction; prohibit the execution of production sharing agreements (PSAs) without prior tender competitions with regard to fields with insignificant reserves, abandon the practice of repeat approval of PSAs relating to individual parts of a site for which a special permit for subsoil use has already been issued; and cover the site development costs incurred by state-owned companies before executing PSAs. But the consideration of this draft law is postponed indefinitely.

44 http://www.geo.gov.ua/storinka/polozhennya-pro-derzhgeonadra-ukrayiny 45 http://zakon5.rada.gov.ua/laws/show/3166-17 46 http://www.drs.gov.ua/deregulation/plan-deregulyatsiyi-2016-2017-rr/ 47 Ibid.

48 http://www.menr.gov.ua/press-center/news/132-news10/5450-minpryrody-zaproshuye-hromadskistdoluchatysya-do-obhovorennya-proektu-nakazu-pro-zatverdzhennya-pravyl-rozrobky-naftovykh-i-hazovykhrodovyshch 49 http://www.drs.gov.ua/deregulation/plan-deregulyatsiyi-2016-2017-rr/ 50 http://w1.c1.rada.gov.ua/pls/zweb2/webproc4_1?pf3511=57980

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The positive moments in the implementation of Directive 94/22/EC include the Order No. 246 signed by the Ministry of Ecology and Natural Resources on July 6, 2016 approving the Regulation of the Subsoil Use Commission. The Commission was established pursuant to Clause 1.2.1 of the implementation plan to improve the institutional structure to meet the new subsoil use granting procedure taking into account the international obligations, and pursuant to Clause 25 of the Procedure for Granting Special Permits for Subsoil Use51 for preliminary consideration of materials related to the granting, extension, suspension, resumption, renewal, and revocation of permits and amending special permits for subsoil use. The decision made is aimed at preventing hidden decision-making and accelerating issuance of permits for exploration, development, and production of hydrocarbons to organizations that have the necessary resources. The creation of this commission unlocked the issuance of permits for subsoil use52.

On November 2, 2016, the Cabinet of Ministers issued Resolution No. 775 approving amendments to the procedure of holding auctions to sell and grant special permits for subsoil use. These amendments will allow subsoil users to avoid extra costs and invalidation of permits when they need to be renewed, for example in the case of enterprise reorganization53. In addition, the document: • regulates the procedure of approval by oblast (regional) councils, which will have up to 90 days to express their opinion; • excludes the need to agree the submitted documents with the State Inspectorate on Labor; • reduces the number of permit suspension cases and cases of granting special permits without auctions.

51 http://zakon5.rada.gov.ua/laws/show/615-2011-п 52 http://www.geo.gov.ua/novyna/komisiya-z-pytan-nadrokorystuvannya-zapracyuvala-v-odnodennyytermin 53 http://www.kmu.gov.ua/control/uk/cardnpd?docid=249466393

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On November 3, 2016, the Committee for the Fuel and Energy Complex, Nuclear Policy and Nuclear Safety of the Verkhovna Rada received the draft law No. 3096 «On Amendments to Certain Legislative Acts of Ukraine Regarding Simplification of Certain Aspects of the Oil and Gas Industry»54.

It proposes to improve the procedures for granting land plots for the exploration, construction, maintenance, repair, and reconstruction of pipelines, construction of oil and gas wells and related facilities, and industrial structures, access roads, power and communications lines. The law, if adopted, will improve the registration of oil and gas wells, implementing Clause 68 of the Action Plan for the Deregulation of Business Activities approved by Order No. 615-p of the Cabinet of Ministers of Ukraine, dated August 23, 201655.

On August 25, 2016, as part of the efforts to create in Ukraine a «unified geological library», the State Service for Geology and Mineral Resources held an official meeting with representatives of Halliburton to establish cooperation in issues related to disclosure of geological information and making it economically attractive56. However, since the details of the agreements reached there are not disclosed, there are concern that in implementing the pilot project to digitalize geological data, the implementers may receive information constituting commercial or state secret. As of late 2016, about 25% of the available information was digitalized.

Conclusion: The implementation of Directive 94/22/EC is too slow, which creates doubt in the government’s ability to meet the set deadlines, especially with regard to the development of a new Subsoil Code.

54 http://w1.c1.rada.gov.ua/pls/zweb2/webproc4_1?pf3511=56470 55 http://zakon3.rada.gov.ua/laws/show/615-2016-%D1%80 56 http://www.geo.gov.ua/novyna/v-derzhgeonadrah-zustrilysya-z-predstavnykamy-vidomoyiamerykanskoyi-korporaciyi-halliburton

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Prohibition and Elimination of Unauthorized Tapping of Oil and Petroleum Products Transported through the Territory of Ukraine (Article 275 of the AA) Each Party must take every measure to prohibit and eliminate any unauthorized tapping energy products transited or transported across its territory.

In 2014-2016, the special units of Ukrtransnafta fighting unauthorized tapping of oil and petroleum products transported through the territory of Ukraine found 115 illegal taps on main pipelines (including 23 in 2016)57.

The market value of the stolen oil exceeds UAH 150 million. The greatest number of attempts was registered in the Zakarpattya, Lviv, and Zhytomyr regions. However, despite the increasing number of cases where organized criminal groups use modern methods and equipment for unauthorized tapping (horizontal directional drilling installations, trenchers, high pressure hoses, special rubber tanks, etc.), there is no systemic work in this field so far.

At the beginning of 2016, NJSC Naftogaz of Ukraine initiated increased liability for damaging main oil pipelines and work to develop a concept of guaranteeing their safety, which will include, in particular, the introduction of modern oil meters and systems of early detection of interference in main oil pipeline operation. However, no relevant legislative and regulatory documents have been developed.

Conclusion: It will be possible to improve the situation successfully preventing and combating illegal tapping of oil and petroleum products transported through the territory of Ukraine only if there is a comprehensive and coordinated approach on the part of the appropriate state authorities, which is currently absent58.

57 https://www.facebook.com/ukrtransnafta/ 58 http://www.ukrtransnafta.com/ua/safety_and_ecology

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Prevention of Failures in Oil and Petroleum Products’ Transit and Transportation (Article 276 of the AA) Each Party guarantees that the transmission system operators will take every measure to: a) minimize the risk of accidental interruption, reduction or stoppage of transit and transportation; b) quickly recover to normal operation any accidentally interrupted, reduced or stopped transit or transportation.

On January 26, 2016, NJSC Naftogaz of Ukraine recognized «the years of underfunding of the works to ensure reliable operation of the main oil pipeline system» since the funds allocated to Ukrtransnafta have been used for other purposes, including oil processing and lending59. Measures to remedy the situation had to be specified in the Development Strategy and Investment Plan of Ukrtransnafta by 2020. However, these documents are yet to be adopted.

Conclusion: The risks of accidental interruption, reduction or stoppage of the oil transit and transportation through the territory of Ukraine are constantly growing due to the many years of underfunding of the works to ensure the reliable operation of the main oil pipeline system.

59 http://www.naftogaz.com/www/3/nakweb.nsf/0/9DFF7AD0AEB6D887C2257F1D0053C9F1

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Equal Access and Activities to Explore, Extract, and Produce Hydrocarbons (Article 279 of the AA) Every time a site is allocated for these activities, each Party must guarantee that the business entities to be accessing and engaging in these activities are treated on an equal basis.

Each Party may require of a business entity that obtained a permit to explore, extract and produce hydrocarbons to make either a financial contribution or contribution in hydrocarbons. A detailed description of the contribution procedure must be worded so that it does not interfere with the management and decisionmaking of such subjects.

On December 20, 2016, the Parliament adopted in the second reading and as a whole the Law No. 1793-VIII On Amendments to the Budget Code of Ukraine (Regarding Regulation of the Management of Proceeds from Rental Payments for Subsoil Use to Extract Oil, Natural Gas and Gas Condensate)60.

The document provides that starting from January 1, 2018, 95% of royalties (rent payments) for oil and gas condensate production will go to the general fund of the State Budget, 2% to oblast (regional) budgets, 2% to raion (district) budgets, and 1% to the local budgets of the communities where the natural resources are produced. The budgets of cities of national and regional significance, and budgets of united territorial communities will receive 3% of the rent. The general fund of the State Budget will receive 100% of the royalty (rent) only if oil and gas condensate are produced on the continental shelf and/or in the exclusive (maritime) economic zone of Ukraine.

Despite the overall benefit this law promises, independent market participants have worries that they will be made to transfer payments to unprofitable regional or district-level entities, rather than territorial communities.

Conclusion: Ukraine gradually implements the principle of financial contributions by entities that are granted permits to explore, extract, and produce hydrocarbons. But civil society institutions should seek that payments from subsoil use royalties be used for the needs of the communities on whose territories the relevant activities are carried out.

60 http://w1.c1.rada.gov.ua/pls/zweb2/webproc4_1?pf3511=56386

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Transparency in Licensing Hydrocarbon Prospecting, Exploration, or Production (Article 280 of the AA) The Parties take every measure to ensure that licenses granting business entities the right to prospect, explore for, or extract hydrocarbons on their own behalf and at their own risk in a specific geographic location be issued under the officially published procedure, and invite potential applicants to bid for such licenses.

The bid must specify the license type, the geographical area or a part thereof, and the proposed license issue date and time.

On August 19, 2016, the State Service for Geology and Mineral Resources announced a first auction to sell special permits for subsoil use under the new rules revised by Resolution No. 277 of the Cabinet of Ministers, dated April 6, 201661. The changes in the rules create conditions for open competition, in particular: • make transparent all processing stages of the documents submitted by the applicant through the website; • require open meetings for the auction committee; • require that the auctions shall be broadcasted online.

61 http://zakon3.rada.gov.ua/laws/show/277-2016-п

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The first auction to sell special permits for subsoil use under the new rules was held on December 20, 2016. Eleven bidders took part in the auction.

Four lots were sold, in particular the Tereblyanska oil and gas field (10.9 km2)62. Independent experts, however, say that the majority of lots were sold to little-known companies. In particular, the special permit for geological exploration and pilot development of the Tereblyanska field went to Eco-Invest Group LLC, a company registered in 2012 with an authorized fund of UAH 1,00063.

In November 2016, the website of the State Geological Information Fund «Geoinform of Ukraine» posted an interactive map of subsoil blocks covered by issued special permits for subsoil use. The said map is part of the implemented simplified access in real time to the state geological information made available in the digital quality and volume necessary to evoke commercial interest on the part of private subsoil users64. Yet, the Ministry of Ecology and Natural Resources was slow to meet the deadline (end of 2016) to draft the government resolution «On Amendments to Cabinet of Ministers Resolution No. 423 dated June 13, 1995» simplifying digital access to secondary geological information in real time.

Conclusion: The new rules for auctions to sell special permits for subsoil use will be tested in 2017 to determine whether or not they ensure the necessary transparency of the permission-granting procedure. If not, civil society institutions should insist on compliance with the requirements of Article 280 of the AA. 62 http://www.geo.gov.ua/novyna/vidbuvsya-aukcion-z-prodazhu-specdozvoliv-na-korystuvannya-nadramy 63 http://oilnews.com.ua/a/news/Maloizvestnaya_kompaniya_poluchila_spetsrazreshenie_na_ mestorozhdenie_v_Zakarpate/225712 64 http://www.drs.gov.ua/deregulation/plan-deregulyatsiyi-2016-2017-rr/

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Informing and Protecting Consumers from Unfair Pricing, and Access to Energy for Consumers, incl. Vulnerable Consumers (Article 337 of the AA) The cooperation in the legislative field will take into account the need to ensure that the relevant obligations to provide public services are honored, in particular, the obligation to inform and protect consumers from unfair pricing, as well as to guarantee access to affordable energy for consumers, especially of the most vulnerable category.

On October 27, 2016, the Antimonopoly Committee of Ukraine approved the Rules of Professional Ethics in Competition Regarding Honesty and Transparency of the Retail Fuel Market in Ukraine65. These rules envisage, in particular, the creation of «a mechanism of informing consumers about the actual retail fuel prices and the factors affecting them, as well as complete, accurate, and trustworthy information about the motor gasoline codes (including the emission class and ethanol content symbols) and diesel fuel codes (including the alphabetic climatic designation, symbols of emission class and content of methyl/ethyl esters of fatty acids)» (Clause I.6).

