Energy Reforms: June 2018 review

This publication has been produced with the assistance of the European Union in the framework of the EU4Energy Initiative and with the support of the International Renaissance Foundation. The contents of this publication are the sole responsibility of NGO “DIXI GROUP”, as well as Civil Network “OPORA”, AllUkrainian NGO “Energy Association of Ukraine”, Resource & Analysis Center “Society and Environment”, Association “European-Ukrainian Energy Agency”, and can under no circumstances be regarded as reflecting the position of the European Union and/or the International Renaissance Foundation.

The EU4Energy Initiative covers all EU support to improve energy supply, security and connectivity, as well as to promote energy efficiency and the use of renewables in the Eastern Partner countries Armenia, Azerbaijan, Belarus, Georgia, Moldova and Ukraine. It does this by financing projects and programmes that help to reform energy markets and to reduce national energy dependence and consumption. Over the longer term, this makes energy supply more reliable, transparent and affordable, thus reducing energy poverty and energy bills for both citizens and the private sector. More information on: www.EU4Energy.eu

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 at strengthening the role of civil society in advocating reforms in the energy and related sectors.

The key objectives of the project are: • monitoring of the implementation of the energy provisions of the Association Agreement, including relevant environmental and trade-related commitments; • strengthening the civic experts’ and local actors’ capacity to track actual implementation of the reforms; • facilitation of public dialog to lead in proper implementation of the European energy and environmental reforms; • informing stakeholders and the Ukrainian society about the meaning and potential benefits of European reforms in energy and related sectors in order to empower them to keep the government accountable for pursuing these reforms.

The Project is supported by the European Union within the framework of EU4Energy initiative and cofunded by the International Renaissance Foundation

www.enref.org

Executive Summary Experts from the Gas Task Force pay attention to the amendments to the Gas Storage Facilities Code and the introduction of a temporary methodology for determining the tariff for gas distribution services, based on the distribution volumes. The Task Force also monitors government actions to raise gas prices to market ones. In addition, experts point out the government inactivity in the area of reforming Naftogaz.

The Electricity and Nuclear Safety Task Force positively evaluated the resumption of the NEURC active work on the introduction of a new electricity market. At the same time, attention is drawn to the problematic situation with arrears in salaries.

Experts from the Energy Efficiency and Social Issues Task Force are negatively assessing the government’s delay in implementing several laws in the housing and utilities sector and pay attention to the low pace of preparation of other regulatory documents and the lack of action to launch the Energy Efficiency Fund.

The Environment and Renewable Energy Sources Task Force notes the revitalization of the review of the mechanism for stimulating the development of RES and the approval of the emission reduction plan. In addition, experts point out MPs’ inaction in the area of approving the state environmental policy.

The Oil and Oil Products sector experts positively assess the elimination of the legal conflict regarding the environmental impact assessment of development of hydrocarbon deposits and the resumption of work on a draft law on minimum oil and oil products reserves.

In the Business Climate field, experts noted progress in the area of liberalization of foreign exchange operations and counteraction to corruption. They also drew attention to the adoption of the Action Plan for the Implementation of the Energy Strategy. At the same time, experts express concern about the pace of bringing the state aid mechanisms in line with the norms of competition law.

Most used abbreviations: DHC – district heating company DSO – distribution system operator EBRD – European Bank for Reconstruction and Development ESCO – energy service company GTS – gas transportation system IAEA – International Atomic Energy Agency IMF – International Monetary Fund LNG – liquefied natural gas LRW – liquid radioactive waste NEURC – National Energy and Public Utilities Regulatory Commission NIP – Nuclear Insurance Pool NSC – new safe confinement

PSO – public service obligations RW – radioactive waste RLA – regulatory legal acts SAEZM – State Agency of Ukraine on Exclusion Zone Management SDS – small distribution system SNFSF – spent nuclear fuel storage facility SNRI – State Nuclear Regulatory Inspectorate SSTC NRS – State Scientific and Technical Center for Nuclear and Radiation Safety TSO – transmission system operator UES of Ukraine – United Energy System of Ukraine WANO – World Association of Nuclear Operators

SUMMARY 0

100 points

46 GAS

20 ELECTRICITY AND NUCLEAR SAFETY

58 ENERGY EFFICIENCY AND SOCIAL ISSUES

24 ENVIRONMENT AND RENEWABLE ENERGY SOURCES

18 OIL

44 BUSINESS CLIMATE

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In June, the Verkhovna Rada adopted the decision to postpone the introduction of amendments in the field of gas supply, adopted earlier within the framework of the new law on housing and communal services. The repeated parliamentary initiative to create a single transparent base of natural gas consumers, which is necessary for the achievement of complete individual metering of consumed gas in Ukraine, was also rejected. MPs also registered the draft law, the adoption of which is intended to remove legislative barriers for the entry into force of Regulation (EU) No. 312/2014 and ensure daily balancing of the GTS. The Cabinet of Ministers, which avoids a sharp increase in the price of gas for households, has developed new proposals for its change and expects the IMF to react. According to the media, this time, it is a stepby-step plan, which involves monetizing subsidies and measures to liberalize the market before setting a single gas price, which, according to government officials, may be a compromise. Against this backdrop, the reform of Naftogaz slowed down: there is not only no progress, but also no steps by the Government.

The newly appointed NEURC has begun work. The Regulator has approved amendments to the Gas Storage Facilities Code and the temporary methodology for determining the tariff for gas distribution services based on the distribution volumes and will act by decision of the Regulator until December 31, 2019 inclusive.

In order to ensure the reliability and uninterrupted operation of the GTS, Ukrtransgaz improves the technical condition of the entire gas transmission system: in parallel with the modernization of Hrebinkivska compressor station on transit gas pipelines, a tender has been announced to reconstruct Yahotyn station. However, today volumes of investments and work on modernization of the GTS are clearly insufficient.

Directive 2009/73/EC concerning common rules for the internal market in natural gas and repealing Directive 2003/55/EC (Art. 338, 341, Annex XXVII of the AA) in accordance with Art. 278 of the AA On June 9, Law No. 2454-VIII 1 on the postponement of the introduction of a number of new provisions on the provision of housing and communal services (Law No. 2189-VIII 2), which is also related to the supply of natural gas, came into force on June 9, this year. From now on, the norms provided for by this law, that had been in force since June 10, 2018, in particular on the right of the individual consumer to enter into agreements directly with the supplier, will come into force only on May 1, 2019 3 (that is, at the end of the next heating season). The introduction of these new norms into effect had to be postponed for the reason that the Government had not been able to prepare all the by-laws necessary for this.

The implementation of another draft law on housing and public utility services (No. 6547 4), which was submitted for consideration at the current session - on the expansion of access to information in the area of supply of services, in particular natural gas, also encountered obstacles. In June, the Verkhovna Rada Committee on Environmental Policy and Nature Management rejected the MP’s initiative to make the information on the formation of tariffs for housing and public utility services more transparent by sending the draft law for revision 5. The main reason for the decision of the committee was the presence of a dilemma that remained unresolved: to what - the state or the very same tariffs (and, therefore, consumers) - the costs caused by the implementation of the draft law will be charged.

In June, another attempt to legislatively introduce a single automated base of costumers - consumers of natural gas failed. The MP I. Vinnyk registered this proposal as an amendment to the draft law on national security (No. 8068 6), which provided for the appropriate amendments 7 to the Law on Commercial Gas

http://zakon0.rada.gov.ua/laws/show/2454-viii http://zakon0.rada.gov.ua/laws/show/2189-19/page 3 The norms of penalties for companies for violating the timing of the installation of heat, hot and cold water meters were postponed to August 1, 2020.

4 http://w1.c1.rada.gov.ua/pls/zweb2/webproc4_2?id=&pf3516=6547&skl=9 5 http://iportal.rada.gov.ua/news/Novyny/146171.html 6 http://w1.c1.rada.gov.ua/pls/zweb2/webproc4_1?pf3511=63531 7 Amendment under No. 419 (see the comparative table to the second reading of the draft law No. 8068 of 20.06.2018) 1 2

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Accounting (No. 3533-VI 8), which would open up online access to all information on connecting consumers to the network (personal data, parameters of gas meters, etc.). Despite approval of the amendment by the relevant Verkhovna Rada Committee on National Security, there were not enough votes to support it 9. At present, the Verkhovna Rada has already rejected similar amendments on the creation of a single register of natural gas consumers, which were filed by a separate draft law more than a year ago (No. 6391 10), but the fate of the alternative draft law (No. 6391-1 11), pending for consideration, has not been determined. In our opinion, such a database should be created and maintained on the basis of the state operator of the market.

At the same time, the Verkhovna Rada registered the draft law (No. 8454 12), developed by the Regulator and intended to provide the entities of the natural gas market, including TSO (which is a state-owned company) with the opportunity, which is not currently provided for by the legislation, to purchase natural gas daily for the daily balancing of the gas transportation system. The introduction of daily balancing for the replacement of the current monthly one is regulated from August 1, 2018 by the NEURC Resolution No. 1437 13 is technically connected with the need for the sale and purchase of gas by market participants at the commodity exchange during a day all 7 days a week. At the same time, compliance with the procedures of the Law On Public Procurement, mandatory in the case of procurement to meet the needs of the state and the territorial communities, requires a considerable amount of time, which makes it impossible to settle disbalances on a daily basis. The draft Law No. 8454 provides for the withdrawal of the procedures necessary in this case for balancing the gas purchase and sale procedure from the above-mentioned. The draft law aims to remove legislative barriers for the implementation of Regulation (EU) No. 312 and the full opening of the natural gas market. The Regulator adheres to the position that it is urgent to approve the specified draft law.