On October 28, 2016, the AMCU addressed a letter to the Cabinet of Ministers, calling for measures to be taken to «introduce regular fuel checks» (Clause 3.2) and «strengthen control over legitimacy of installed gas modules» (Clause 3.4)66.

On November 16, 2016, the government issued the Resolution No. 814, creating an inter-agency working group on the functioning of the oil and petroleum products market and development of the oil refining industry. Its core tasks include determining ways, mechanisms, and methods to address market functioning issues; promoting coordination between central and local executive authorities in developing and implementing appropriate measures; improving the regulatory framework. However, the group does not include independent experts, representatives of drivers and carriers, which will make it more difficult to respect the consumer rights when preparing legislative and regulatory acts ensuring stable operation of the oil and petroleum products market.

Conclusion: Despite the numerous appeals from independent experts, the government in 2016 did not take any action to protect Ukrainian consumers from unfair pricing on motor fuels.

65 www.amc.gov.ua/amku/control/main/uk/publish/article/130989 66 http://www.amc.gov.ua/amku/doccatalog/document?id=130997&schema=main

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Continuation and Intensification of Energy Cooperation (Article 338 of the AA) This cooperation includes, among other things, the following areas: a) implementation of energy strategies and policies and development/processing of forecasts and scenarios, improvement of the statistical system of the energy sector, based on timely exchange of information about the energy balance and flow of energy resources in accordance with international practice, and infrastructure development; b) establishment of effective mechanisms to address potential crises in the energy sector in the spirit of solidarity; c) modernization and strengthening of the existing energy infrastructure, ... creation of a new energy infrastructure in common interests to diversify energy sources, suppliers, and transportation routes and methods in line with the principles of economic viability and environmental protection; d) development of competitive, transparent, and non-discriminatory energy markets based on the EU rules and standards through regulatory reforms; e) cooperation under the Treaty establishing the Energy Community 2005; f) activation and strengthening of long-term stability and security of trade in energy resources, their transit, exploration, extraction, purification, production, storage, transmission, distribution, and marketing or sale of energy materials and products on a mutually beneficial and non-discriminatory basis in accordance with international rules, including the Energy Charter Treaty 1994, WTO Agreement and this Agreement ‌

In pursuance of the clause on the implementation of energy strategies and policies and taking into account the concerns expressed in August 2016 by independent experts regarding efforts hidden from the public to develop an updated Energy Strategy of Ukraine by 2035, the steering committee for the coordination of the activity on this document appointed the National Institute of Strategic Studies the principal implementing body of the works at its September 13, 2016 meeting, instructing it to systematize the previous results67. The Energy Strategy consistent with Ukraine’s international obligations should have been developed in the fourth quarter of 201668, but its draft was published as late as December 22.69.

67 http://mpe.kmu.gov.ua/minugol/control/publish/article?art_id=245142949 68 http://www.kmu.gov.ua/document/249113344/R0418-00.doc 69 http://mpe.kmu.gov.ua/minugol/control/uk/publish/article?art_id=245165746&cat_id=245165726

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The document determines the following priority development directions for the oil sector70: • promotion of a competitive and transparent oil and petroleum products market, taking into account the external aggression factor; •

creation of a strategic 90-day stock of oil and petroleum products with a mixed management system;

• •

introduction of innovative technologies in oil production and refining; retention of state control over strategically important infrastructure assets and main pipelines;

•

separation of infrastructure enterprises into independent entities, retaining state control and management of them.

The document identifies the following key innovative segments of the oil industry: • «digitalization» of oil fields, i.e. the creation of visual web platforms allowing companies to measure and monitor all data coming from the fields; •

«access to the previously inaccessible», i.e. an increase in the extraction of «stranded» resources through the implementation of new intensification technologies;

•

reduction of the environmental effects of the traditional hydrocarbons extraction;

•

development of oil consumption optimization technologies instead of increasing outputs.

The draft Energy Strategy plans to achieve by 2020 the following: • implement transparency mechanisms in the extraction and use of oil with gas condensate, following the principles of the Extractive Industries Transparency Initiative (EITI); 70 http://mpe.kmu.gov.ua/minugol/doccatalog/document?id=245165790

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•

adopt the program of reconstruction and modernization of the refining industry in Ukraine and implementation of the Euro emission standards, gradually bringing the quality of produced motor fuels up to the Euro 5 emission standards;

•

abandon unreasonable forms of state support for refineries and cut tax benefits to enterprises operating in the branch;

•

introduce requirements for the annual imports of oil/petroleum products from the same source to remain below the 30% threshold;

•

develop and implement a program of producing vehicles with petrol engines adapted to run on E10 blended gasoline with an up to 10% ethanol content;

•

improve the state system of petroleum products quality control (by improving motor fuel quality standards, increasing control over their compliance on the part of retailers, appointing an executive authority to receive these powers, its purview, frequency of checks, other control measures, etc.).

Pursuant to the clause on the creation of a new energy infrastructure in common interests to diversify oil sources, suppliers, and transportation routes and methods: • The Minister of Energy I.Nasalyk, during his working visit to the Islamic Republic of Iran on July 31 through August 2, 2016, discussed with Iran’s oil minister B.Zangeneh the possibility of using the oil transportation system of Ukraine to supply of Iranian oil to Lithuania, Poland, the Czech Republic, and Slovakia. The parties agreed on the creation of a working group, which would be given 30 days to «consider the feasibility the most promising projects»71. But, the results of work of this group have not been published; 71 http://mpe.kmu.gov.ua/minugol/control/uk/publish/article?art_id=245132761&cat_id=35109

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•

On 28-29 September 2016, the project «Brody - Adamovo» was presented at the 8th Oil Forum in Belgrade. According to the project developers, its implementation «will play a strategic role in terms of Ukraine’s diversification of oil supply sources and routes and following transit to EU consumers»72. But, despite the presence of the Brody-Adamovo pipeline in the list of projects of common interest, European experts are skeptical about its possible implementation73.

Pursuant to the clause providing for the development of competitive, transparent, and non-discriminatory energy markets, the Ministry of Energy and Coal Industry issued the Order No. 569 dated September 5, 2016, creating a working group for reviewing the legislative and regulatory acts in the energy sector, which need to be amended or cancelled74.

Also, in pursuance of the AA provisions deepening the cooperation, the Minister of Energy and Coal Industry I.Nasalyk and Vice President of the EU Energy Union Commission M.Šefčovič signed the Memorandum of Understanding on a Strategic Energy Partnership between the EU and Ukraine75.

Conclusion: The actions taken in 2016 to implement Article 338 of the AA in so far as relevant to extension and intensification of the cooperation in the energy field were mostly sporadic and unsystematic.

Recovery and Use of Methane in Oil Operations (Article 339 of the AA) The parties exchange information and experience, and provide appropriate support for the regulatory reforms, including restructuring of the coal sector ... In order to improve the efficiency, competitiveness, and stability, the restructuring process should cover all stages of coal production, from the extraction and concentration to the waste processing, recycling, and incineration. This approach includes the recovery and use of methane from coal mines, as well as from oil and gas operations, as well as in the agricultural sector, as set out, inter alia, in the Global Methane Initiative under the parties are partners.

In 2016, the government did nothing to encourage businesses to use of methane derived from oil operations.

Conclusion: The actions provided for by Article 339 of the AA are not under the government’s control (at least according to the public reports).

72 http://www.gosrezerv.gov.ua/reserv/control/uk/publish/article?art_id=167641&cat_id=45334 73 http://ipress.ua/news/naftoprovid_brodyadamovo_prymarni_shansy_popry_priorytetnyy_status_31446. html 74 http://mpe.kmu.gov.ua/minugol/doccatalog/document?id=245145708 75 https://ec.europa.eu/energy/sites/ener/files/documents/mou_strategic_energy_partnership_en.pdf

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Early Assessment of Potential Risks and Problems Associated with Oil Supply and Demand (Annex XXVI to Chapter 1, Section V of the AA) Ukraine and the EU introduce an «Early Warning Mechanism» to establish practical steps to prevent and quickly response to emergency occurrences or threats.

It requires early assessment of the potential risks and problems associated with the supply and demand for natural gas, oil, or electricity, and warning and rapid response to an emergency or threat thereof.

In 2016, the government did not cooperate with the EU in the field of early assessment of potential risks and problems associated with oil supply and demand.

Conclusion: The assessment of potential oil supply risks and problems are not under the government’s control (at least according to the public reports).

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Regulatory front moves to the low pressure zone

Business Climate Independent Regulatory Authority (Article 277 of the AA, provisions of Directives 2009/72/EC and 2009/73/EC) The relevant provisions of the AA and Directives envisage: Creation of a regulatory authority legally and financially separate from any state or private business entity; The functions and powers of this authority should include: Development of proposals to improve the applicable energy legislation; Development and adoption of acts regarding conditions for licensing, certification, dispute resolution, accounting procedure, supply rules, and other regulatory acts, which must comply with the non-discriminatory principle; Assurance of transparency of all procedures, including formation of its own cost estimates; Monitoring and control over compliance of all energy market operators with established rules and procedures.

Adoption of the Law "On the National Energy and Public Utilities Regulatory Commission" The body responsible for transposing the provisions of Directives 2009/72/ EC and 2009/73/EC regarding common rules for the domestic electricity and gas markets into Ukraine's legislation is the Ministry of Energy and Coal Industry1. Therefore, the Ministry of Energy and Coal Industry automatically becomes responsible for the implementation of Article 277 of the AA providing for the creation of a legally and financially independent regulator of energy markets, as such requirements are in both Directives.

1http://www.kmu.gov.ua/kmu/control/uk/publish/article?art_id=248091673&cat_id=247984327

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The regulator functions are performed by the National Energy and Public Utilities Regulatory Commission (NEURC). The NEURC operations are governed by a number Ukraine's laws, which, however, were not in full compliance with the AA requirements, specifically as related to independence from other authorities and appointment of Commission members through open competitions. The authority reported to the President of Ukraine who appointed Commission members.

On February 19, 2016, the MPs who were members of the Parliament Committee for the Fuel and Energy Complex, Nuclear Policy and Nuclear Safety registered the draft law "On the National Energy and Public Utilities Regulatory Commission"2. That versions already included the basic requirements of the AA and relevant Directives. The draft law was adopted by the Verkhovna Rada in its first reading on April 12. Its second reading was on the agenda 5 times, but its consideration did not occur for various reasons. Finally, the draft law was considered on July 14 and returned for a repeated second reading.

The pressure on the part of both international partners and the public (including civil society organizations and expert community) was growing over the next two months until its adoption in the second reading. The EBRD said that its possible failure in July and further delays were threatening Ukraine's energy independence3. In addition, it was one of the conditions for the next EUR 600 million tranche of EU macro-financial assistance. Calls for the adoption of this law also came from the G7 ambassadors4 and the civil society5.

On September 22, 2016, due to joint efforts, the draft law received the required number of votes from MPs, and was signed by the President more than a month later, on November 23, one day before the EU-Ukraine summit in Brussels.

2 http://w1.c1.rada.gov.ua/pls/zweb2/webproc4_1?pf3511=58234 3 http://www.epravda.com.ua/news/2016/09/14/605483/ 4 http://www.ua.emb-japan.go.jp/itprtop_uk/00_000450.html 5Â http://reforms.censor.net.ua/news/3011994/aktyvisty_pid_radoyu_vymagaly_vid_deputativ_pryyinyaty_ zakonoproekt_schodo_nezalejnogo_regulyatora_v

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According to the final version of this law, the NEURC members will be elected by a competition commission to be formed as follows: two persons from the President, two from the Parliament, and one from the Cabinet of Ministers. The newly elected Commission members will hold their seats for up to 6 years, and the Commission chairman will be elected for a term not exceeding 2 years. The NEURC will be financially independent from the State Budget due to fees from participants of the markets under its regulation6.

It is worth noting the contribution of civil society to both the development of the text of this law and its subsequent improvement. Civil society in this case was represented by the Strategic Advisory Group, which operated from September 2015 and until the law was adopted. It included leading Ukrainian and international experts and MPs, who processed more than 190 comments to the draft law over the period of work7.

On December 5, 2016, a roundtable titled "The NEURC in law: what's next?" was held, starting the implementation of the new law. The participants included all the parties involved in the establishment of this independent regulator. In general, the parties agreed a shared vision of the further process, and MPs from the Verkhovna Rada Committee for the Fuel and Energy Complex, Nuclear Policy and Nuclear Safety and the NEURC chairman assured representatives of international advocacy groups for reforms in Ukraine and the public that the reform would be completed without delay8.

Starting in December, the transitional provisions’ implementation phase of the Law "On the NEURC" began and would last for the next 18 months. During this period, as already mentioned, the Commission will be formed and will gradually, through open competitions, carry out rotation of members.

In the first 6 months, the first three NEURC members will be discharged, than the next 6 months will be taken to replace another two members, and again, 6 months to replace the last two members. Upon completion of the rotation, the newly-elected members will elect a new NEURC chairman.

No less important will be the work of the incumbent members of the regulator in the transition period. The first NEURC budget will be prepared by June 1, 2017, formed on the basis of contributions from business entities subject to the Commission's regulation. In addition, according to the new law, the NEURC forms regulatory policy in the energy sector and is accordingly bound to develop regulations determining procedures for licensing, dispute settlement, accounting, reporting, etc. as provided by law. The proper implementation of this law means that the NEURC will soon adopt a number of regulations updating the existing and introducing new ones9.

6 http://zakon2.rada.gov.ua/laws/show/1540-19/page 7 http://dixigroup.org/news/reforma-energetichnogo-regulyatora-lishe-pochinayetsya--dixi-group/ 8 http://dixigroup.org/news/nezalezhnomu-regulyatoru-v-ukraini-buti/ 9 http://dixigroup.org/publications/noviy-energetichniy-regulyator/

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Regulatory Activity of the NEURC In December 2016, the Commission began implementing the Law "On the NEURC" and published a number of new draft legislative and regulatory acts, which, once adopted, will provide licensing procedures and reporting rules for companies. It should be noted that under the new rules, the NEURC cannot adopt regulatory acts at once: they first must be discussed and criticized by all stakeholders within a specified period of time. The text of such draft regulatory acts must be published on the Commission's website.

The first to be subject to such a discussion were draft regulations establishing conditions for licensing companies for natural gas transportation, storage, distribution, or supply to end users10; heat production, transportation though heating networks, and delivery to consumers11; transportation of oil, petroleum products, and other substances by pipelines12. In addition, the NEURC released two more draft regulations harmonizing with Ukraine's legislation the procedures for reporting by oil, gas13, and heat supply companies14.

Also adopted and published for discussion in 2016 were legislative and regulatory acts that did not directly relate to the implementation of the Law "On the NEURC" or adopted before the effective date of this law, and have an effect on the formation of business climate in the energy sector.

A good example is the NEURC Resolution No. 1946 "On Amendments to the Methodology of Calculation of Fees for Connecting Electrical Installations to Power Grids" that came into effect on November 2215. It simplifies the conditions for connecting to power grids electrical installations with 10 http://www.nerc.gov.ua/index.php?news=5572 11 http://www.nerc.gov.ua/index.php?news=5626 12 http://www.nerc.gov.ua/index.php?news=5587 13 http://www.nerc.gov.ua/index.php?news=5625 14 http://www.nerc.gov.ua/index.php?news=5624 15 http://www.nerc.gov.ua/?news=5528

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capacities ranging from 160 kW to 5 MW. The fee calculation methodology establishes transparent pricing, which is the basis of a clear and predictable business environment in the sector. As a result, the adoption of this resolution should have improved Ukraine's position in the Doing Business rating in the appropriate category by 10 points.

In January 2017, the NEURC adopted amendments to a draft resolution on commercial metering of electricity produced from alternative energy sources, specifically micro- (up to 200 kW), mini- (0.2-1 MW), and small (110 MW) hydropower plants. According to this document, electricity generators must meter electricity they generate by the hour, and different phases of facilities put into operation at different times must have their individual meters, because different green tariff coefficients are applied to them. This generators will be paid only for the electricity put out into the power grid, discounting the electricity the facility consumed for own purposes16.

The discussion of the resolution on the approval, adjustment, and removal of the investment component in the electricity tariff lasted until January 30, 2017. The main purpose of the document is to optimize electricity tariffs by clarifying the investment component: the procedure and conditions are determined for approving, adjusting, and removing the investment component in the tariff for electricity. Failure by the producer to follow the reconstruction plan established earlier will permit the NEURC to adjust or suspend the investment component. The document also determines the procedure and deadlines for producers' reporting on their implementation of the reconstruction projects17.

16 http://www.nerc.gov.ua/index.php?news=5599 17 http://www.nerc.gov.ua/index.php?news=5630

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A discussion is also underway on the draft resolution "On Approving the Procedure for Electronic Auctions for Allocations of the Throughput Capacity of Interstate Power Grids". The resolution is aimed to resolve an array of technical problems identified by Ukrenergo while implementing the effective NEURC Resolution No. 176 of February 12, 2015 regarding such electronic auctions. The resolution, if adopted, will ensure the proper technical functioning of daily auctions allowing companies to export or import electricity on a competitive basis. The new version of the procedure is already agreed with the Ministry of Energy and Coal Industry and the AMCU18. At the same time, the Commission released for discussion a draft regulatory act introducing natural gas metering in energy units19.

Conclusion: The process of reforming the energy regulator in 2016 was seriously delayed, but due to the pressure and advocacy on the part of international partners, experts, and the public, the Law "On the National Energy and Public Utilities Regulatory Commission" was adopted, ensuring the full implementation of the requirements of Article 277 of the AA and norms of the EU Third Energy Package in the national legislation. The new NEURC law is one of the three major laws for the liberalization of energy markets, and therefore it is important to properly implement it in the 18-month transition period after which the the Regulator’s composition will be completely new.

Proper Application of the Competition Legislation (Articles 255-256 of the AA) The main implementation points are: adoption and publication of a document explaining the principles applied in assessing horizontal mergers; adoption and publication of a document explaining the principles for determining penalties for violation of the competition legislation; Article 30 of Regulation No. 1/2003 of December 16, 2002 on the implementation of the competition rules; Articles 1 and 5 (1) - (2), 20 of Regulation No. 139/2004, dated January 20, 2004, on the control of concentrations between enterprises (EU Merger Regulation); Articles 1-4, 6, 7, and 8 of Regulation No. 330/2010, dated April 20, 2010, on the application of Article 101(3) of the Treaty on the Functioning of the European Union to categories of vertical agreements and concerted practices; Article 8.1 of Regulation No. 772/2004, dated April 27, 2004, on the application of Article 81 (3) of the Treaty to categories of technology transfer agreements.

18 http://www.nerc.gov.ua/index.php?news=5638 19 http://www.nerc.gov.ua/index.php?news=5573

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All issues related to state protection of business competition fall within the jurisdiction of the Antimonopoly Committee of Ukraine. The AMCU is responsible for the formulation and implementation of a competition policy in Ukraine, which is its main task20. Before the AA was signed, independent experts had reviewed Ukraine's competition legislation twice - in 2008 and in 2013. The results of both reviews recognized this legislation as well aligned with the norms of the European competition legislation and did not require any significant changes21.

Only a few points related to the application of the competition legislation needed to be transposed and implemented by the end of 2017 in accordance with CMU Order No. 67 "On Approving the Plans Developed by the Antimonopoly Committee to Implement Certain Legislative Acts of the EU"22. In general, the changes to be implemented are about: • binding the AMCU to publish all its decisions; • improving control over concentrations and vertical concerted actions of business entities; • determining requirements for concerted actions regarding technology transfers.

The first point was already fulfilled in 2015 in response to the demand to harmonize the legislation with the Regulation No. 1/2003 after the effective date of the Law No. 782-VIII "On Amendments to Certain Legislative Acts Regarding Transparency of the Antimonopoly Committee of Ukraine"23. As a result, the AMCU was given 10 days to publish its decisions, in particular those made upon consideration of applications and cases regarding concerted actions or concentrations. Such information is published on the Committee's website in the section "Decisions and Recommendations".

On May 18, 2016, the Law No. 935-VIII "On Amendments to the Law of Ukraine 'On Protection of Economic Competition' (Regarding Improving Control over Economic Concentrations)" became effective24. The amendments formulate conditions under which the creation of concentrations is permitted, procedure for calculating working capital and obtaining permission for a concentration, and decision time frames. The amendments concern the implementation of the Regulation No. 139/2004.

On August 19, 2016, the amendments to the AMCU order regarding concerted actions also came into force and effect25. As in the previous case, the amendments were primarily of clarifying and editorial nature and transpose the relevant articles of the Regulation No. 330/2010.

20 http://www.amc.gov.ua/amku/control/main/uk/publish/article/84306 21 http://ua-energy.org/post/62943 22 http://www.amc.gov.ua/amku/doccatalog/document?id=110529&schema=main 23 http://zakon4.rada.gov.ua/laws/show/782-19 24 http://zakon4.rada.gov.ua/laws/show/935-19 25 http://zakon4.rada.gov.ua/laws/show/z1063-16

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To improve the implementation of the preceding two points, the AMCU website introduced on December 28, 2016, an information section presenting in detail recommendations to improve the quality of applications for permits for concentrations and for concerted actions. The recommendations most concern the technical aspects of the application process26.

On December 27, the Committee also released detailed recommendations on how to apply part one of Article 25 of the Law "On Protection of Economic Competition" in terms of systematization and improvement of the approaches to the assessment of horizontal concentrations27. The recommendations include definitions of key concepts, in particular, the meanings of the terms "horizontal concentration" and "competitive constraints".

They explain what the AMCU means when it says "concentration impact assessment" and what the assessment criteria are..

Conclusion: The implementation of the provisions of Articles 255 and 256 of the AA is conducted on schedule and expected to be completed by the end of 2017, specifically, by completing the transposition into Ukraine's competition legislation the provisions of the Regulation No. 772/2004 of April 27, 2004 regarding categories of technology transfer agreements: the terms and definitions, privileges and obligations of business entities, and limitations on the said agreements.

Issues of State Aid (Articles 262-267 of the AA) The AA provisions require legislative establishment of an authority responsible for the regulation of state aid issues and assignment of the appropriate monitoring and control functions to it. This authority should have the institutional capacity to carry out its mandate. Another requirement is to develop and adopt a list of permissible state aid to business entities.

The state aid regulation issue has been for a long time and remains an open issue not only in the context of the AA, but also of Article 18 (c) of the Treaty establishing the Energy Community. Both documents specify that "any state aid in favor of certain companies or certain energy resources, which distorts or threatens to distort competition, (...) is incompatible with the proper implementation of this Agreement, as it may negatively affect trade in energy and materials or production certain goods".

26 http://www.amc.gov.ua/amku/control/main/uk/publish/article/132308 27 http://www.amc.gov.ua/amku/doccatalog/document?id=132730&schema=main

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Within the Energy Community, the implementation deadlines for these requirements have long been passed, resulting in a case against Ukraine initiated back on April 22, 201428. The authorities responsible for the implementation of Articles 262-267 of the AA are the Anti-Monopoly Committee (AMCU) and the Ministry of Economic Development and Trade, and the implementation schedule and objectives to be achieved are described in detail on the AMCU website in the state aid section29.

The possibility for a company to have an advantage over other companies due to a granted state aid (subsidies, tax incentives, loans against state guarantees, debt writeoff, etc.) have a negative effect on energy markets, discouraging the arrival of new players and new investments to the markets. Accordingly, the establishment of a register of state aid, which is not contradictory to the said international instruments, is currently one of the main tasks in terms of creation of competitive energy markets in Ukraine.

The AMCU was named the authorized agency in the state aid issues back in July 2016 in accordance with the Law "On State Aid to Undertakings".

According to the document, the AMCU: • reviews reports on new state aid; • collects information on measures to support business entities; • qualifies support measures as state aid and considers the effects of a state aid on competition; • controls and monitors state aid; • issues compulsory recommendations to amend the terms and conditions of state aid from aid providers (central executive bodies) and relevant explanations; • decides on suspension or discontinuation of unlawful state aid and refunding thereof.

However, the law takes full effect only in August 2017. By that time, the AMCU must have completed all the preparatory procedures, specifically establish its own institutional capacity to exercise the new powers and create the register of permissible state aid to business entities. In addition, a number of by-laws need to be developed to clarify the AMCU functions provided by Article 8 of the Law. In an effort to harmonize the state aid law with the applicable legislation, the AMCU developed the draft law "On Amendments to the Budget Code of Ukraine Regarding Decisions of the Authorized Agency for State Aid". The amendments are needed to prevent the release of funds from the State Budget as state aid to business entities, which may distort competition on commodity markets. The Verkhovna Rada adopted the amendments to the Budget Code of Ukraine on May 14, 201530.