At the end of June, the Energy Community Secretariat published a monitoring report on gas markets within the framework of the Central and South-Eastern Europe Energy Connectivity (CESEC) Initiative 14. The document confirms Ukraine’s weak progress in implementing gas market reforms, including in terms of unbundling, balancing and liquidity of gas trade, the possibility of changing supplier and distribution of capacities 15. It also outlines the concept of harmonization of license modes of the Energy Community and neighboring EU member states, developed by the Secretariat in order to further eliminate the administrative barriers to wholesale gas. In a separate annex, the Secretariat also provided a list of actions that Ukraine needs to take to increase the liquidity of the gas market and harmonize the balancing rules, including the creation of functional virtual trading points (VTP) and stock markets.

The talks between the Government of Ukraine and the IMF concerning the level of gas prices for the population are ongoing for almost a year. Disagreeing with a significant increase, for this period, government officials offered at least 8 variants of the new formula for the gas price, none of which the IMF agreed.

According to the media 16, the latest initiative of Prime Minister V. Groysman submitted for consideration to the representatives of the Fund provides for the introduction of a new sequence of measures that could solve this problem: firstly, the monetization of subsidies and market liberalization, and only then, the establishment of a level of the so-called “single” gas price with a discount on a certain “social” volume of its consumption for the population. The decision is of the IMF. Meanwhile, the current “social” norms of natural gas consumption for citizens who do not have meters installed due to the decision of the Kyiv District Administrative Court on the claim of PJSC Khmelnytskgaz against the Cabinet of Ministers 17 (the third party to the dispute is the Association of Gas Market of Ukraine) http://zakon3.rada.gov.ua/laws/show/3533-17 http://iportal.rada.gov.ua/news/hpz8/page/9 10 hhttp://w1.c1.rada.gov.ua/pls/zweb2/webproc4_1?pf3511=61650 11 http://w1.c1.rada.gov.ua/pls/zweb2/webproc4_1?pf3511=61736 12 http://w1.c1.rada.gov.ua/pls/zweb2/webproc4_1?id=&pf3511=64174 13 http://www.nerc.gov.ua/index.php?id=30366 14 https://energy-community.org/news/Energy-Community-News/2018/06/29.html 15 https://energy-community.org/dam/jcr:97524dfe-7ae9-4c83-83a3-52eca0d3eff1/ECS_CESEC_062018.pdf 16 https://interfax.com.ua/news/economic/516024.html 17 http://www.reyestr.court.gov.ua/Review/74545426 8 9

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may again change in Ukraine. This decision not only recognized the CMU Resolution No. 203 of 23.03.2016 18 on these norms (in force as amended in 2017 under Resolution No. 60919) as “unlawful and ineffective”, but also recognized the preliminary cancellation by the Government of Resolution No. 619 of 08.06.199620 as unlawful and ineffective.

The sequence of the process of amending these norms by the CMU Resolutions is presented in the table below.

Category of a consumer without a meter

Norm of consuming gas under the CMU resolution, cubic meters/person/month No. 203, as amended as of

No. 619

No. 237 21

of 08.06.1996

of 29.04.2015

23.03.2016

18.08.2017 (No.609)

with a gas stove and hot water supply

6.0

3.0

4.4

3.3

with a gas stove without hot water supply

9.0

4.5

7.1

5.4

with a gas stove and gas water heater

18.0

9.0

14.0

10.5

On June 6, during the closed meeting of the new composition of the NEURC 22, Oksana Kryvenko was elected the Chairman (Resolution No. 369 23). She became “the first woman in the history to chair the Regulator” 24, having worked in the commission at various positions for 17 years. By one of the first orders, the newly elected chairman has divided the functional responsibilities between the members of the commission 25. The NEURC member O. Formahey was appointed responsible for regulation of licensing in the oil and gas complex.

As a result of the Regulator’s licensing campaign, at the end of June, 439 suppliers of natural gas on the domestic market of Ukraine were registered in the licensed registry of the NEURC 26. In general, in the field of licensing in the gas sector, in June, the NEURC adopted more than two dozen resolutions, 8 of which27 on the imposition of fines for violation of licensing conditions in the gas distribution sector.

The NEURC have been adopted two resolutions in the field of tariff formation. The first of them (No. 389 28) introduced a temporary methodology for calculating the tariff for the distribution of natural gas, as payments for physical volumes of distribution 29. Pursuant to paragraph 2 of the resolution, its validity period is limited to January 1, 2020 30, when under the same resolution (paragraph 3), the definition of the tariff for the distribution of gas on the basis of capacity (by the resolution No. 236 31) enters into force. The second one (No. 391 32) cancelled the Procedure for the Formation of Tariffs for Transportation, http://zakon5.rada.gov.ua/laws/show/203-2016-%D0%BF http://zakon5.rada.gov.ua/laws/show/609-2017-%D0%BF/paran36#n36 20 http://zakon2.rada.gov.ua/laws/show/619-96-%D0%BF 21 http://zakon0.rada.gov.ua/laws/show/237-2015-%D0%BF 22 Which still has five members, instead of seven.

23 http://www.nerc.gov.ua/index.php?id=32219 24 http://www.nerc.gov.ua/?news=7601 25 http://www.nerc.gov.ua/?id=32278 26 http://www.nerc.gov.ua/?id=11957 27 Resolutions of 26.06.2018 No. 531 to No. 528 inclusive.

28 http://www.nerc.gov.ua/index.php?id=32350 29 Planned tariff revenue of DSOs - based on the “cost+” tariff system 30 The decision will come into force the day after its official publishing by Uriadovyi Kuryer.

31 http://www.nerc.gov.ua/index.php?id=22109 32 http://zakon3.rada.gov.ua/laws/show/v0391874-18 18 19

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Distribution, Supply, Loading, Storage and Withdrawal of Natural Gas, which was in force since 2011 under Resolution No. 1384 33.

In addition, the NEURC approved amendments to the Gas Storage Facilities Code (Resolution No. 481 34), which substantially adjust the requirements to their development plans. It is provided for to improve the planning of the development of UGSs through the regulation of the obligatory structure, execution, submission, approval and implementation of these plans, for which it was decided to include the relevant chapters to Section V of the Code.

The Regulator set tariffs for the services of storage (loading, selection) of natural gas in UGSs of Ukrtransgaz and their structure (resolution No. 480 35). The volume of the tariff for 1,000 cubic meters per day, excluding VAT, respectively, was: storage - UAH 0.1720, injection - UAH 64.40, withdrawal - UAH 67.10.

In parallel, the NEURC also approved new candidature for officials of DSOs responsible for monitoring the implementation of the compliance program (Resolution No. 388 36).

Meanwhile, in new price proposals for July 2018 37, Naftogaz left unchanged gas prices from the company’s resource for the industrial segment and other consumers not covered by the PSO Regulation. This is evidenced by a new published pricelist of Naftogaz 38, according to which both differentiated, depending on the terms of purchase, price levels remained, as in June (UAH 10,893.6 and 9,952.8 per tcm).

On the other hand, having foreseen to purchase natural gas of domestic production from private mining enterprises in July this year, Naftogaz increased its planned purchase price to UAH 7,629.00 per tcm 39. This is due to the fact that June test purchase announced by Naftogaz at the price of UAH 6,900.00/ tcm proved to be ineffective - no proposals were received.

Operational data of the company testify that 40, on the basis of the results of the 5 month of the year, Naftogaz group paid to the State Budget of Ukraine about USD 53.5 billion of taxes. In addition, Naftogaz started paying dividends for 2017 41, and in the first half of 2018 transferred to the state budget about UAH 71.7 billion of taxes and dividends 42. In general, as the Cabinet of Ministers decided, 30% of its last year's net profit or UAH 11.8 billion is subject to payment in the form of dividends.

Regulation (EC) No. 715/2009 on conditions for access to the natural gas transmission networks, replacing Regulation (EC) No. 1775/2005 (Art. 338, 341, Annex XXVII of the AA) according to Art. 278 of the AA, trade issues (Art. 269-274 of the AA) Both the NEURC and Government insist on the transition to the daily balancing of GTS from August 1 this year 43. According to Vice Prime Minister V. Kistion 44, the commissioning of daily gas balancing on the basis of the automated system will actively promote balanced planning of gas demand and consumption, as well as formalization of the processes of information exchange between the participants of the process, which is

http://zakon3.rada.gov.ua/rada/show/v1384227-11 http://www.nerc.gov.ua/?id=32644 35 http://www.nerc.gov.ua/?id=32643 36 http://www.nerc.gov.ua/index.php?id=32514 37 http://www.naftogaz.com/www/3/nakweb.nsf/0/D6C16272E3D2A664C22582B200368800?OpenDocument&year=2018&month =06&nt=%D0%9D%D0%BE%D0%B2%D0%B8%D0%BD%D0%B8& 38 http://www.naftogaz.com/files/Information/Naftogaz-gas-prices-ne-PSO-July-2018.pdf 39 http://www.naftogaz.com/www/3/nakweb.nsf/0/F89E9F118A2F91A8C22582B7003E93DE?OpenDocument&year=2018&month= 06&nt=%D0%9D%D0%BE%D0%B2%D0%B8%D0%BD%D0%B8& 40 http://www.naftogaz.com/www/3/nakweb.nsf/0/D335005076C0BC7AC22582AA0036053D?OpenDocument&year=2018&month =06&nt=%D0%9D%D0%BE%D0%B2%D0%B8%D0%BD%D0%B8& 41 http://www.naftogaz.com/www/3/nakweb.nsf/0/8291C5C0C460391BC22582B3004782B9?OpenDocument&year=2018&month =06&nt=%D0%9D%D0%BE%D0%B2%D0%B8%D0%BD%D0%B8& 42 http://www.naftogaz.com/www/3/nakweb.nsf/0/30A05F87E1E5919EC22582C600480708?OpenDocument&year=2018&month= 07&nt=%D0%9D%D0%BE%D0%B2%D0%B8%D0%BD%D0%B8& 43 As was mentioned above, this term was determined by the NEURC Resolution No. 1437 (of 27.12.2017) 44 https://www.kmu.gov.ua/ua/news/volodimir-kistion-zhodnih-zriviv-u-zapusku-dobovogo-balansuvannya-gazu-ne-dopuskayetsya 33 34

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urgently needed by the gas market, and therefore the implementation of the system of balancing the GTS of Ukraine in accordance with the rules of the Third Energy Package of the EU cannot be postponed.