28 https://www.energy-community.org/portal/page/portal/ENC_HOME/AREAS_OF_WORK/Dispute_ Settlement/2014/8_14 29 http://www.amc.gov.ua/amku/control/main/uk/publish/article/120893;jsessionid=AAED2430418EF02B9 31AA7AA47D27839.app1 30 http://zakon3.rada.gov.ua/laws/show/416-19

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To acquire the institutional capacity means internal reform for the AMCU because, as mentioned earlier, the Committee has not performed such functions so far. To implement these provisions, the Cabinet of Ministers issued the Order No. 936-p, dated September 19, 201531, approving thereby the Action Plan by 2020, which envisages strengthening of the HR potential, creation of a consulting network for state aid questions, and logistical support. According to this plan, the AMCU created a new department to monitor state aid. The staff of the department consists of 7 persons, and after the full enactment of the state aid law, the staff is expected to be expanded to 32 persons. It should be noted that the future personnel costs are already included in the budget.

Also under the plan, future employees will undergo training provided with support from the EU international technical assistance project "Harmonization of Public Procurement in Ukraine with EU Standards". According to the plan, the training was scheduled for the first quarter of 2016 through the second quarter 2017. The training began with April 2016 classes whose attendees (representatives of the AMCU, the Verkhovna Rada, and other central executive bodies) took a course in state aid provision and organization of working groups to develop relevant legislative and regulatory acts.

Apart from training the staff of the new department for state aid, the AMCU held three events (a forum on competition issues32, an international conference on state aid 33, and a seminar within the framework of the Eastern European Conference on Economic Analysis in Competition Law34), which broadly discussed with experts and businessmen the issues of state aid monitoring and control, implementation of permissible state aid, and economic analysis to decide on granting such state aid to business entities.

As far as the implementation of Article 8 of the Law "On State Aid" is concerned, the AMCU adopted the following three by-laws that will come into force from the moment of full enactment of the Law (i.e., on August 2, 2017): 31 http://zakon2.rada.gov.ua/laws/show/936-2015-%D1%80 32 http://ua-competition.com/uk.html 33Â http://www.amc.gov.ua/amku/control/main/uk/publish/article/125726;jsessionid=2A51C90141948E3B5 23DE8D52E7681A0.app1 34 http://www.kmu.gov.ua/control/uk/publish/article?art_id=249293393&cat_id=247229077

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• the procedure for monitoring state aid and keeping the state aid register (AMCU Order No. 43-рп dated December 28, 201535); • procedure for submitting and processing reports from central executive bodies on new state aid and amending the terms and conditions of granted state aid (AMCU Order No. 2-рп dated March 04, 201636); • procedure for considering cases regarding state aid to business entities (AMCU Order No. 8-рп dated April 12, 201637).

In addition to the regulations mentioned above, work is currently underway to finalize a draft CMU resolution regulating the legal relations between the AMCU and providers of unlawful state aid in the application of the procedure for recovering state aid unlawfully granted to business entities.

In September 2016, a roundtable titled "Legislation and Practice: What Is Wrong with the AMCU?" was held with participation of representatives of the AMCU, business, civil society, and international advocacy groups38.

DiXi Group think tank presented a brief study on the AMCU operation39.

An anonymous survey conducted among the member companies of the American Chamber of Commerce in Ukraine, which operate in the energy sector, showed skepticism about the AMCU ability to properly perform its new state aid control functions. The participants stressed the importance of high-quality preparation of the AMCU for the full enactment of the Law "On State Aid to Undertakings".

In the meantime, the AMCU works to fulfill the third obligation under Articles 262-267 of the AA to create a register of permissible state aid. In 2016, the AMCU completed a pilot project to analyze some programs of support for business entities in the energy sector. Under the project, 26 state support programs for the energy sector were analyzed, most of which were in the electricity sector (15.58%), coal industry (6.23%), and oil and gas sector (5.19%). However, the measures that sought state support failed to meet the requirements of the European legislation. The project resulted, among other things, in recommendations for central executive bodies, including the suggestion to take inventory of the practiced methods of state aid provision and reporting thereon to the AMCU. The AMCU will develop criteria for analysis of such methods of providing state aid and draft from scratch a register of the existing mechanisms40.

35 http://zakon0.rada.gov.ua/laws/show/z0142-16 36 http://zakon5.rada.gov.ua/laws/show/z0501-16 37 http://zakon0.rada.gov.ua/laws/show/z0686-16 38 http://ua-energy.org/post/62943 39 http://ua-energy.org/upload/files/AMCU_paper_cover_PDF_rs.pdf 40 http://www.amc.gov.ua/amku/control/main/uk/publish/article/132354

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Conclusion: The full enactment of the Law "On State Aid to Undertakings" is scheduled for August 2017, and all supporting regulations related to the performance of certain AMCU functions will also come into force. To ensure the proper performance of its new functions in the future, the AMCU has created a new department for which staff has already been trained with the support of international partners. Also, work is underway to develop a register of permissible state aid to business entities that will not distort competition. Despite the implementation of all planned measures, businesses are skeptical about the AMCU's proper performance of the new duties.

Creating Favorable Conditions for SMEs (Article 379 of the AA) The obligation to promote the creation and expansion of infrastructure for small and medium-sized enterprises and their competitiveness means: implementation SME development strategies and monitoring of their performance by annual reporting and dialogue; simplification and streamlining of legislative and regulatory acts; implementation of mechanisms facilitating the business start-up period, clustered development, and access to financial resources; support for measures to stimulate exports from Ukraine.

These requirements apply to the policy on industry and entrepreneurship (Chapter 5 of the AA) whose implementation is a responsibility of the Ministry of Economic Development and Trade. It should be noted that there is no detailed implementation plan for this section and, accordingly, Article 379, in the public domain.

Creating a favorable environment for SME is an extremely important task.

In 2015, according to data of the State Statistics Service, the proportion of medium-sized, small, and micro enterprises and individual entrepreneurs to all companies operating in Ukraine amounted to 99.98%, or 1,973,895 entities. Also in 2015, they collectively sold slightly more than UAH 3.5 trillion worth of goods and services, or 63% of the total41.

On March 16, 2016, Ukraine joined the COSME program (being implemented within the framework of the Europe 2020 strategy) as a result of CMU Order No. 14-p regarding Ukraine's participation in the EU program "Competitiveness of Small and Medium-Sized Enterprises (COSME) (201441 http://www.ukrstat.gov.ua/operativ/operativ2014/fin/osp/orps/xls/orps_u_15.zip

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2020)"42. The program includes a set of thematic projects and programs for the period from 2014 through 2020 with a total budget of EUR 2.3 billion.

Ukraine's participation in this program will be in three key areas: • improving conditions for SMEs to access the markets, which means advisory and analytical support for their export and import operations; • improving the regulatory environment for SMEs by eliminating regulatory barriers; • promoting business culture through educational programs, sectoral training, seminars, exchange programs, internships, etc.43 In addition to the participation in the COSME program, the Ministry of Economic Development and Trade published in April for discussion the draft CMU Resolution "On Approving the Development Strategy for Small and Medium-Sized Enterprises in Ukraine for the Period by 2020"44. The final version of the law is expected to presented in early 2017. The document is intended to determine the government's medium-term priorities for the state SME development policy and outline the path of reforms in line with European practice. The implementation of the Strategy is expected to reduce the number of points of contact between business and public administration, expand access to finance for SME, and promote its development at the regional level.

In its present version, the draft Strategy sets the following key indicators to be achieved by 2020: • Ukraine is among the top 20 countries in the World Bank Doing Business ranking; • the share of innovative enterprises is 20% (14.6% in 2014); • business expenses on research and development constitute 0.426% of GDP (0.420% of GDP in 2015); • the market share with a competitive structure is 49.5% (42.7% in 2015); • the share of companies receiving loans is 24.8% (18% in 2015).

The draft Strategy is under discussion, and it is quite possible that before its adoption it will undergo some changes. The next step after its adoption will be a corresponding action plan to be developed and adopted to implement the outlined strategic directions.

In late November 2016, a number of draft laws were released aiming to improve the investment climate in Ukraine. One of them is the draft Law "On Amendments to Certain Legislative Acts of Ukraine to Improve the Investment Climate in Ukraine"45. The document is intended to reduce the risks associated with investing in minority stakes in joint stock companies; enable the use of electronic communication systems in commercial proceedings; and reduce lending risks.

42 http://zakon4.rada.gov.ua/laws/show/226-2016-%D1%80 43 http://www.kmu.gov.ua/control/uk/publish/article?art_id=248761303&cat_id=244276429 44 http://www.me.gov.ua/Documents/Detail?lang=uk-UA&id=e9a60a30-a6e1-4eaf-b740-088145e1bd94&titl e=PovidomlenniaProOpriliudnenniaProektuPostanoviKabinetuMinistrivUkrainiproZatverdzhenniaStrategiiRo zvitkuMalogoISerednogoPidprimnitstvaVUkrainiNaPeriodDo2020-Roku 45 http://me.gov.ua/Documents/Detail?lang=uk-UA&id=39e87d3b-6d8f-4485-9d3f-64f3edf2cf7d&title=Proe ktZakonuUkrainiproVnesenniaZminDoDeiakikhZakonodavchikhAktivUkrainiSchodoPolipshenniaInvestitsiino goKlimatuVUkraini

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The package of laws included draft laws amending the Budget46, Customs47, and Tax48 codes. In fact, the amendments to the Tax Code promise the greatest improving effect on the investment climate in Ukraine, which is the reason it was adopted in the first place. On December 21, 2016, the Parliament adopted the draft law in the second reading, and already on December 30 the President signed it49.

The document provides for a number of important objectives to be achieved, specifically: • introduction of a simplified and transparent system of registration of persons as VAT payers and their selection of the simplified taxation scheme; • business entities will be able to carry out their economic activities without corporate seals; • conditions will be created for the use of trusts as a way to secure the fulfillment of obligations.

In an effort to improve the investment climate, the Prime Minister V.Groysman announced on August 8, 2016, the creation of the Office for Attracting and Supporting Investments50, and it was in fact created on October 19 by CMU Resolution No. 74051. The Office will operate as an advisory body and include leading investment, communication, and marketing experts. Its main tasks are to: • develop a mechanism of preparation and implementation of investment projects based on the "single window" principle; • promote coordination of bodies of executive power in responding to issues arising when making investments in Ukraine; • prepare proposals to develop and unfold Ukraine's investment potential, support priority investment projects, and protect the investor's rights; • assistance in resolving issues arising when implementing investment projects in Ukraine; A working group with similar functions has been created under the Ministry of Energy and Coal Industry for rapid response to problems of the investors operating in Ukraine and planning to invest in the fuel and energy 46 http://www.me.gov.ua/Documents/Detail?lang=uk-UA&id=613e7de9-fd5f-4d27-8c7c-6f43a643ac0a&title =ProektZakonuUkrainiproVnesenniaZminiDoStatti71-BiudzhetnogoKodeksuUkrainiSchodoPolipshenniaInve stitsiinogoKlimatuVUkraini 47 http://www.me.gov.ua/Documents/Detail?lang=uk-UA&id=13a3dfa9-9c88-491d-a8c8-0a02232c0 e6e&title=ProektZakonuUkrainiproVnesenniaZminDoMitnogoKodeksuUkrainiSchodoPolipshenniaInv estitsiinogoKlimatuVUkraini 48 http://www.me.gov.ua/Documents/Detail?lang=uk-UA&id=dd166c9b-55fc-489c-b64c-5a0564c538 4c&title=ProektZakonuproVnesenniaZminDoPodatkovogoKodeksuUkrainiSchodoPolipshenniaInvest itsiinogoKlimatuVUkraini 49 http://w1.c1.rada.gov.ua/pls/zweb2/webproc4_1?pf3511=60443 50 http://www.kmu.gov.ua/control/uk/publish/article?art_id=249233079&cat_id=244276429 51 http://zakon5.rada.gov.ua/laws/show/740-2016-%D0%BF

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sector. The working group was appointed by the Order No. 58752. It includes representatives of the ministry and the minister himself, and representatives of the American Chamber of Commerce in Ukraine and the European Business Association.