On June 15, the Regulator held a regular meeting with market participants in this regard 45, the reason for which was the appeal of Ukrtransgaz on the transfer of the entry into force of the Resolution No. 1437 for a later date. The monitoring of the implementation of preparations for the transition, performed by the NEURC, showed that the information platform of Ukrtransgaz is not ready for proper functioning at present. Market entities, which obtained access to it on their application, were only able to start testing under individual modules, whereas a full-scale test of their connection to the system was impossible due through the lack of access to the Supplier’s Consumer Register module 46. According to the results of the meeting, its participants noted the lack of readiness of Ukrtransgaz to implement the decision of the regulator, which is regarded as the actual blocking by TSO of the process of introduction of daily balancing, the opinion on the inexpedience of rescheduling the terms of the entry into force of the above-mentioned resolution is also confirmed.

Ukrtransgaz’s position published only in early July 47 is that the contract with the developer of IP Systems information platform provided for its implementation on the basis of the previous edition of the Gas Transmission System Code. The operator has a number of claims to the GTS Code and accuses the NEURC of ignoring its position.

At the same time, several more public discussions have taken place on this subject, the participants of which have focused on the implementation of the rest of the NEURC resolution No. 1437 - the suitability of the proposed new wording of the GTS Code for the needs of the daily gas market balancing model. In giving a verdict on this request, the opinions of the participants in the discussion divided. If the specialists who took part in the event under the auspices of Ukrtransgaz 48 (including the Ministry of Energy and Coal Industry, Naftogaz, RGC companies, etc.) insisted on the imperfection of the provisions of the Code and the need for its revision, the community of another discussion platform, assembled under the auspices of the European Business Association (EBA) 49 (including the representatives of the Ministry of Energy and Coal Industry, the NEURC, the Ukrainian Energy Exchange, and the relevant Verkhovna Rada Committee on FEC) advocated the compliance of the code with Regulation (EU) No. 312/2014, sufficient for the implementation of the model, and “emphasized the need for the operative introducing of daily balancing”.

The meeting of the first ones ended with an appeal to the NEURC with proposals to amend the GTS Code, while the other ones – with the EBA decision to re-officially address the Prime Minister of Ukraine with a letter aimed at preventing the present (as the meeting held by the EBA meeting certified) threat of breaking this important reform of the gas market.

Obviously, the introduction of daily balancing is a painful issue for some of the participants in the Ukrainian gas market, especially for the GTS operator, due to the considerable volumes of imbalance associated with the so-called “unauthorized” gas withdrawal by district heating companies due to their lack of contracts with Naftogaz (and unpaid debts for it).

In our opinion, the reason for the conflict is that nobody wants to assume responsibility for the volumes of gas supplied by DHCs without payment. At the same time, it should be understood that neither Naftogaz nor gas sales are suicidal: no authority will instruct to disconnect DHCs from gas supplies, especially during the heating season. Possible exit is defined in Art. 11 of the Law On the Natural Gas Market, which stipulates that the CMU should determine “the sources of financing and the procedure for determining http://www.nerc.gov.ua/?news=7621 In the opinion of the newly elected Chairman of the NEURC O. Kryvenko, at a certain stage of preparation for connecting the Ukrtransgaz platform to the system, it itself blocked access to a part of IT-security, and its representatives are looking for fictitious reasons to bypass the implementation of the system, which should provide for the automated daily balancing (https://glavcom.ua/news/ukrtransgaz-blokuje-vprovadzhennya-z-1-serpnya-dobovogo-balansuvannya-rinku-gazu509962.html) 47 http://utg.ua/utg/media/news/2018/07/oficiina-pozicia-at-ukrtransgaz-stosovno-situacii-navkolo-vprovadzhennya-novogokodeksu-gts.html 48http://utg.ua/utg/media/news/2018/06/ukrtransgaz-ta-uchasniki-rinku-prirodnogo-gazu-prosyat-nkrekp-zmniti-kodeks-gts.html 49 https://eba.com.ua/reforma-na-rynku-pryrodnogo-gazu-pid-zagrozoyu-eba/ 45 46

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compensation provided to entities of the natural gas market, on which public service obligations are imposed”, and that the “natural gas market entity, on which public service obligations are imposed, is entitled to compensation of economically justified costs ...”. Until this is done in practice, the conflict will continue.

At the end of June, Ukrtransgaz appealed for mediation in a dispute with the NEURC to the Energy Community Secretariat 50, asking it to mediate its interaction with the Regulator to bring the GTS Code in line with the norms and practices of the European gas market (letter of 26.06.2018). On June 27, the center for the settlement of disputes appointed P. Grujicic, the head of the gas unit of the Energy Community Secretariat, as the mediator in this dispute 51.

Directive 2004/67/EC concerning measures to safeguard security of gas supply (Art. 338, 341, Annex XXVII of the AA), action of “Early Warning Mechanism” (Annex XXVI of the AA), actions in emergencies (Art. 275-276, 309, 314) It became known that the tripartite talks between the EU, Ukraine and Russia on the issue of continuing the transit of gas to Europe by the Ukrainian GTS after 2019, initiated by Vice-President of the European Commission, M. Sefcovic, will take place in July 52. At the same time, in June, Naftogaz filed a new lawsuit against Gazprom to the Stockholm arbitration to review the transit tariff 53.

Ukrtransgaz continues to ensure the stable operation of transit gas pipelines and gas storage facilities.

According to operational data of the company 54, for the first half of 2018, Ukraine’s GTS transported 42.2 bcm of gas to Europe, which is more than 7% less than the figures for the first half of last year.

Open tenders for works on modernization of Hrebinkivska CS of the transit pipeline system (for the amount of about UAH 93 million 55). Meanwhile, for works for the reconstruction of Yahotyn CS, a tender for UAH 2.5 billion was announced 56.

According to Ukrtransgaz, in the process of preparing for a new heating season, its UGS as of July 3, 2018 was replenished to 11.36 bcm57 (i.e., since the end of the previous season - they increased by more than 45%).

Given Sweden’s agreement to build two runs of Nord Stream 2 in its economic zone 58, only one country on the pipeline route has not yet made a final decision on whether or not it agrees to build it in its territorial waters – this is Denmark (Prime Minister L. Rasmussen reported on this 59). Moreover, for the implementation

by Denmark of the intention to delay the implementation of this project, the relevant legislative initiatives have already been introduced to the Parliament of Denmark. At the same time, Denmark believes that the discussion of the project should be submitted for discussion at the pan-European level 60 in order to scrutinize all its risks and the role of Ukraine as a gas transit country.

In this regard, its position is in line with the requirements of Poland, which, in order to accelerate the work on amendments to the EU gas directive, which could complicate the implementation of the project 61, supports the transition from expert discussion of the problem of Nord Stream 2 to all-European decisions, as stated by http://utg.ua/utg/media/news/2018/07/ukrtransgaz-zvernuvsya-do-energetychnogo-spivtovarystva-u-spori-z-nkrekp-schodogts.html 51 https://energy-community.org/news/Energy-Community-News/2018/06/210.html 52 https://www.reuters.com/article/us-russia-ukraine-gas-eu/eus-energy-chief-sees-ukraine-russia-gas-talks-in-early-julyidUSKBN1JA27G 53 http://www.naftogaz.com/www/3/nakweb.nsf/0/713B012BCE83C6A9C22582C20050AF41?OpenDocument&year=2018&month =07&nt=%D0%9D%D0%BE%D0%B2%D0%B8%D0%BD%D0%B8& 54 http://utg.ua/live 55 http://utg.ua/utg/media/news/2018/06/ukrtransgaz-modernizue-ks-grebinkivsku-na-tranzytnyh-gazoprovodah.html 56 http://utg.ua/utg/media/news/2018/06/ukrtransgaz-ogolosyv-tender-na-25-mlrd-grn-dlya-rekonstrukcii-ks-yagotyn.html 57 https://naftogaz-europe.com/article/ua/ukrstorage 58 https://www.eurointegration.com.ua/news/2018/06/7/7082800/ 59 https://www.rbc.ua/rus/news/danii-namereny-zaderzhat-stroitelstvo-severnogo-1530022720.html 60 https://www.rbc.ru/rbcfreenews/5b32dd799a794765e3c39f96 61 It referes to the changes that will ensure that all gas pipelines, also import ones, and their offshore parts in the EU countries, without exception, will be subject to the single European legislation, namely the Third Energy Package.

50

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the Vice- Minister of Energy of Poland M. Kurtyka 62: “At the end of June, the EU ambassadors should work at amendments to the Gas Directive. This is the result of the heavy, painstaking and many-months work of the Polish diplomats,� the minister said. To a certain extent, Poland has achieved success with its diplomacy on this subject - a group of EU countries that supported Poland and want to complicate the rules for the construction of the Russian gas pipeline, increased to 19 63, as reported by the media on the basis of informal results of the meeting of EU ambassadors in Brussels 64.

https://www.pravda.com.ua/news/2018/06/18/7183648/ Four countries - Austria, Germany, Belgium, the Netherlands - consistently oppose the introduction of amendments to the Directive as they are actually involved in the implementation of this Russian-German investment.