On June 21, 201653, the draft law "On Information Disclosure in Extractive Industries"54 was presented, introducing the international standard of the Extractive Industries Transparency Initiative, as well as the Transparency and Accounting directives. The draft law provides for public access to information disclosed by companies operating in extractive industries on paid taxes and other operating results. The draft law also regulates the information disclosing procedure and methods and requirements for such disclosed information, and establishes liability of companies for late or incomplete reporting. According to the opinions by the committees for the fuel and energy complex and for environmental policy, the document was recommended for adoption in the first reading, but that did not happen by the end of 2016.

This draft law allows investors, experts, and business community to see the real situation in the industry and its prospects. It will also enable the government to make management decisions to encourage market competition and encourage the fulfillment of obligations to increase operational transparency in extractive industries. The task to increase transparency in extractive industries has been added to the strategy of the Ministry of Energy and Coal Industry as a priority55.

Also in 2016, a legislative initiative to improve the business climate was launched, specifically to increasing the attractiveness of industrial parks.

The Law "On Industrial Parks", which regulates this issue, has been in effect since 2012, amended last time in 2015 to remove some regulatory barriers. In April 2016, two draft laws were registered amending the Customs56 and Tax57 codes to entourage investments in the real sector through industrial parks. The amendments canceled customs duties, including on the energy products determined in the AA, made industrial parks more attractive by lifting taxes for a specified period.

52 http://mpe.kmu.gov.ua/minugol/doccatalog/document?id=245143771 53 http://rada.gov.ua/news/Novyny/132094.html 54 http://w1.c1.rada.gov.ua/pls/zweb2/webproc4_1?pf3511=59455 55 http://www.kmu.gov.ua/control/publish/article?art_id=249063178 56 http://w1.c1.rada.gov.ua/pls/zweb2/webproc4_2?id=&pf3516=2555%E0-%E4&skl=9 57 http://w1.c1.rada.gov.ua/pls/zweb2/webproc4_1?pf3511=58867

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In October, the amendments to the Customs and Tax codes were adopted in the first reading and their preparation for the second reading began58.

But the mechanism of industrial parks bears some traits of state aid and as such needs to be agreed with the AMCU59. The Government at the Prime Minister level pledged support for the implementation of these amendments60.

Conclusion: There has been no significant progress in the efforts to improve the business environment. Ukraine has risen to the 80th rank in the World Bank Doing Business rating, after improving its 2015 indicator by three positions. It is worth noting the ambitious goal to enter the top 20 countries in the Doing Business rating, but the SMEs development strategy is currently under approval phase. Another the positive steps are the establishment of the Office for Attracting and Supporting Investments under the Cabinet of Ministers for quick response to investors' needs and of the working group with similar functions under the Ministry of Energy and Coal Industry. Some changes have happened due to the amendments to the Tax Code adopted at the end of last year, but this is only one of the many decisions that need to be implemented to improve the investment climate.

The work to improve the attractiveness of industrial parks through favorable tax conditions needs to be continued: two draft laws amending the Tax and Customs Codes have been adopted by the Parliament in the first reading. Yet, the said amendments bear some traits of state aid, which may distort competition, and therefore, they must be approved by the AMCU. The effort to implement the higher standards in the extractive industries’ transparency has yielded no result yet, as the relevant draft law was still not been considered in the Parliament.

58 http://www.rada.gov.ua/news/Novyny/136425.html 59 http://www.ucci.org.ua/visti/ukr/news/2016/12/01/50_.shtml 60 http://www.kmu.gov.ua/control/uk/publish/article?art_id=249584868&cat_id=244274130

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Public Procurement System (Articles 148-156 of the AA, provisions of Directive 2014/25/EC) The requirements envisage mutual access to public procurement markets based on the principle of national treatment at the national, regional, and local levels for state public contracts and concessions in the traditional industries.

The main implementing body, according to CMU Resolution No. 217-p dated February 18, 201661 is the Ministry of Economic Development and Trade.

To implement the requirements, a public procurement system reform strategy (road map) had to be developed, and Ukraine's state procurement system to be integrated with the European TED system.

On February 24, the Cabinet of Ministers issued the Order No. 175-p approving the Public Procurement Reform Strategy (Road Map)62, which was to be implemented in 5 stages by 2022. The Strategy's main directions and steps are: • Ukraine's ratification of the WTO Agreement on Government Procurement; • adoption of a legal framework for electronic public procurement procedures aligned with EU principles and standards (the Law "On Public Procurement"); • creation of a common electronic procurement system (ProZorro) and the possibility to file complaints and publish procurement analysis results (dozorro); • international cooperation; etc.

The most noteworthy move in this area was Ukraine's accession to the WTO Agreement on Government Procurement in May 2016. The accession process lasted 4 years and opened the world public procurement market for Ukrainian companies. Now, to participate in public procurements on the global scale, there is no need to set up a representative office or spend money on marketing, what is needed is to find a tender competition and properly submit a tender offer63.

61http://zakon0.rada.gov.ua/laws/show/217-2016-%D1%80/paran12#n12 62 http://zakon5.rada.gov.ua/laws/show/175-2016-%D1%80/page 63 http://www.kmu.gov.ua/control/uk/publish/article?art_id=249038943&cat_id=244277212

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On May 31, the Verkhovna Rada registered a draft law amending the Law "On Public Procurement" and some other laws of Ukraine related to procurement monitoring64. The document received the required opinions from the Parliament Committee on Economic Policy and the AMCU with recommendations to adopt the law in principle in the first reading, which has not been done.

As one of the Strategy implementation steps, the ProZorro electronic procurement system was launched in the country on August 1, 2016. This online procurement system allows monitoring the whole process of public procurements, simplifying access for businesses. As of late December 2016, ProZorro helped to save UAH 19.34 billion65, the integration of open state registers, public monitoring, and intensive promotion of public procurement are planned for 2017 to further develop ProZorro66.

An integrated part of the ProZorro web portal is an analytical resource whose creation and launch was planned in the Strategy for 2016. The analytical module uses all available information about already announced tender competitions and allows their comprehensive analysis based on the following criteria: below-threshold and above-threshold procurements, competitive or noncompetitive, currently underway or completed, or failed. It is also possible to see and explore the tender competition dynamics: their number and total amount; for the whole period since the launch of the system or for a specific period, and by regions. Generally speaking, the analytical module automatically calculates the total amount saved for the system's entire period in operation, summarizing the difference between the asking price for a product or service and its final selling price67.

In addition, the dozorro system has been created to monitor procurements and officially notify the regulatory agencies of any possible violations. The web portal allows civil society activists and the media to discuss a specific tender competition with suppliers and give them an expert opinion about correct wordings in the tender documents, etc. In addition, contracting authorities may not only evaluate a particular supplier, but also analyze the feedback from business and correspondingly adjust their procurement process68.

To further improve the procurement system, Ukraine and the EU discussed the mutual integration of public procurement websites to extent access to information and allow for systemic analysis. The EU public procure64 http://w1.c1.rada.gov.ua/pls/zweb2/webproc4_1?pf3511=59264 65 http://bi.prozorro.org/sense/app/fba3f2f2-cf55-40a0-a79f-b74f5ce947c2/sheet/HbXjQep/state/analysis 66 https://prozorro.gov.ua/ua/pro-reformu/#etapy 67 http://bi.prozorro.org/sense/app/fba3f2f2-cf55-40a0-a79f-b74f5ce947c2/sheet/HbXjQep/state/analysis 68 http://dozorro.org/

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ment information system TED uses the CPV, a common European procurement vocabulary describing objects of procurement and recommended for use by the European Commission69. According to the Order No. 454 of the Ministry of Economic Development and Trade "On Approving the Procedure for Determining the Object of Procurement,"70 dated March 17, 2016, Ukraine would start using the CPV from January 1, 2017, a move ultimately opening the way to EU public procurements for Ukrainian companies.

Conclusion: The results of 2016 showed that the reform of Ukraine's public procurement system proved to be the most successful and effective. At the beginning of the year, the Cabinet of Ministers approved the Public Procurement Reform Strategy (Road Map) and its first stage was practically completed by the end of 2016. The ProZorro electronic procurement system has been launched, gathering all state procurements in a single online database. This move has greatly simplified access of businesses to public tender competitions, increased their transparency, and helped save more than UAH 19 billion for the State Budget. As part of the web resource, an analytical module has also been lunched providing access to procurement analysis data for the entire period of operation of the website.

69 http://old.minjust.gov.ua/file/32426 70 http://zakon3.rada.gov.ua/laws/show/z0448-16

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Price Statistics (Articles 355-359 of the AA, provisions of Directive 2008/92/EC) The AA articles and the Directive provide for the implementation of mechanisms for collecting and processing data that will serve as basis for information about prices for gas and electricity supplied to industrial consumers.

The proper collection of primary information and its subsequent processing is the basis for the formation of energy prices for industrial consumers, so the importance of these obligations is obvious. The authority responsible for their fulfillment is the State Statistics Service.

On July 7, the NEURC Resolution No. 1234 agreed with the State Statistics Service regarding the monitoring form of reporting submitted by the natural gas supplier71. The resolution approved the instruction on the reporting which a business entity that sells natural gas is required to submit quarterly. The instruction describes the reporting procedure and schedule timing of filing of the statements and explains in detail how to fill out the form.

On December 28, the State Statistics Service issued the Order No. 253 "On Approving the Methodological Guidelines for State Statistical Monitoring of Prices for Natural Gas Supplied to Consumers"72. The Methodological Guidelines contain basic provisions and methods of obtaining information about average gas prices for different groups of consumers and the structure of average prices, as provided for in Directive 2008/92/EC. A similar methodology for collecting and processing data on electricity prices was not published in 2016, although, according to the State Statistics Service response to a relevant inquiry, it should be made public in December.

Conclusion: The State Statistics Service has only partially implemented the mechanisms for collecting and processing data which shall be serving as basis for information about prices for gas and electricity supplied to industrial consumers. Only the methodology for monitoring prices for natural gas has been developed, but there is still no such methodology for electricity prices.

71 http://zakon4.rada.gov.ua/laws/show/z1094-16/paran4#n4 72 http://www.ukrstat.gov.ua/metod_polog/metod_doc/2016/253/253_2016.htm

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Access of Goods to Markets (Articles 27-49 of the AA) The Agreement Parties seek to achieve economic integration of markets and to this end agreed to liberalize the movement of goods.

Simplification of the movement of goods between Ukraine's and EU markets falls to a greater extend within the purview of the Ministry of Economic Development and to a lesser extent within the purview of the Ministry of Finance. However, other authorities have also been involved for the implementation.

On May 25, the Cabinet of Ministers issued the Resolution No. 364 approving the procedure for information exchange between the bodies responsible for revenues and duties, other government agencies and enterprises on the basis of the "single window" principle, using electronic data transmission systems73, including the system implemented at Ukraine's customs.

The resolution binds the State Fiscal Service to publish on a monthly basis performance reports on this system.

The automated customs clearance system "Single Window" is created in compliance with the European modelŃ–. Its advantage is a centralized database accessible for both businesses and customs and regulatory authorities. This system simplifies and accelerates the customs formalities, reduces business costs, effectively distributes resources, and works against corruption. In addition, the "single window" has a clearly regulated decision-making time frame - 4 hours, otherwise tacit consent assumed. On August 1, 2016, after completion of all preparatory procedures, the "single window" opened at all customs of Ukraine74.

The "single window" system has accelerated the customs control formalities, thus making it easier to business in Ukraine and expanding access of goods to the market. It is worth noting that the number of processed applications for the implementation of this system exceeded 18,000, as the November summary showed75.

According to the approved action plan of the Cabinet of Ministers, a number of import duties had to be abolished by December 201676 in accordance with the procedure agreed with the EU earlier, in April. However, according to the response of the Ministry of Economic Development and Trade to an 73 http://www.kmu.gov.ua/control/uk/cardnpd?docid=249107456 74 http://www.kmu.gov.ua/control/uk/publish/article?art_id=249216887&cat_id=244277212 75 http://www.kmu.gov.ua/control/uk/publish/article?art_id=249558742&cat_id=244277212 76 http://www.kmu.gov.ua/document/248779449/AA%20DCFTA%20AP_final%20draft-16012016.pdf

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inquiry, the CMU draft order "On Approving the Draft Decision of the Trade Members of Association Committee Regarding Supplementing Annex I-A and Revising the Export Duties Abolition Schedule in Annex I-C and Annex I-D to the Association Agreement" is undergoing internal approvals.