64 http://www.polradio.pl/5/38/Artykul/369296 62 63

Gas

Assessment of Ukraine’s progress: 37 out of 100

So far, the Government has not approved amendments to the Regulation on Imposing Public Service Obligations (PSOs) on Natural Gas Market Actors for the Protection of the General Public Interest (approved by Resolution No. 187), which were recommended in the framework of the dispute resolution procedure initiated by the Energy Community (Case ECS-2/17). The validity of the current Regulation was initially extended until June 1, then - until August 1.

On June 22, one more case against Ukraine upon a complaint was registered (but not initiated) concerning the qualification of consumers and the exercise of the right to change a supplier. The latter is especially relevant for households: according to the NEURC, last year only 12 household consumers changed the supplier.

There is no change in the legislative transposition of European rules. The draft Law No. 6229 On Ensuring Transparency in Extractive Industries (passed first reading) and Law No. 2314-VIII on Simplification of Permitting Documents for Gas and Oil Production may indirectly affect the gas market.

The temporary procedure for calculating the tariff for distribution services is taken into account.

Despite the approval of the decision to change the unbundling model of Naftogaz caused by the peculiarities of the decision of the Stockholm Arbitration (the impossibility of changing the contractor party without the consent of Gazprom), the new model is not yet detailed and not approved. The Government’s timetable for finding foreign partners to manage the Ukrainian GTS is completely disrupted.

The Regulator did not carry out inspections of DSOs, therefore it is impossible to determine on the basis of only 2 inspections whether they violate the requirements of the legislation on separation of activities.

The market remains largely regulated, with only 40% of gas being sold on the basis of free pricing, under competitive conditions. According to the NEURC data, the share of the three largest groups of suppliers in the retail mtaking into consideration PSO in the field of gas supply for households, religious organizations and thermal energy companies has increased by 63% in 2017. This is a high level of concentration.

Supply safety issue is never more relevant, despite the low dependence on imports due to the lower rates of gas injection into storage facilities (reserves as of January 1, 2018 - by 0.3 bcm less than the corresponding indicator of last year). In March, there was a crisis of gas supply through a sharp fall of temperature and Gazprom’s refusal to resume gas supplies from March 1, according to a decision of the Stockholm Arbitration. The response measures, which lasted from March 2-6, included a 10% reduction in gas consumption by industry.

The payment discipline on regulated market segments remains unsatisfactory. By mid-2018, the debts of DHCs and CHPs to Naftogaz increased by 40% compared with the beginning of the year. The debt of gas supply companies (gazzbuts) has also increased, although insignificantly. The reasons are still delays in the transfer of housing and communal subsidies and charging of penalties and fines on the debts of heat suppliers.

total score: 37

GAS

0

100 points

85 Degree of transposition of EU legislation into Ukraine’s law

30 Degree of independence of TSOs/SSOs Not applicable Independence degree of DSOs

42,5 Degree of market openness

0 Presence of clearly regulated supplier change mechanisms

82,5 Degree of dependence on imported gas and diversiďŹ cation of imports

80 Impact of supply interruptions

10 Status of settlements

-10 !

Facts of non-compliance with EU acts, no implementation action

100

Electricity and Nuclear Safety

The Government submitted to the Verkhovna Rada the draft Law On Amendments to the Law of Ukraine On the Electricity Market (No. 8468), which will allow fulfilling the conditions for certification of the transmission system operator and is associated with the corporatization of the enterprise. After a long break, the NEURC has renewed the publication of draft RLAs on the introduction of a new electricity market in terms of the work of universal service providers and the last resort supplier.

As of the beginning of June, local spontaneous protests by miners of state mines continue. The main requirement of the protesters is the payment of arrears of wages. They also require a number of measures aimed at supporting and protecting state-owned coalmining enterprises.

Directive 2009/72/EC of 13 July 2009 on common rules for the internal market in electricity and repealing Directive 2003/54/EC (Art. 269, Chapter 11, Section IV of the EU-Ukraine Association Agreement) On June 11, the CMU submitted to the Verkhovna Rada of Ukraine the draft Law 65 on the Legal Status of Property of SE NPC Ukrenergo as a transmission system operator in the new electricity market. The Law On the Electricity Market stipulates that only the owner of the transmission system may be the transmission system operator.

In turn, the Ministry of Energy and Coal Industry has started the process of transformation of SE NPC Ukrenergo into a private joint stock company, 100% of shares of which belong to the state. However, it is necessary to further regulate the issue of property, which is defined by the Law of Ukraine On Privatization of State and Communal Property. In accordance with this Privatization Law, “facilities that ensure vital functions of the state as a whole, in particular, the property that ensures the integrity of the united energy system of Ukraine and control (operational and technological) management, main and interstate electric networks are not subject to privatization”. It is proposed to amend Articles 32 and 34 of the Law of Ukraine On the Electricity Market, which will enable the state (owner) to allot the property to TSO, which ensures the integrity of the UES of Ukraine and the control (operational and technological) management (including the main and interstate electric network) under the right of economic management.

On June 26, the Cabinet of Ministers of Ukraine submitted another draft Law On Amendments to Section XVII “Final and Transitional Provisions” of the Law of Ukraine On the Electricity Market 66. It is proposed to postpone the terms of the reorganization of the State Inspectorate for Energy Supervision until March 31, 2019. As a result of reorganization, the agency should be transformed into a central executive authority and financed from the State Budget. By this time, it should be financed at the expense of SE NPC Ukrenergo.

Directive 2009/72/EC of 13 July 2009 on common rules for the internal market in electricity and repealing Directive 2003/54/EC (Art. 273, Chapter 11, Section IV of the EU-Ukraine Association Agreement) Retail electricity market rules On June 11, 2018, the Retail Electricity Market Rules, which were approved by the NEURC resolution of March 14, 2018, No. 312, entered into force. The NERC Resolution of July 31, 1996, No. 28 On the Approval of the Rules for the Use of Electricity (as amended) has expired 67.

Investment programs, plans for the development of distribution systems On July 22, the NEURC published the draft Resolution On Approval of the Procedure for the Development and Submission for Approval of Plans for the Development of Distribution Systems and Investment Programs of Distribution System Operators, which establishes the procedure for the formation, http://w1.c1.rada.gov.ua/pls/zweb2/webproc4_1?id=&pf3511=64205 http://w1.c1.rada.gov.ua/pls/zweb2/webproc4_1?id=&pf3511=64291 67 http://www.nerc.gov.ua/?news=7619 65 66

Electricity and Nuclear Safety

submission, review, approval and implementation of plans for the development of distribution systems and investment programs of distribution system operators 68.

Construction and operation of the direct line

On July 26, the NEURC publisehd the draft Resolution On Approval of the Procedure for the Approval of the Construction and Operation of the Direct Line, which will ensure receiving of alternative power supply by the electricity from the manufacturer to consumer’s electric plant through a direct line, with the economic feasibility of such an accession or in the absence of the possibility of joining the system of distribution of electrical networks. The procedure for the approval of the construction and operation of the direct line is provided for in Article 25 of the Law of Ukraine On the Electricity Market 69.

Supply of electricity to consumers by providers of universal services and last resort supplier On July 26, the NEURC published draft Resolutions: -

-

-

On Approval of the Procedure for the Formation of Prices for Universal Services. The universal service provider ensures that electricity is supplied to household and small non-residential consumers in a specified territory (territory of Ukraine). The price for universal services includes the purchase price of electricity in the electricity market, the price (tariff) for the services of the universal service provider, the prices (tariffs) for TSO and DSO services at the corresponding voltage class in accordance with the concluded agreements on the provision of the corresponding services 70.

On Approval of the Methodology for Calculating the Tariff for Services of the Universal Services Provider. It specifies the procedure for establishing and the mechanism for calculating the tariff for the services of the universal service provider. In particular, it is a question of requirements for the execution of the application for setting tariffs, the procedure and timing of consideration of the application, the procedure for forming the tariff, the procedure for the formation of the forecasted necessary income. As well as the definition of operating costs by economic elements and their separate constituents and conditions, under which the tariff setting for universal service provider is made taking into account the adopted legislation and in the transition period (until the Cabinet of Ministers of Ukraine holds a tender for the selection of universal service providers in accordance with the Law of Ukraine On Electricity Market) 71.

On Approval of the Procedure for the Formation of the Price, at Which the Supply of Electricity to Consumers is Provided by the Last Resort Supplier 72. The last resort supplier is an electricity supplier, who, in the circumstances established by the Law On the Electricity Market, has no right to refuse a consumer in concluding a contract for the supply of electricity for a limited period of time.

The draft NEURC Resolution On Approval of the Methodology for Calculating the Maximum (Limit) Payment for Services for the Distribution by Small Distribution Systems was published. By SDS include Electric Networks that distribute electrical energy in a limited area (commercial institution, public service institution, residential complex) taking into account technical pecularities 73.

Art. 339, Chapter 1, Section V of the EU-Ukraine Association Agreement, Coal Market According to the information posted on the website of the Ministry of Energy and Coal Industry, the debt at state coal enterprises as of June 1 is more than UAH 159 million 74. However, according to the information of the Independent Trade Union of Miners of Ukraine, as of June 5, the arrears of wages at http://www.nerc.gov.ua/?news=7639 http://www.nerc.gov.ua/?news=7645 70 http://www.nerc.gov.ua/?news=7655 71 http://www.nerc.gov.ua/?news=7654 72 http://www.nerc.gov.ua/?news=7657 73 http://www.nerc.gov.ua/?news=7653 74 http://mpe.kmu.gov.ua/minugol/doccatalog/document?id=245282166 68 69

Electricity and Nuclear Safety

state coal-mining enterprises amounted to almost UAH 400 million 75, and as of June 14, arrears of wages to miners of state-owned coal-mining enterprises amounted to UAH 761.1 million 76.

As of the beginning of June, local spontaneous protests by miners of state mines continue. The main requirement of the protesters is the payment of arrears of wages. They also require a number of measures aimed at supporting and protecting state-owned coalmining enterprises 77.

On June 6, the heads of the primary trade union organizations of the National Trade Unions of Miners of Ukriane of 1/3 Novohrodivska, Kotliarevska, Kurakhivska and Ukrayina mines of SE Selydivvuhillia.

Representatives of the trade unions met with the head of the department Ihor Nasalyk. The participants discussed the problems related to the debt at state coal-mining enterprises 78.

On June 19, the Verkhovna Rada of Ukraine voted for putting the draft Law No. 8362 On Amendments to the Law of Ukraine On the State Budget of Ukraine for 2018 regarding the proper financial provision of the state sector of the coal industry on the agenda of the 8th session 79.

In the draft law, by amending Article 1 of the Law of Ukraine On the State Budget for 2018 and Appendix No. 3 “Distribution of the State Budget of Ukraine for 2018”, approved by the Law of Ukraine On the State Budget of Ukraine for 2018, it is proposed to increase the expenditure part of the State Budget of Ukraine for 2018 by UAH 2,800 million with the purpose of increasing expenditures to the Ministry of Energy and Coal Industry of Ukraine for financing the budget program “implementation of measures to ensure domestic production of coal products and further reform of the state sector of the coal industry” (code 1101590), namely: the purchase of equipment for breakage faces; purchase of equipment for tunneling; purchase of stationary equipment; provision of the wage fund 80.

According to the explanatory memorandum, the purpose of the draft law is to “support the coal industry of Ukraine until the completion of the process of its reform”, while the adoption of its proposals “will contribute to the development of regions where state-owned coal-mining enterprises are located; supply of thermal plants of Ukraine with energy resources in the form of coal products at the expense of extraction of own minerals; ensuring the proper functioning of the coal-mining enterprises of Ukraine 81.

Art. 342, Chapter 1, Section V of the EU-Ukraine Association Agreement, Cooperation in the Nuclear Field, Directive No. 96/29/Euratom, Council Directive No. 2006/117/Euratom, Council Directive No. 2003/122/Euratom The SNRIU issued a separate permit to NNEGC Energoatom for the commissioning of a new infrastructure facility - the radioactive waste processing complex included in Rivne NPP technological complex. The permit was issued on June 1, 2018, with the expiration date until the end of the stage of “operation of the nuclear facility of the power unit No. 4 of Rivne NPP” life cycle 82.

On June 5, at Rivne NPP site, a comprehensive inspection survey of the power unit No. 3 was started to verify its readiness to carry out activities within the beyond project term 83. On June 11, the work of the the commission of State Nuclear Regulatory Inspectorate was completed. The results of the inspection showed that all planned works within the life extension of the power unit No. 3 are executed at a high level, most of them are currently performed 84. http://kvpu.org.ua/uk/profnews/2848-zaborhovanist-pered-hirnykamy-zrostaie http://www.kvpu.org.ua/uk/news/6/2874-zvernenniadonarodnykhdeputativverkhovnoiradyukrainy 77 http://www.kvpu.org.ua/uk/news/6/2832-zavtra-do-kyieva-pryidut-shakhtari 78 http://kvpu.org.ua/uk/news/6/2844-nichoho-konkretnoho-profspilkivtsiam-ministr-ne-poobitsiav 79 http://w1.c1.rada.gov.ua/pls/radan_gs09/ns_golos?g_id=19045 80 http://w1.c1.rada.gov.ua/pls/zweb2/webproc34?id=&pf3511=64004&pf35401=458977 81 http://w1.c1.rada.gov.ua/pls/zweb2/webproc34?id=&pf3511=64004&pf35401=455051 82 http://www.energoatom.kiev.ua/ua/press/nngc/53898rvnenskyi_aes_dozvoleno_vvesti_kompleks_z_pererobki_rav_v_ekspluatatcyu/ 83 http://www.energoatom.kiev.ua/ua/press/video/53899na_raes_startuvalo_nspektcyine_obstejennya_derjatomregulyuvannya_ukrani/ 84 http://www.energoatom.kiev.ua/ua/press/video/53910-na_raes_zavershila_robotu_komsya_derjatomregulyuvannya_ukrani/ 75 76

Electricity and Nuclear Safety

On June 5-7, at Rivne NPP, an international insurance inspection took place with the participation of NIP specialists from the United Kingdom, China and Ukraine, where international experts of the Nuclear Insurance Pool confirmed the safety of RNPP 85.

On June 12, the press service of SE Energoatom informed that the power unit No. 5 of ZNPP is preparing for its life extension with a view to the fact that on May 27, 2020, the project lifetime of ZNPP power unit No. 5 will expire 86.

In order to involve the public in discussing issues on making decisions that may affect the state of the environment and provide free access to information on the activities of executive authorities, the State Nuclear Regulatory Inspection of Ukraine holds a public discussion on the possibility of continuing operation of the nuclear facility - the power unit No. 3 of Rivne NPP from June 12 to July 12, 2018 87.

On June 13, within the framework of international technical assistance from Sweden and Norway, NNEGC Energoatom signed a contract with the Swedish Radiation Safety Authority (SSM) and Lloyd’s Register Consulting - Energy AB. The contract envisages providing Energoatom with calculating codes and licenses for RiskSpectrum/RiskWatcher software for Zaporizhzhya NPP (5 new units) and updating existing licenses and codes for the Company (used at SUNPP and KhNPP), as well as providing technical support for these codes within three years. This software is a modern tool for calculating probable safety analysis and risk monitoring and is used on many European and US NPP 88.

On June 19, a delegation of EBRD representatives, a consultant to a creditor inspectorate and a project management group started work to monitor and analyze the state of implementation of the CcSUP project of the NPP power units jointly with the EBRD/Euratom 89. EBRD experts noted that, based on the results of the monitoring, there have no comments on the implementation of the CcSUP measures at the industrial site of Rivne NPP 90.

From June 18 till June 22, the IAEA mission to verify the effectiveness of PROSPER (Peer Review of the Effectiveness of the Operating Safety Performance Experience Review process) was held at NNECGC Energoatom. PROSPER mission was organized by the IAEA at the request of Energoatom and was held in Ukraine for the first time 91.

On June 22, at Rivne NPP, the International Atomic Energy Agency, which controls over the application of safeguards to nuclear material under the Agreement between Ukraine and the IAEA in connection with the Treaty on the Non-Proliferation of Nuclear Weapons, has completed its inspection92.

On June 22, a complex inspection of the State Nuclear Regulatory Inspectorate on compliance with the requirements of nuclear and radiation safety and nuclear plant safety was completed at the site of South Ukrainian NPP. The planned inspection event, which took place from June 19 to 22, had an expanded program and a corresponding circle of specialists involved. In addition to representatives of the State Nuclear Regulatory Inspectorate, the commission included experts from Riskaudyt international organization, SSTC NRS, and the directorate of NNEGC Energoatom. The results of the comprehensive

http://www.energoatom.kiev.ua/ua/press/video/53915mjnarodn_eksperti_yadernogo_strahovogo_pulu_pdtverdili_bezpechnst_ta_nadyinst_raes_/ 86 http://www.energoatom.kiev.ua/ua/press/nngc/53918energoblok__zaporzko_aes_gotutsya_do_prodovjennya_termnu_ekspluatatc/ 87 http://www.energoatom.kiev.ua/ua/press/nngc/53922-prodovjennya_termnu_ekspluatatc_energobloku__rvnensko_aes/ 88 http://www.energoatom.kiev.ua/ua/press/nngc/53925tehnchna_dopomoga_shvetc_ta_norveg_spriyatime_realzatc_energoatomom_splnogo_proektu_z_argonskoyu_laboratoryu_ssh a/ 89 http://www.energoatom.kiev.ua/ua/press/nngc/53945na_raes_provoditsya_montoring_vikonannya_zahodv_kzpb_za_rahunok_kreditnih_koshtv/ 90 http://www.energoatom.kiev.ua/ua/press/video/53953-predstavniki_brr_na_raes_uspshno_vprovadjuyutsya_zahodi_kzpb/ 91 http://www.energoatom.kiev.ua/ua/press/nngc/53955msya_magate_z_pdvischennya_ekspluatatcyino_bezpeki_aes_prosper_vpershe_proyishla_v_energoatom/ 92 http://www.energoatom.kiev.ua/ua/press/nngc/53957na_rvnenskyi_aes_uspshno_zavershilasya_chergova_nspektcya_magate/ 85

Electricity and Nuclear Safety

inspection were reviewed on June 22 at the final meeting with representatives of the South Ukrainian NPP and will be outlined later in the final inspection report 93.

On June 26, 2018, a meeting of the Public Council under the MECI was held, on the agenda of which the issue of “Tariff Policy in the Nuclear Industrial Complex of Ukraine” was put. This is the next step in the negotiation process, which should solve the issue of establishing a fair tariff for electricity by SE NNEGC Energoatom. The demand to establish a fair tariff was previously presented at protest actions of the Nuclear Power and Industry Workers Union. This issue was also discussed at a joint meeting of trade unions with the participation of experts, heads of nuclear enterprises with representatives of the Verkhovna Rada Committee on FEC, which was held on June 5. The Public Council was held with the participation of specialists and heads of the Ministry of Energy and Coal Industry, NNEGC Energoatom, Nuclear Power and Industry Workers Union, as well as the NEURC 94.