Conclusion: Some simplification in the goods flow between Ukraine's and EU markets has been achieved due to the "single window" system launched at all customs of Ukraine. The automated customs clearance system makes it easier for companies to submit documents. At the same time, the abolition of duties on a number of commodity titles from the EU, including the energy products category, has not been considered.

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List of Laws and Regulation President of Ukraine •

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Decree No. 36/2016 "On Appointment of Ambassador Extraordinary and Plenipotentiary of Ukraine to the Kingdom of Belgium M.S. Tochytskyi as Representative of Ukraine to the European Union and the European Atomic Energy Community Concurrently," dated February 04, 2016 Decree No. 45/2016 "On Approving the Annual National Program of Ukraine-NATO Cooperation for 2016" dated February 12, 2016 Decree No. 141/2016 "On Additional Measures to Transform the "Shelter" Object into an Environmentally Safe System and Recovery of the Areas Radioactively Contaminated by the Chernobyl Disaster" dated April 13, 2016 Decree No. 174/2016 "On the Creation of the Chernobyl Radiation-Ecological Biosphere Reserve" dated April 26, 2016 Decree No. 200/2016 "The Issues of Ukraine's Accession to the Statute of the International Renewable Energy Agency (IRENA)" dated May 10, 2016 Proposals of the President of Ukraine to the Law of Ukraine "On Environmental Impact Assessment" Proposals of the President of Ukraine to the Law of Ukraine "On Strategic Environmental Assessment"

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Resolution No. 32 "On Approving the Procedure for the Preparation, Approval, and Implementation of the Plan for External Assistance of the European Commission within the TAIEX Framework," dated January 12, 2016 Resolution No. 89 "On Amendments to the Procedure for the Development and Approval of Nuclear and Radiation Safety Norms, Rules, Standards," dated January 27, 2016 Resolution No. 133 "On the Creation of the Interagency Working Group for Issues and Appeals from Citizens, Civil Associations, and Legal Entities Regarding Electricity, Heat and Gas Supply Services," dated February 18, 2016 Resolution No. 160 "On Amendments to Certain Acts of the Cabinet of Ministers of Ukraine Regarding Approximation of the Legislation of Ukraine to the EU Acquis," dated February 24, 2016 Resolution No. 181 "On Amendments to Resolution No. 234 of the Cabinet of Ministers of Ukraine, dated February 28, 2011," dated March 16, 2016 Resolution No. 198 "On Amendments to Certain Resolutions of the Cabinet of Ministers of Ukraine," dated February 24, 2016 Resolution No. 234 "On Amendments to Resolution No. 758 of the Cabinet of Ministers of Ukraine, dated October 01, 2015," dated March 30, 2016 Resolution No. 277 "On Amendments to the Procedures Approved by Resolutions No. 594 and No. 615 of the Cabinet of Ministers of Ukraine, dated May 30, 2011, and Invalidation of Certain Resolutions of the Cabinet of Ministers of Ukraine," dated April 06, 2016 Resolution No. 296 "On Determining Issues that Fall Within the Purview of the First Vice Prime Minister of Ukraine and Vice Prime Ministers of Ukraine and Accordingly Recognizing That the Purview of Vice Prime Minister of Ukraine V.Ye. Kistion Includes the Management of the Fuel and Energy Complex; National Energy Security; Ecology

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List of Laws and Regulation

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and Environmental Protection; and the Chernobyl Zone."

Resolution No. 315 "On Amendments to Resolution No. 758 of the Cabinet of Ministers of Ukraine, dated October 01, 2015," dated April 27, 2016 Resolution No. 332 "On Amendments to Clause 17 of the Regulation on Special Obligations Imposed on Natural Gas Market Operators to Protect the General Public Interests on the Natural Gas Market (Relations for the Transitional Period)," dated April 29, 2016 Resolution No. 357 "On Approving the Standard Agreement on Natural Gas Supply to Thermal Energy Producers for Heat Production," dated April 29, 2016 Resolution No. 358 "On the Functioning of Territorial Bodies of the State Nuclear Regulatory Inspectorate," dated June 08, 2016 Resolution No. 364 "On Certain Issues of Application of the "Single Window" Principle in Customs, Sanitary-Epidemiological, Veterinary, Phytosanitary, Environmental, Radiological, and Other Types of State Control," dated May 25, 2016 Resolution No. 434 "On Approving the Procedure for Using the Funds Allocated in the State Budget for Bringing Uranium Facilities to a Safe Condition," dated July 13, 2016 Resolution No. 442 "On Invalidation of Certain Resolutions of the Cabinet of Ministers of Ukraine," dated July 13, 2016 Resolution No. 444 "On Approving the Standard Natural Gas Purchase Agreement with Natural Gas Suppliers with Special Obligations to Satisfy the Needs of Household Consumers and Religious Organizations," dated July 13, 2016 Resolution No. 447 "Issues of Settlements for Consumed Electricity with the Electricity Supplier by Luhansk Energy Association Limited Liability Company," dated July 06, 2016 Resolution No. 496 "On Unbundling Activities of Transportation and Storage (Injection, Withdrawal) of Natural Gas," dated July 01, 2016 Resolution No. 591 "On Amendments to the Rules of Electricity Usage by the Public," dated August 23, 2016 Resolution No. 655 "On Amendments to Cabinet of Ministers Resolutions No. 758 of October 01, 2015 and No. 444 of July 13, 2016," dated September 22, 2016 Resolution No. 658 "On Amendments to the Regulation on Special Obligations Imposed on Natural Gas Market Operators to Protect the General Public Interests on the Natural Gas Market (Relations for the Transitional Period)," dated September 22, 2016 Resolution No. 675 "Certain Issues of Management of the Public Joint-Stock Company "National Joint Stock Company 'Naftogaz of Ukraine,'" dated September 22, 2016 Resolution No. 704 "On Amendments to the Regulation on Special Obligations Imposed on Natural Gas Market Operators to Protect the General Public Interests on the Natural Gas Market (Relations for the Transitional Period)," dated October 05, 2016 Resolution No. 706 "Amendments to the Procedure for Distributing Funds Credited to Special-Purpose Accounts for Settlements with the Natural Gas Supplier with Special Obligations," dated October 11, 2016 Resolution No.710 "On Efficient Use of Public Funds," dated October 11, 2016 Resolution No. 740 "On Establishing the Office for Attracting and Supporting Investments," dated October 19, 2016 Resolution No.775 "On Amendments to the Procedures Approved by Cabinet of Ministers Resolutions No. 594 and No. 615 of May 30, 2011," dated November 02, 2016 Resolution No. 785 "On Amendments to Resolution No. 687 of the Cabinet of Ministers of Ukraine, dated August 1, 2012," dated November 09, 2016 Resolution No. 800 "On Amendments to the Unbundling Plan for Public Joint Stock Company "National Joint-Stock Company 'Naftogaz of Ukraine'" to Unbundle Activities of Natural Gas Transportation and Storage (Injection, Withdrawal)," dated Novem-

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ber 09, 2016 Resolution No. 801 "On Establishing Public Joint Stock Company "Main Gas Pipelines of Ukraine,"" dated November 09, 2016 Resolution No. 814 "On Establishing the Interagency Working Group for Issues of Functioning of the Oil and Petroleum Products Market and Development the Oil Refining Industry," dated November 16, 2016 Resolution No. 837 "Issues of Public Joint-Stock Company "Main Gas Pipelines of Ukraine," dated November 16, 2016 Resolution No. 853 "On Amendments to Clause 20 of the Standard Natural Gas Purchase and Sale Agreement with the Natural Gas Suppliers with Special Obligations to Satisfy the Needs of Household Consumers and Religious Organizations," dated October 26, 2016 Resolution No. 860 "On Approving the Size of Natural Gas Insurance Stocks," dated November 16, 2016 Resolution No. 876 "Certain Issues of State Guarantee to the International Bank for Reconstruction and Development for the Obligations of Public Joint-Stock Company "National Joint-Stock Company 'Naftogaz of Ukraine,'" dated November 30, 2016 Resolution No. 937 "On Amendments to Clause 16 of the Regulation on Special Obligations Imposed on Natural Gas Market Operators to Protect the General Public Interests on the Natural Gas Market (Relations for the Transitional Period)," dated December 14, 2016 Resolution No. 973 "On Amendments to Clause 2 of the Technical Regulations Regarding Requirements for Motor Gasolines, Diesel, Marine, and Boiler Fuels," dated December 22, 2016 Resolution No. 1009 "On Approving the List of Goods Whose Export and Import Is Subject to Licensing and Quotas in 2017," dated December 28, 2016 Resolution No. 1044 "Issues of Public Joint-Stock Company "National Joint-Stock Company 'Naftogaz of Ukraine'," dated December 14, 2016 Order No. 371-p "On Approving the Plan Developed by the Ministry of Ecology and Natural Resources for Implementing Certain Acts of the EU Aquis," dated April 15, 2015 Order 14-p "On Signing the Agreement between the Government of Ukraine and the European Union on Ukraine's Participation in the EU Programme "Competitiveness of Small and Medium-sized Enterprises (COSME) (2014-2020)," dated January 13, 2016 Order No. 50-p "On Signing the Agreement between the Government of Ukraine and the Government of Australia on Cooperation in the Peaceful Uses of Nuclear Energy," dated January 27, 2016 Order No. 175-p "On the Public Procurement Reform Strategy (Road Map)," dated February 24, 2016 Order No. 178-p "On Allocations in 2016 for Ukraine's Payment of Contribution to the Nuclear Safety Account of the European Bank for Reconstruction and Development," dated February 24, 2016 Order No. 217-p of February 18, 2016 "On Amendments to Resolution No. 847 of the Cabinet of Ministers of Ukraine, Dated September 17, 20164" (Action Plan for the Implementation of Section IV "Trade and Trade-related Matters" of the Association Agreement between Ukraine, on the One Part, and the European Union, the European Atomic Energy Community and Their Member States, on the Other Part, for 2016 -2019) Order No. 302-p "On Signing the Agreement (in the Form of Exchanges of Letters) between the Cabinet of Ministers of Ukraine and the European Bank for Reconstruction and Development on the Contribution of Ukraine to the EBRD Nuclear Safety Account," dated April 20, 2016

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Order No. 384-p "On Approving Draft Additional Agreement No. 2 to the Agreement on Performance of Development Tasks between the Government of Ukraine and the Government of the United States of America to Promote Broad-Based Resilient Economic Development as a Means to Sustain Ukrainian Democracy, Executed on September 17, 2014 in the City of Kyiv," dated May 25, 2016 Order No. 403-p "On Signing the Agreement for Scientific and Technological Cooperation between the European Atomic Energy Community and the Government of Ukraine Associating Ukraine to the Euratom Research and Training Programme (2014-2018)," dated June 01, 2016 Order No. 418-p "On Approving the 2016 Priority Action Plan of the Government," dated May 27, 2016 Order No. 487-p "On Reallocation of Certain State Budget Funds and Provision of Loans from the State Budget to the Ministry of Energy and Coal Industry in 2016," dated July 13, 2016 Order No. 501-p "On Approving the Comprehensive Action Plan to Implement the Provisions of the Design Basis Threat to Nuclear Facilities, Nuclear Materials, Radioactive Waste, and Other Sources of Ionizing Radiation in Ukraine," dated July 22, 2016 Order No. 552-p "On Approving the Hydropower Development Program for the Period by 2026," dated July 13, 2016 Order No. 615-p "On Approving the Action Plan for the Deregulation of Business Activities and Invalidation of Certain Orders of the Cabinet of Ministers of Ukraine," dated August 23, 2016 Order No. 721-р "On Withdrawal and Allocation of Land for Permanent Use with Changing Its Designated Purpose," dated October 05, 2016 Order No. 742-p "Certain Issues of the 2016/17 Heating Season," dated October 05, 2016 Order No. 943-р "On Approving the Concept of National Targeted Economic Development Program for the Nuclear Industrial Complex for the Period by 2020," dated November 09, 2016 Order No. 1079-p "On Approving the Development Concept for the Gas Production Branch of Ukraine," dated December 28, 2016 Draft Order "On Approving the Concept of National Environmental Monitoring Reform" Draft Order "On Approving the Concept of Popularization of Ukraine in the World and Promotion of Ukraine's Interests in the Global Media Space"