Art. 342, Chapter 1, Section V of the EU-Ukraine Association Agreement, Cooperation in the Nuclear Field. Cooperation is aimed at solving the problems that arose as a result of the Chernobyl disaster, as well as the decommissioning of the Chernobyl NPP On June 5, 2018, screening with smoke and ignition of grass cover and brushwood were detected in the territory of the 10-kilometer zone (district VRP-330, ChNPP), which was informed to 11 State Fire and Rescue Unit for the protection of Chornobyl NPP. Taking into account the radiological significance of the fire, control over the radiation situation has been strengthened in the territory of the exclusion zone. On June 7, a fire in the forest area in the Exclusion Zone was liquidated 95. On June 20, 2008, on the results of the fire on June 5 - 8, 2018, a meeting with the participation of the management of the State Agency of Ukraine on the Exclusion Zone Management, the State Service of Ukraine for Emergency Situations, the Ministry of Health of Ukraine, the National Police of Ukraine, and SE NPC Ukrenergo, SSE Pivnichna Pushcha, SSE Chornobyl NPP, SSE Ekotsentr, SSE ChSK, SE TSOTIZ, SSE UZFO of Chornobyl NPP, SSE CEMRW. Participants presented reports on the course and consequences of the fire, after which the emergency situation was discussed 96.

Ukraine continues to improve its radioactive waste management infrastructure to increase the radiation safety of the country. On June 6, with funding from the EU, the project for the transfer of specialized technical devices, equipment and personal protective equipment to the amount of EUR 3.3 million to emergency crews of State Corporation Ukrainian State Association Radon for the removal of radioactive waste from storage facilities that were formed in the early years of liquidation of consequences of the Chornobyl disaster was completed 97.

On June 15, during a session of the Working Group (SIRG) on the application of IAEA safeguards in Ukraine, with participation of IAEA experts, held at the SNRIU, the Chairman of the SAESM, Vitalii Petruk, reported on the state of implementation of international projects at the Chornobyl NPP industrial site. In particular, he presented the current state of construction of the NSC and SNFSF-2 to the experts. The delegation of the IAEA and the State Nuclear Regulatory Inspectorate visited SSE Chornobyl NPP, where they learnt about the actual state of implementation of the SNFSF-2 and NSC projects 98.

On June 19, during the working meeting of the SAESM management with the project manager of the European Commission Hans van Vliet, the implementation of the Nuclear Safety Cooperation Instrument program was discussed in Ukraine. The Agency’s specialists presented the progress in the development of http://www.energoatom.kiev.ua/ua/press/video/53958na_yuuaes_zaversheno_kompleksnu_nspektcyinu_perevrku_derjatomregulyuvannya_ukrani/ 94 http://www.atomprofspilka.info/news/l209j 95 http://dazv.gov.ua/novini-ta-media/vsi-novyny/pozhezhu-u-zoni-vidchuzhennya-likvidovano.html 96 http://dazv.gov.ua/novini-ta-media/vsi-novyny/rezultati-zasidannya-komisiji-z-analizu-pozhezhi-5-8-chervnya-u-zonividchuzhennya.html 97 http://dazv.gov.ua/novini-ta-media/vsi-novyny/es-nadav-suchasne-obladnannya-dlya-pidtrimki-reaguvannya-ukrajini-naradiologichni-nadzvichajni-situatsiji.html 98 http://dazv.gov.ua/novini-ta-media/vsi-novyny/eksperti-magate-oznajomilisya-z-protsesom-vikonannya-proektiv-svyap-2-tanbk.html 93

Electricity and Nuclear Safety

a long-term RW management program and the use of funds from the State Fund for the Management of RW, and the SAEZM management presented the results of successful projects of the INSC program and plans as to 2018 Action Program 99.

On June 19, 2018, the Minister of Environment and Natural Resources of Ukraine Ostap Semerak held a regular meeting with members of the Primary Trade Union Organization of the Chernobyl NPP. Among the top issues that this time was put forward for discussion are raising the level of wages for employees of ChNPP, ways to repay the budget underfunding, and prospects for the development of social and economic protection of the nuclear power plant team. As a result of the meeting, it was decided to create an appropriate working group of the Ministry of Environment and Natural Resources and Chornobyl NPP workers. The members of the group are tasked to develop proposals on the solution of the issues raised by members of the trade union as soon as possible. Ostap Semerak reminded that currently two draft laws (No. 8377 and No. 8377-1), the adoption of which will enable to resolve such situation and make the creation of it impossible in the future 100.

http://dazv.gov.ua/novini-ta-media/vsi-novyny/dazv-prodovzhue-spivpratsyuvati-z-evropejskoyu-komisieyu-za-proektami-usferi-povodzhennya-z-rav.html 100 http://dazv.gov.ua/novini-ta-media/vsi-novyny/pri-minprirodi-stvorena-robocha-grupa-shchodo-virishennya-nagalnikh-pitanpratsivnikiv-chaes.html 99

Electricity and Nuclear Safety Assessment of Ukraine’s progress: 28 out of 100

On February 2, 2018, the Ministerial Council of the Energy Community adopted Decision 2018/02/MCEnC on Ukraine’s failure to comply with the Energy Community Treaty (in case ECS-1/12) as regards the free cross-border trade in electricity. Ukraine should take the necessary steps as soon as possible and report to the EU Secretariat on the implementation of Directive 2009/72/EC and Regulation 714/2009. Procedurally, the case is closed. The cases ECS-08/15 on cross-border trade and ECS-06/17 on unbundling of distribution system operators (oblenergos) are still open.

Given that for more than 2 months, the NEURC had no quorum, there was a lag behind the plan for the adoption of the RLA for a new electricity market. On March 14, a number of key acts were adopted - Transmission System Code, Distribution System Code, Commercial Electricity MeteringCode, DayAhead Market Rules and Intraday Market Rules, Electricity Retail Market Rules. Another 16 RLAs were approved by the Regulator, including adherence techniques, congestion management rules and capacity allocation procedure, methods for calculating fees for connection, price and tariffs formation, and so on.

Progress has not yet been recorded in the field of legislative security of nuclear safety. The draft Law No. 5550 (bringing in line with the provisions of Directive 2013/59/Euratom), No. 6089 (bringing in line with international safety requirements for improving the classification system of radioactive waste for their disposal), No. 7471 (ensuring compliance with state supervision and control in the field of nuclear and radiation safety, the requirements of international treaties and conventions), as well as amendments to the Law On Protection against Ionizing Radiation were not adopted.

SE NPC Ukrenergo corporatization began and the legal unbundling of distribution network operators (oblenergos) began on April 5. On April 5, the NEPURC placed an announcement on the procedure for obtaining licenses for the distribution and supply of electric energy in accordance with the requirements of the Law On the Electricity Market.

The degree of market opening remains low: according to Energorynok, in the first half of 2018, the share of suppliers under the unregulated tariff in the total amount of electricity purchased in the WEM amounted to 11.98%. At the same time, according to the NEURC, by the end of 2017, the share of the three largest suppliers in the retail market was 31.97%, which is an indicator of low concentration.

It is still difficult to assess the possibilities for the change of the supplier, since they still lack market conditions, and those transitions that occur among the non-residential consumers are scanty.

According to the NEURC, in 2017, 340 consumers switched electricity supplier.

Terms of trade, including cross-border ones, exist for export (auctions), do not work for import. In the adjusted Forecast Balance of Electricity for 2018, import is not provided for, since demand is covered by own generation.

total score: 28

ELECTRICITY AND NUCLEAR SAFETY

0

100 points

40 Degree of transposition of EU legislation into Ukraine’s law

35 Degree of independence of trunk network operator Not applicable Degree of independence of distribution network operators (oblenergos)

48,5 Degree of market oppenness Not applicable Presence of clearly regulated supplier change mechanisms

75 Terms of trade, including cross-border trade

90 Security of supplies

30 Creation of an irradiation monitoring and tracking system

-25!

Facts of non-compliance with EU acts, no implementation action

Energy Efficiency and Social Issues

During June, against the backdrop of the government’s demonstrative step back in implementing the reform in the housing sector through the delayed implementation of laws in the housing and public utilities sector and metering, significant changes took place in terms of preparation and promulgation of draft regulatory legal acts aimed at implementing the laws On Energy Efficiency in Buildings and On Commercial Metering of Thermal Energy and Water Supply. Among others, the main work on the development of methods of actual energy certification of buildings, the standard form of the corresponding certificate was completed, as well as the particularities of the notification of building residents about the intention of the supplier or the operator of heating networks to install a building heat metering unit. Less has been done in terms of funding public assistance programs. In particular, no progress was made in the process of launching the Energy Efficiency Fund, and it is worrying that in the near future, citizens will be deprived of the actual opportunity to use state support for the implementation of energy efficiency measures in housing through the lack of funds within the “warm loans” program.

Directive 2012/27/EC on energy efficiency In cooperation with the Ministry of Regional Development, Construction and Housing and Communal Services, experts from the German GIZ agencies have developed an Argument for the implementation of Directive 2012/27/EC on energy efficiency in Ukraine, which describes the startup potential of Ukraine for the implementation of key points of articles of the Directive 101. The document details the provisions of the key articles of the Directive, proposes recommendations for their implementation, and suggests learning the experience of the EU Member States towards full implementation.

Instead, the situation with the draft Law On Energy Efficiency remains unfavorable, since there is no information about any progress in its passage through necessary bureaucratic procedures.

Accounting (Article 9) This month, the first year of operation of the Law of Ukraine On Commercial Metering of Thermal Energy and Water Supply has ended, but its actual implementation was postponed due to amendments adopted last month that abolished real sanctions for not installing heat and water metering devices until the set deadlines. This situation threatens to significantly slow down the pace of the implementation of complete heat energy metering in Ukraine. According to the Ministry of Regional Development, Construction and Housing and Communal Services, today the national level of equipping with heat meters is only 80.3%, which is an increase by about 20% for the past two years 102. The head of the ministry noted the leaders by this indicator - Cherkasy (97.6%), Vinnytsia (95%) regions, the city of Kyiv (97%), as well as outsiders Luhansk (25%) and Ternopil (15.5%) regions.

In pursuance of the Law, on June 6, the Cabinet of Ministers of Ukraine approved the procedure for informing the building owners (co-owners) by external engineering networks operators about the intention to install a commercial metering unit 103. This procedure generally reproduces the procedure described in the law, and in particular obliges the external engineering networks operator to inform the owners (coowners) of the building about such an intention at least two months before the installation of the building commercial metering unit. In particular, in the presence of a website, the operator makes an appropriate announcement online, after which, within 30 days, the information is brought to the notice of the residents of the house in paper form in a public place on the information stands at the entrances of the building. It is important that the period of 2 months is counted from the message on the website, therefore, for a request for changing the terms or equipment to residents who do not visit the supplier’s website, at least 30 days remain. In accordance with the law, the procedure provides for the following options for the feedback of consumers with the supplier:

https://www.slideshare.net/ZubkoGennadiy/argumentarium-minregion http://www.minregion.gov.ua/press/news/gennadiy-zubko-nazvav-oblasti-lideri-i-autsayderi-po-vstanovlennyu-budinkovihlichilnikiv-tepla/ 103 https://www.kmu.gov.ua/ua/npas/pro-zatverdzhennya-poryadku-informuvannya-operatorom-zovnishnih-inzhenernih-merezhvlasnikiv-spivvlasnikiv-budivli-pro-namir-vstanovlennya-vuzla-komercijnogo-obliku 101 102

Energy Efficiency and Social Issues

• agreement to install a commercial metering unit (units) on the conditions proposed by the external engineering networks operator; • the intention to agree the conditions, different from the proposed ones, for the establishment of a commercial metering unit (units) with the external engineering networks operator; • intention to independently equip the building with a commercial metering unit (units) in accordance with the procedure established by law.

In order to enable the involvement of heat networks by the operator to installation of such units, third parties, namely heat supply service providers, the Government have also approved the Procedure for transferring by the provider of the public utility service to the external engineering networks operator of public utility services paid by consumers and owners (co-owners) of premises equipped with individual heating and/or hot water supply systmes, fees for installing commercial metering units 104. The settlement of contractual relations between these parties corresponds to the general objective of heat supply reform in relation to the introduction of competition, in the conditions of which the service provider and the operator of the heating system may be different entities. Thus, among other things, the relevant resolution of the Cabinet of Ministers recommends that the communal service provider, which is not the external engineering networks operator, to take into account the provisions of the Model Agreement, which is attached to the draft act when concluding the relevant agreements. In addition, the approved Government’s resolution amends the CMU Resolution No. 869 of 01.06.2011, in particular, the Procedure for the Formation of Tariffs for Thermal Energy, its Production, Transportation and Supply, Centralized Heating and Hot Water Supply Services and the Procedure for the Formation of Tariffs for Centralized Cold Water Supply, Drainage (with the Use of In-house Systems) Services.

During June, the Governmental Committee on European, Euro-Atlantic Integration, International Cooperation and Regional Development also approved the draft procedure for monitoring the state of the equipment of buildings with commercial metering units, developed by the State Agency on Energy Efficiency and Energy Saving 105. The draft act makes the State Agency on Energy Efficiency and Energy Saving, which, according to the agency’s communications department, will collect information from the local authorities in the prescribed form, will carry out independent monitoring activities, and will exchange data on violations of the legislation in terms of conformity of measuring instruments of commercial metering units with technical regulations, terms of their installation or replacement from the State Service for Food Safety and Consumer Protection, responsible for such monitoring.

In bad tradition, the indicated draft law was not published for public discussion, which contradicts the requirements of the Regulation of the Cabinet of Ministers of Ukraine.

Energy service market (Article 18) The State Agency on Energy Efficiency and Energy Saving continues to hold an information campaign to popularize the introduction of the energy service mechanism in the budget sphere. During June, such information events were held in Poltava 106, Chernihiv 107 regions, the cities of Khmelnytskyi 108 and Mykolayiv 109. As a result of such educational activities with the support of Friedrich Ebert Fund in Ukraine, the State Agency on Energy Efficiency and Energy Saving has already signed 41 Memoranda on Cooperation with local authorities, as well as 6 Memoranda on Partnership with central executive authorities: Ministry of Defense, Ministry of Education, State Agency of Water Resources, State Statistics Service, State

https://www.kmu.gov.ua/ua/npas/pro-zatverdzhennya-poryadku-pererahuvannya-vikonavcem-komunalnoyi-poslugi-operatoruzovnishnih-inzhenernih-merezh-splachenih-spozhivachami-komunalnih-poslug-ta-vlasnikami-spivvlasnikami-primishen-obladnanihindividualnimi-sistemami-opalennya 105 https://www.kmu.gov.ua/ua/meetings/zasidannya-uryadovogo-komitetu-z-pitan-yevropejskoyi-yevroatlantichnoyi-integraciyimizhnarodnogo-spivrobitnictva-ta-regionalnogo-rozvitku-06-06-2018 106 http://saee.gov.ua/uk/news/2447 107 http://saee.gov.ua/uk/news/2431 108 http://saee.gov.ua/uk/news/2425 109 http://saee.gov.ua/uk/news/2413 104

Energy Efficiency and Social Issues

Committee for Food Safety and Consumer Protection, and National Commission for State Regulation of Financial Services.

During June, there were also regular meetings of the members of the Ukrainian Association of Energy Service Companies, at which it was replenished by new members of the ESCO market 110.

The city of Odessa, where, at the session of the City Council, the essential conditions of the ESCOagreements for 10 educational institutions were approved, joined the introduction of ESCO-mechanisms in practice. The total value of each contract is from UAH 650 thousand to UAH 1 million, and the expected cost savings for the payment of energy resources - 22% of the basic level of consumption111. Interestingly, approximately the same level of savings was recorded in Politekhnik Housing Association (Kyiv), which became the first in Ukraine in the residential sector and received a 21.5% reduction in thermal energy consumption due to the implementation of the ESCO-agreement 112.

In addition, during the meeting of the Verkhovna Rada Committee on Industrial Policy and Entrepreneurship, the issue of simplifying the procedure for approving essential conditions was considered; settlement of the issue of the principles of calculation of payments to the energy service provider during the transition to other types (kinds) of fuel (energy, energy resources); motivation of the persons involved in the process of the energy service on the part of the customer; facilitating access to attracting cheap and long-term credit resources for the fulfillment of the energy service 113.

National Energy Efficiency Fund, Financing and Technical Support (Article 20) Despite the intentions of the officials of the relevant ministry to ensure the start of work of the Energy Efficiency Fund at the end of the 1 half of 2018, there are no preconditions for the beginning of its work at the moment. In particular, competitions for vacant positions at the governing bodies of the organization have not yet been announced, and it has not yet passed the state registration.

Instead, the relevant Deputy Prime Minister reports on efforts to prepare the effective work of the Energy Efficiency Fund after its creation. Thus, the international partner of Ukraine GIZ has demonstrated its intentions to implement the initiative to support the energy efficiency reform in Ukraine, which includes a component of cooperation with the Fund’s Supervisory Board when recruiting employees of the Technical Office of this institution and further improvement of their competence 114.

Demand for the Government “warm loans” program is steadily increasing. According to the monitoring by the State Agency on Energy Efficiency and Energy Saving of its efficiency, in June, more than 300 housing associations used products of the program in the amount of UAH 90 million, which is 5 times more than in the previous year 115.

However, as of June, the financial resource allocated by the respective banks has exhausted, and no additional funding is provided for. For its replenishment, amendments to the Law of Ukraine On the State Budget for 2018 are required, or, as has been repeatedly done earlier, it is necessary to carry out the socalled redistribution of funds from the items related to the launch of the Energy Efficiency Fund, for which UAH 1.6 billion is provided for by the State Budget for this year.

Directive 2010/31/EC on the energy performance of buildings During June, several draft regulatory legal acts aimed at the implementation of the Law of Ukraine On the Energy Efficiency of Buildings was published on the official website of the Ministry of Regional Development and Trade. https://www.facebook.com/UkrAESCO/posts/385600391940923 http://saee.gov.ua/uk/news/2406 112 http://kyivesco.com.ua/pershiy-v-ukrayini-esko-dogovir-v-zhitloviy-sferi-prinis-suttyevu-ekonomiyu-energoresursiv/ 113 http://komprompol.rada.gov.ua/news/main_news/73174.html 114 https://www.ukrinform.ua/rubric-economy/2493461-nimecka-giz-zapuskae-novij-proekt-pidtrimki-fonduenergoefektivnosti.html 115 http://saee.gov.ua/uk/news/2462 110 111

Energy Efficiency and Social Issues

In particular, according to part four of Article 6 of the Law, the draft order of the Ministry of Regional Development, Construction and Housing and Communal Services On Approval of the Methodology for Determining the Economically Appropriate Level of Energy Efficiency of Buildings was developed and published for public discussion 116.