Verkhovna Rada of Ukraine •

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178

Law of Ukraine No. 935-VIII "On Amendments to the Law of Ukraine 'On Protection of Economic Competition' (Regarding Improving Control over Economic Concentrations)," dated January 26, 2016 Law No. 994-VIII "On Amendments to the Customs Code of Ukraine Regarding Creating Preconditions for a New Model of Natural Gas Market," dated February 04, 2016 Law No. 1339-VIII "On Amendments to the Law of Ukraine 'On the Status and Social Protection of Citizens Affected by the Chernobyl Disaster" to Exclude Discriminatory Treatment of Citizens Who Took Part in the Elimination of Consequences of Other Nuclear Accidents, in Nuclear Tests and Military Exercises Involving Nuclear Weapons," dated April 21, 2016 Law No. 1469-VIII "On Ratification of the Paris Agreement," dated July 14, 2016 Law No. 1472-VIII "On Amendments to Certain Legislative Acts of Ukraine Regarding Settlement of Certain Legal Issues on the Territory Radioactively Contaminated by the Chernobyl Disaster," dated July 14, 2016

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Law No. 1540-VIII "On the National Energy and Public Utilities Regulatory Commission," dated September 22, 2016 Law No. 1541-VIII "On Amendments to Article 12 of the Law of Ukraine 'On the Natural Gas Market,'" dated September 22, 2016 Law No. 1542-VIII "On Ratification of the Agreement for Scientific and Technological Cooperation between the European Atomic Energy Community and the Government of Ukraine Associating Ukraine to the Euratom Research and Training Programme (2014-2018)," dated September 22, 2016 Law No. 1638-VIII "On Amendments to Article 265 of the Criminal Code of Ukraine Regarding Voluntary surrender of Radioactive Materials," dated October 04, 2016 Law No. 1711-VIII "On Amendments to the Law of Ukraine 'On Alternative Energy Sources' to Classify Heat Pumps as Equipment Powered by Renewable Energy," dated November 01, 2016 Law No. 1713-VIII "On Amendments to Article 8 of the Law of Ukraine 'On Alternative Fuels' (Regarding Simplification of Business Conditions for Biofuel Production)," dated November 01, 2016 Law No. 1730-VIII "On Measures to Settle the Debts for Consumed Energy, Incurred by Heating and Heat-Generating Organizations and Enterprises Engaged in Centralized Water Supply and Sewerage," dated November 03, 2016 Law No. 1791-VIII "On Amending the Tax Code of Ukraine Regarding Measures to Ensure the Balance of Budgetary Receipts in 2017," dated December 20, 2016 Law No. 1793-VIII "On Amendments to the Budget Code of Ukraine (Regarding Regulation of the Management of Proceeds from Rental Payments for Subsoil Use to Extract Oil, Natural Gas and Gas Condensate)," dated December 20, 2016 Law No. 1797-VIII "On Amendments to the Tax Code of Ukraine to Improve the Investment Climate in Ukraine," dated December 21, 2016 Law No. 1809-VIII "On Amendments to the Law of Ukraine 'On the State Budget of Ukraine for 2016' to Increase Allocations for Wages to Workers of State Coal-Mining Enterprises," dated December 22, 2016 Resolution No. 1099-VIII "On the Program of Work of the Cabinet of Ministers of Ukraine," dated April 14, 2016 Resolution No. 1733-VIII "On the Address of the Verkhovna Rada of Ukraine to the Parliaments and Executive Authorities of European Union Members States, Calling for Intensified Cooperation in Energy Security and Potential Risks of Projects to Build Transit Gas Pipelines bypassing Ukraine," dated November 15, 2016 Draft Law No. 1769 "On Amendments to Certain Legislative Acts of Ukraine (Regarding Strengthening Protection of the Econet)," dated January 15, 2015 Draft Law No. 2009а-д "On Environmental Impact Assessment," dated February 22, 2016 Draft Law No. 2023 "On Amendments to Certain Legislative Acts of Ukraine (Regarding the Implementation of the Convention of 1979 on the Protection of Wild Flora and Fauna and Natural Habitats in Europe," dated February 04, 2015 Draft Law No. 2431 "On Amendments to the Legislation on Protection of Economic Competition (Regarding Determining the Amount of fines Imposed by Bodies of the Antimonopoly Committee of Ukraine for Violations of the Legislation on Protection of Economic Competition)," dated March 19, 2016 Draft Law No. 2554а-д "On Amendments to Section XX 'Transitional Provisions' of the Tax Code of Ukraine Regarding the Development of Domestic Production through Incentives to Attract Investments to the Real Economy through Industrial Parks," dated April 25, 2016 Draft Law No. 2555а-д "On Amendments to the Customs Code of Ukraine (Regarding

179

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the Development of Domestic Production through Incentives to Attract Investments to the Real Economy through Industrial Parks," dated April 25, 2016 Draft Law No. 2604 "On Amendments to Certain Legislative Acts of Ukraine (Regarding the Implementation of European Environmental Norms on Protection of the Habitat of Rare Animals and Plants)," dated April 08, 2015 Draft Law No. 3096 "On Amendments to Certain Legislative Acts of Ukraine Regarding Simplification of Certain Aspects of the Oil and Gas Industry," dated September 15, 2015 Draft Law No. 3259 "On Strategic Environmental Assessment," dated October 08, 2015 Draft Law No. 3323 "On Amendments to Certain Legislative Acts of Ukraine Governing the Relations Connected with Obtaining Permissive Documents (for Special water use Resources)," dated October 13, 2015 Draft Law No. 3445 "On Amendments to Certain Legislative Acts of Ukraine (Regarding the Protection of Flora and Fauna in Accordance with International Agreements)," dated November 10, 2015 Draft Law No. 3849 "On Amendments to Certain Legislative Acts of Ukraine Regarding Promotion of Oil and Gas Prospecting and Production in Ukraine," dated January 29, 2016 Draft Law No. 4263 "On Specific Features of Leasing Connected Gas Distribution Networks with a Controlling State-Owned or Municipally-Owned Share," dated March 18, 2016 Draft Law No. 4334 "On Amendments to the Law of Ukraine 'On Heat Supply' to Promote Heat Production from Alternative Energy Sources," dated March 30, 2016 Draft Law No. 4493 "On the Electricity Market of Ukraine," dated April 21, 2016 Draft Law No. 4503 "On Amendments to Certain Legislative Acts of Ukraine Regarding the Conditions for the Functioning of the Natural Gas Market," dated April 21, 2016 Draft Law No. 4541 "On Amendments to Certain Legislative Acts of Ukraine Regarding Reducing Barriers to Foreign Investment (Abolishing the Requirement to Register Foreign Investments and Amending the Rules of Employment and Temporary Residence for Foreigners)," dated April 28, 2016 Draft Law No. 4551 "On Amendments to the Law of Ukraine 'On Nature Reserve Fund of Ukraine' (Regarding Powers in the Field of Environmental Protection)," dated May 04, 2016 Draft Law No. 4580 "On Amendments to the Law of Ukraine 'On Heat Supply' Regarding Transfer of the Authority of Tariff-Setting and Licensing the Production of Heat from Alternative Energy Sources," dated May 04, 2016 Draft Law No. 4664 "On Amendments to the Law of Ukraine 'On the List of State Properties That Are not Subject to Privatization' (Regarding Inclusion of Public Joint-Stock Company "Ukrgazvydobuvannia" in the List of Properties That Are not Subject to Privatization)," dated May 13, 2016 Draft Law No. 4733 "On Amendments to Certain Legislative Acts of Ukraine Regarding Improvement of Urban Planning," dated May 30, 2016 Draft Law No. 4733-1 "On Amendments to Certain Legislative Acts of Ukraine Regarding Improvement of Urban Planning," dated 6/3/2016 Draft Law No. 4733-2 "On Amendments to Certain Legislative Acts of Ukraine Regarding Improvement of Urban Planning," dated June 21, 2016 Draft Law No. 4738 "On Amendments to the Law of Ukraine 'On Public Procurement' and Certain Other Laws of Ukraine Regarding Procurement Monitoring," dated May 31, 2016 Draft Law No. 4749 "On Amendments to Certain Laws of Ukraine (Regarding Protection of Consumer Rights When Using Natural Sites Belonging by Right of Title to the

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Ukrainian People)," dated June 01, 2016 Draft Law No. 4756 "On Amendments to the Law of Ukraine "On Commercial Metering for Natural Gas" Regarding Installation of Individual Gas Meters in Apartment Buildings," dated June 02, 2016 Draft Law No. 4840 "On Information Disclosure in Extractive Industries," dated June 17, 2016 Draft Law No. 4868 "On Amendments to Certain Legislative Acts of Ukraine (to Bring them into Compliance with the Law of Ukraine "On the Natural Gas Market")," dated June 24, 2016 Draft Law No. 4869 "On Amendments to Certain Legislative Acts (Regarding Intensification of Environmental Protection Measures)," dated June 24, 2016 Draft Law No. 4901 "On Commercial Metering of Public Utility Services," July 06, 2016 Draft Law No. 4941 "On Energy Efficiency of Buildings," dated July 11, 2016 Draft Law No. 4941-1 "On Energy Characteristics of Buildings," dated November 25, 2016 Draft Law No. 5105 "On Amendments to the Law of Ukraine "On Investment Activity" (Regarding State Investment Projects)," dated September 09, 2016 Draft Law No. 5289 "On Amendments to Certain Legislative Acts of Ukraine to Bring Them into Compliance with the Law of Ukraine 'On the Natural Gas Market,'" dated October 19, 2016 Draft Law No. 5290 "On Amendments to the Law of Ukraine "On the Natural Gas Market" (Regarding Priority of Satisfying the Internal Needs of Ukrainian Households for Natural Gas and Identification of Natural Gas Price Components)," dated October 19, 2016 Draft Law No. 5321 "On Amendments to the Tax Code of Ukraine (Regarding Lowering the Cost of Utilities for Residential Consumers)," dated October 31, 2016 Draft Law No. 5459 "On Amendments to the Tax Code of Ukraine to Introduce an Incentive Rental Rate for Subsoil Use to Extract Natural Gas from New Wells," dated November 25, 2016 Draft Law No. 5459-1 "On Amendments to the Tax Code of Ukraine (Regarding Satisfaction of the Internal Needs of Ukrainian Households for Natural Gas)," dated November 29, 2016 Draft Law No. 5558 "On Amendments to Certain Laws of Ukraine (Regarding the Use of Gas Distribution Systems)," dated December 20, 2016 Draft Law No. 5558-1 "On Amendments to Certain Laws of Ukraine Regarding the Specific Features of Leasing State-Owned Gas Distribution Systems or Their Components," dated December 23, 2016 Draft Law No. 5596 "On Amendments to Certain Legislative Acts of Ukraine (Regarding Improvement of the Legal Regulation of Economic Competition)," dated December 23, 2016 Draft Resolution No. 5348 "On the Moratorium on Privatization of State and Municipal Enterprises until January 01, 2018 and Privatization Revision in 2010 - 2016," dated November 03, 2016

Ministry of Energy and Coal Industry • •

Order No. 64 "On Approving the Operational Safety Standard for the Unified Energy System of Ukraine," dated February 08, 2016 Order No. 433 "On Sectoral Expert Examination of Research Institutions of the Coal Industry," dated July 02, 2016

181

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Order No. 465 "On Creation the Interagency Working Group on Updating the Energy Strategy of Ukraine," dated July 25, 2016 Order No. 521 "On Approving the Procedure for Preparing Annual and Monthly Forecast Electricity Balances of the Unified Energy System of Ukraine," dated August 16, 2016 Order No. 569 "On Establishing the Working Group" (for Revision of Energy Sector Regulatory Acts That Require Updating or Abrogation), dated September 05, 2016 Order No. 587 "On Establishing a High Level Working Group to Respond to Investors' Problems in the Energy Sector of Ukraine," dated September 14, 2016 Order No. 627 "On Establishing a Working Group to Draft Legislative and Regulatory Acts Regarding Exchange Trade in Natural Gas," dated October 03, 2016 Order No. 716 "On Approving the Plan for Implementing the Latest in Natural Gas Metering in 2016," dated November 09, 2016 Order No. 781 "On Establishing a Working Group for Comprehensive Analysis of the Long-Term Economic Benefits and Implementation Costs of the Latest in Natural Gas metering," dated December 07, 2016 Natural Gas Supply Safety Monitoring Report for 2015 Draft Law "On the Market of Coal Products" Draft Law "On Amendments to Certain Legislative Acts of Ukraine Regarding Improvement of Subsoil Use to Extract Energy Minerals" Draft Law "On Amendments to Certain Laws of Ukraine Regarding Execution of Production Sharing Agreements" Draft Law "On Amendments to Certain Laws of Ukraine Regarding Improvement in Payments of Electricity Bills" Draft Resolution of the Cabinet of Ministers "On Amendments to Cabinet of Ministers Resolutions No. 573 dated June 1, 2011 and No. 927 dated August 1, 2013" Draft Order "On Invalidation of Order No. 882 of the Ministry of Energy and Coal Industry, Dated December 02, 2013" Draft Order "On Approving the Amendments to the Procedure for Settlements for Natural Gas, Heating and Electricity" Draft Order "On Approving the Amendments to the Safety Rules for Gas Supply Systems"

Ministry of Regional Development, Construction, Housing and Utilities •

Order No. 132 "On Approving the Operating Procedure of the Electronic System of Licensing the Activities to Construct Projects of IV and V Complexity Categories," dated May 27, 2016

Ministry of Ecology and Natural Resources • • • • •

182

Order No. 246 "On Approving the Regulation of the Subsoil Use Commission," dated July 06, 2016 Order No. 557 "On Additional Measures to Conserve Rare and Endangered Species of Animals and Plants" Draft CMU Order "On Approving the Concept of National Environmental Monitoring Reform" Draft Order "On Approving the Oil and Gas Field Development Rules" Policy proposal of the Concept of State Environmental Control Reform

Ministry of Economic Development and Trade • •

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Order No. 454 "On Approving the Procedure for Determining the Object of Procurement," dated March 17, 2016 Order No. 1478 "On Approving the New Revision of the Charter of Public Joint-Stock Company "National Joint-Stock Company 'Naftogaz of Ukraine,'" dated September 07, 2016 Order No. 1577 "On Approving the New Revision of the Charter of Public Joint-Stock Company "National Joint-Stock Company 'Naftogaz of Ukraine,'" dated September 19, 2016 Draft Law "On Amendments to Certain Legislative Acts of Ukraine Regarding Improvement of the Investment Climate in Ukraine" Draft Law "On Amendments to the Customs Code of Ukraine Regarding Improvement of the Investment Climate in Ukraine."

Draft Law "On Amending Article 71 of the Budget Code of Ukraine Regarding Improvement of the Investment Climate in Ukraine" Draft Law of Ukraine "On Amendments to the Tax Code of Ukraine Regarding Improvement of the Investment Climate in Ukraine" Draft CMU Resolution "On Approving the Development Strategy for Small and Medium-sized Business in Ukraine for the Period by 2020"

Ministry of Justice •

Draft Law of Ukraine "On Public Consultations"

State Agency for Energy Efficiency and Energy Saving • •

Draft Law "On Amending Certain Legislative Acts of Ukraine Regarding Fostering the Production of Liquid Biofuels" Draft CMU Order "On Approving the Action Plan to Implement Energy Management Systems in Budget-Funded Institutions"

State Service for Geology and Mineral Resources •

Draft Subsoil Code of Ukraine

State Emergency Service •

Order No. 352 "On Creating a Working Group," dated July 20, 2016

State Statistics Service •

Order No. 253 "On Approval of the Methodological Guidelines for State Statistical Monitoring of Prices for Natural Gas Supplied to Consumers." dated December 28, 2016

State Reserve Agency •

Draft CMU Order "On Approving the Implementation Plan Developed by the State Reserve Agency for Directive 2009/119/EC dated September 14, 2009 Binding the

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Member States to Maintain the Minimum Security Stocks of Crude Oil and Petroleum Products" Draft CMU Order "On Amendments to Cabinet of Ministers Order No. 847 of September 17, 2014" Draft Law "On Strategic Reserves"

State Nuclear Regulatory Inspectorate (SNRIU) • • • • •

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Order No. 234 "On Approving the Requirements for Power Supply Systems Essential for the Safety of Nuclear Power Plants," dated December 24, 2015 Order No. 15 "On Amendments to the Requirements for Nuclear Power Plant Safety Evaluation," dated February 11, 2016 Order No. 33 On Recognizing Certain Regulatory Documents of the Former USSR as Inapplicable in Ukraine, dated March 03, 2016 Order No. 124 "On Approving the Requirements for Safety Assessment of Nuclear Power Plants," dated September 22, 2016 Order No. 175 "On Approving the Requirements for Earthquake Design and Seismic Safety Assessment of the Nuclear Units of Nuclear Power Plants," dated October 17, 2016 Order No. 176 "On Approving the Procedure for the Development and Publication of Nuclear and Radiation Safety Norms and Rules by the State Nuclear Regulatory Inspectorate," dated October 18, 2016 Order No. 201 "On Amendments to the Requirements for NPP Crisis Centers," dated December 09, 2016 Order No. 233 of December 24, 2016 "On Approving the 'Requirements for the Systems of Nuclear Fuel Emergency Cooling and Transferring Heat to the Ultimate Heat Sink'"

National Energy and Public Utilities Regulatory Commission (NEURC) •

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184

Resolution No. 235 "On Approving the Amendments to the Procedure for RAB TariffSetting for Holders of Licenses to Supply Electricity at the Regulated Tariff and/or to Transmit Electricity by (Local) Power Grids," dated February 25, 2016 Resolution No. 236 "On Approving the Methodology for Determination and Calculation of the Natural Gas Distribution Tariff," February 25, 2016 Resolution No. 289 "On Approving the Procedure for Forming a Predictable Wholesale Market Price for Electricity," dated March 03, 2016 Resolution No. 304 "On Approving the Amendments to the Gas Transportation Code and Amendments to NEURC No. 2494 dated September 30, 2015," dated March 10, 2016 Resolution No. 334 "On Amendments to Resolution No. 1258 of the National Energy and Utilities Regulatory Commission, dated October 04, 2012," dated March 17, 2016 Resolution No. 631 "On Approving the Procedure for Gas Transmission Operator Certification," dated April, 14, 2016 Resolution No. 1129 "On Approving the Procedure for Market Formation of Retail Tariffs for Electricity Sold to Consumers," June 13, 2016 Resolution No. 1131 "On Approving the Methodology for Determination and Calculation of Tariffs for Natural Gas Storage (Injection, Withdrawal) Services with Respect to Gas Storage Facilities Subject to the Regulated Access Regime," dated June 13, 2016

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Resolution No. 1234 "On Approving NEURC Reporting Forms Related to Natural Gas Market Monitoring and Guidelines for Completing Them," July 17, 2016 Resolution No. 1342 "On Amendments to the Procedure for RAB Tariff-Setting for Holders of Licenses to Supply Electricity at the Regulated Tariff and/or to Transmit Electricity by (Local) Power Grids," dated August 04, 2016 Resolution No. 198 "On Approving the Amendments to Certain NEURC Resolutions," dated August 11, 2016 Resolution No. 1492 "On Agreeing the April 26, 2016 Decision of the Council of the Wholesale Electricity Market of Ukraine (Clause 9.1 of Protocol No. 7)," dated August 30, 2016 Resolution No. 1790 "On Establishing Forms for Providing the Information Required by the Procedure for Distributing Funds Credited to Special-Purpose Accounts for Settlements with the Natural Gas Supplier with Special Obligations, and Invalidation of NEURC Resolution No. 212 dated October 30, 2014," dated October 06, 2016 Resolution No. 1841 "On Approving the Procedure for Ensuring Compliance with the Quality Standards of Electricity Supply Services," dated October 18, 2016 Resolution No. 1946 "On Approving the Amendments to the Methodology for Calculation of Fees for Connecting Electrical Installations to Power Grids," dated November 07, 2016 Resolution No. 1953 "On Approving the Amendments to the Gas Distribution System Code," dated November 07, 2016 Resolution No. 2016 "On Approving the Amendments to the Standard Natural Gas Transportation Agreement," dated November 24, 2016 Resolution No. 2017 "On Amendments to the Gas Distribution System Code and the Standard Natural Gas Transportation Agreement," dated November 24, 2016 Resolution No. 2007 "On Agreeing the November 18, 2016 Decision of the Council of the Wholesale Electricity Market of Ukraine (Sub-clause 2.1 of Protocol No. 20)," dated November 21, 2016 Draft Resolution "On Approving the Licensing Terms and Conditions for Conducting Business Activities in the Field of Heat Supply" Draft Resolution "On Approving the Licensing Terms and Conditions for Conducting Business Activities on the Natural Gas Market" Draft Resolution "On Approving the Procedure for Holding Electronic Auctions for Allocating the Transfer Capacity of Interstate Power Grids" Draft Resolution "On Approving the Procedure for Approval, Adjustment, and Removal of the Investment Component in the Electricity Tariff" Draft Resolution "On Approving the Procedure for Commercial Metering of Electricity Produced by Power-Generating Facilities from Alternative Energy Sources (Except for Blast Furnace and Coke Gases, and as Regards Hydropower, only by Micro-, Mini-, and Small Hydropower Stations)" Draft Resolution "On Approving the Amendments to the Gas Transportation System Code" Draft Resolution "On Approving the Amendments to Certain NEURC Resolutions Regarding Introduction of Energy Units of Measure on the Natural Gas Market" Draft Resolution "On Approving the Procedure for Public Hearings on Prices/Tariffs for the Supply of Electricity, Natural Gas, and Heat, Central Heating and Centralized Hot Water Supply, Centralized Water Supply and Sewerage, and Their Components for all Consumer Categories, Changes in Such Prices/Tariffs by Natural Monopolies and Related Markets" Order No. 15-p "On Releasing Certain Gas Distribution System Operators from the Requirements of Article 39 of the Law of Ukraine 'On the Natural Gas Market,'" dated

185

List of Laws and Regulation

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August 17, 2016 Order No. 17-p "On Approving Candidacies of Officials for Gas Distribution System Operators Responsible for Monitoring of the Implementation of the Compliance Program," dated August 18, 2016 Sample Compliance Program of the Gas Distribution System Operator Presentation "Formation of the Wholesale Market Price for Electricity. Detailed Key Parameters for 2017"

Antimonopoly Committee (AMCU) • •

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Order No. 43-рп "Procedure for Keeping and Accessing the Register of State Aid to Business Entities," dated December 28, 2015 Order No. 2-рп "On Approving the Procedure for Submitting and Processing Reports on New State Aid and Amending the Terms and Conditions of Granted State Aid," dated March 04, 2016 Order No. 8-рп "On Approving the Procedure for Considering Cases of State Aid to Business Entities," dated April 12, 2016 Order No. 14-рп "On Approving the Amendments to the Regulation of Concerted Actions and Regulation of Concentrations," dated June 21, 2016 Draft CMU Resolution "On Approving the Procedure for Returning Unlawful State Aid Inadmissible for Competition" Reference Explanation No. 49-pp on the Procedure for Applying Part One of Article 25 of the Law of Ukraine "On Protection of Economic Competition" (Regarding Approaches to the Assessment of Horizontal Concentrations), dated December 27, 2016 Report on the Results of the Pilot Project to Control State Aid to Business Entities Operating in the Energy Sector of Ukraine

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186

Memorandum of Understanding Regarding Strategic Energy Partnership between Ukraine and the European Union Jointly with the European Atomic Energy Community Annual Implementation Report 2015/2016. Energy Community Secretariat. 1 September 2016.

Decision of the Ministerial Council of the Energy Community. D/2016/13/MC-EnC amending the Treaty establishing the Energy Community and adapting and implementing Directive 2001/42/EC of the European Parliament and of the Council European Economic Commission Excerpt from the Addendum to the Report on the Fifth Session of the Conference of the Parties (ECE/MP.PP/2014/2 /Add.1)* Decision V/9m on Ukraine's Compliance with the Convention on Access to Information, Public Participation in Decision-making and Access to Justice on Environmental Matters.

June 30-July 1, 2014 Batumi Action for Cleaner Air (2016-2021). Eighth Environment for Europe Ministerial Conference. Batumi, Georgia, 8-10 June 2016 NJSC Naftogaz of Ukraine Draft Action Plan for Implementing Gas Metering in Energy Units in Ukraine