The project methodology establishes an economically feasible level of energy efficiency of buildings in order to determine the optimal level of costs for its achievement. The scope and scale of the implementation of energy modernization in Ukraine’s housing stock actually depends on the features of such a technique. Thus, the procedure for determining the economically feasible level of energy efficiency of buildings and their elements includes the definition of reference buildings, the determination of energy efficiency measures that are evaluated for reference buildings, the assessment of energy efficiency indicators for such reference buildings using identified energy efficiency measures, and the calculation of discounted total expenses during the estimated service life of the building. The economic feasibility of different levels of minimum requirements for the energy efficiency of buildings is estimated by calculating the costs of measures to increase energy efficiency during the estimated life of the building. While determining the cost-effective level of energy efficiency, the following factors shall be taken into account: estimated lifetime of the building and/or its element; costs of energy, products, systems; maintenance, operational costs and labor costs; the dynamics of energy prices to plan fuel costs used for power supply in the building; discount rate, which will be used for both macroeconomic and financial calculations after sensitivity analysis of at least two interest rates for each calculation.

In pursuance of part one of Article 5 and part four of Article 6 of the Law, the draft order of the Ministry of Regional Development, Construction and Housing and Communal Services On Approval of the Methodology for Determining the Energy Efficiency of Buildings was also developed 117.

The indicated Methodology establishes a mechanism for determining the energy efficiency of buildings based on a number of specified energy efficiency indicators, using the method of determining the energy efficiency of buildings and taking into account the features of determining the energy efficiency of a building, the premises of which have different functional purposes. The calculation of primary energy and greenhouse gas emissions, the determination of the class of energy efficiency of the building are also regulated, and 11 applications, which set out the calculation indicators for determining the energy efficiency of buildings, were prepared up to the draft act. The classification of buildings for energy efficiency is determined according to the classification of buildings, depending on the functional purpose of the building, given in Appendix No. 11 to the Methodology.

The second paragraph of the first part of Article 5 of the Law states that during the calculation of the energy efficiency of buildings, software can be used to determine the energy efficiency of buildings, all the elements of which correspond to the requirements of the methodology for determining the energy efficiency of buildings and are used in accordance with the procedure established by a central executive authority, which ensures the formation of the state policy in the field of construction. In pursuance of this provision of the Law, the Ministry of Regional Development, Construction and Housing and Communal Services has developed and made public for the public discussion the draft procedure of using the software and the procedure for checking by an energy auditor of the compliance of the calculating elements of the software with the requirements of the valid regulatory documents for the calculation of energy efficiency during calculations of the energy efficiency of buildings 118.

The procedure provides for the free choice of energy auditor of the software, which can be used to calculate the energy efficiency of buildings. In addition, it is the responsibility of the energy auditor to verify the compliance of the calculated elements of the software with the established requirements, which is http://www.minregion.gov.ua/base-law/grom-convers/elektronni-konsultatsiyi-z-gromadskistyu/proekt-nakazu-minregionupro-zatverdzhennya-metodiki-viznachennya-ekonomichno-dotsilnogo-rivnya-energetichnoyi-efektivnosti-budivel/ 117 http://www.minregion.gov.ua/base-law/grom-convers/elektronni-konsultatsiyi-z-gromadskistyu/proekt-nakazu-minregionupro-zatverdzhennya-metodiki-viznachennya-energetichnoyi-efektivnosti-budivel-2/ 118 http://www.minregion.gov.ua/base-law/grom-convers/elektronni-konsultatsiyi-z-gromadskistyu/proekt-nakazu-minregionupro-zatverdzhennya-poryadku-zastosuvannya-rozrahunkovih-elementiv-programnogo-zabezpechennya-dlya-viznachennyaenergetichnoyi-efektivnosti-budivel/ 116

Energy Efficiency and Social Issues

carried out by successively executing test scenarios and procedures in accordance with the methodology for determining the energy efficiency of buildings. According to the results of the verification of the calculation elements of the software, the energy auditor decides on the use or non-use of software to determine the energy efficiency of buildings.

It should be noted that according to a report on the government portal, a few years ago, it was stated that the EBRD is ready to provide Ukraine with technical assistance in developing software for the certification of energy efficiency of buildings 119. In addition, according to presentation materials of representatives of the EBRD, it is indicated of the provision of the technical assistance in developing software for calculating energy efficiency of buildings 120, however, the said draft procedure provides for an independent choice of energy audit software. This fact hardly agrees with conducting tenders to state orders for conducting analytical researches and development of scientifically substantiated proposals as regards the Procedure for Using Software to Determine the Energy Efficiency of Buildings in the past.

The most promising draft regulatory legal act, which was promulgated in June, was the draft Order On Approval of the Procedure for Certification of Energy Efficiency and the Form of an Energy Certificate� 121.

The said draft, developed in pursuance of part eight of Article 7 of the Law, proposes to approve the Procedure for Certification of Energy Efficiency and the Form of Energy Certificate. This draft procedure determines the mechanism for certification of energy efficiency, the procedure for collecting and processing information on the actual or design characteristics of fencing structures and engineering systems, assessment of the compliance of the calculated level of energy efficiency with the minimum requirements for energy efficiency, providing recommendations for ensuring (raising) the energy efficiency of the building, requirements and form of energy certificate and extracts from it.

In the draft act, the developers state that all energy saving measures are considered in the complex and their influence on each other is established. More detailed information specified in the energy certificate, including information on the cost-effectiveness of the recommendations set out therein for ensuring (raising the level of) the energy efficiency of buildings and/or their separate parts, is included in the recommendation report. The recommendation report contains information on the cost-effectiveness of the energy efficiency recommendations outlined therein and other information in accordance with the terms of the energy efficiency certification contract.

The energy certificate of the building is drawn up in electronic form. Requirements for the execution of the certificate are given in the annex to the draft order. According to expert estimates, for preparation of such a certificate, not less than 7 days are required 122.

It should be noted that the law is gaining full force from July 23, 2018, but the full implementation of its provisions will not be possible due to the lack of adopted by-laws, most of which have not even been made public in the status of drafts. However, Deputy Minister of Regional Development, Construction and Housing and Communal Services of Ukraine Lev Partskhaladze confirmed that the entry into force of the law will not be postponed, and one of the important initiatives within these changes is the introduction and development of energy certificates. According to him, due to the energy efficiency certification procedure, building owners will receive full information on energy consumption, possible reduction and recommendations for energy efficiency, which will eventually save about 10% of energy each year 123.

On June 8, the Kyiv National University of Technology and Design hosted the opening of the new Educational and Scientific Center for Energy Efficiency, which will take part in ensuring the establishment

https://www.kmu.gov.ua/ua/news/248693660 http://saee.gov.ua/sites/default/files/EBRD_Maslichenko.pdf 121 http://www.minregion.gov.ua/base-law/grom-convers/elektronni-konsultatsiyi-z-gromadskistyu/proekt-nakazu-minregionupro-zatverdzhennya-poryadku-provedennya-sertifikatsiyi-energetichnoyi-efektivnosti-ta-formi-energetichnogo-sertifikata/ 122 https://www.facebook.com/photo.php?fbid=1630714270380987 123 https://www.kmu.gov.ua/ua/news/rozrobka-energetichnih-sertifikativ-budivel-dozvolit-ekonomiti-10-energoresursiv-v-ukrayinishorichno-lev-parchaladze 119 120

Energy Efficiency and Social Issues

and proper functioning of attestation commissions, as well as systematically implement training programs for energy auditors and energy managers 124.

Directive 2010/30/EC on the indication by labelling and standard product information of the consumption of energy and other resources by energy-related products During June, the situation regarding the adoption of the Order of the Ministry of Regional Development, Construction and Housing and Communal Services On Invalidation of the Order of the State Committee of Ukraine on Energy Saving of 28.10.2003 No. 118, as well as two draft technical regulations regarding the establishment of requirements for eco-design for simple digital television receivers and for electricity consumption by external power sources in the no-load mode and their average efficiency in the active mode remained unchanged, the said drafts are submitted for approval by the Minister.

Social issues The experts’ forecasts regarding the delay of the laws On Housing and Communal Services and On Commercial Metering for Thermal Energy and Water Supply became a reality. On the initiative of the Government, the relevant draft law was adopted, and it provides for the postponement of the application of fines for heat and water supply enterprises for violating the deadlines for the establishment of commercial metering units (extension of postponement after 02.08.2018); postponement of the Law On Housing and Public Utility Services, which was due to enter into force on June 10, 2018, in order to choose a new model of relations between the service provider and the consumer (extension of existing contracts for provision of housing and public utility services before the end of the heating period 2018-2019).

During June, the draft resolution of the Cabinet of Ministers of Ukraine On the Establishment of the Maximum Amount of Payment for Consumer’s Services per One Consumer for Public Utilities Provided to Consumers of Multi-Apartment Buildings under Individual Contracts 125 was published on the official website of the Ministry for Regional Development, Construction and Housing and Communal Resources for public discussion (in accordance with the Law On Housing and Communal Services, the co-owners of multiapartment buildings should determine a model of organizational relations with the public utility service provider, and in case of failure to adopt such decision within the specified period, an individual contract for communal services between the provider and each co-owner shall be concluded in accordance with part seven of Article 14 of the Law).

124 125

http://saee.gov.ua/uk/news/2408 https://bit.ly/2KIasMZ

Energy Efficiency and Social Issues Assessment of Ukraine’s progress: 19 out of 100

During the reporting period, for the first time during the monitoring period, the Energy Community Secretariat initiated proceedings against Ukraine for non-compliance with its energy efficiency commitments. Proceedings in the case ECS 01/18 were initiated on May 18, 2018 by sending a Reasoned Request, in which the Secretariat provided its views on Ukraine’s performance of its implementation obligations.

In the part of the transposition, there was a lack of progress in the work on Directive 2010/30/EC. At the same time, an assessment of the transposition of the other two Directives 2010/31/EC and 2012/27/EC has been improved. In both cases, a large number of draft regulatory acts developed by the Ministry of Regional Development in compliance with the laws on the “energy efficiency package” has been noted.

The assessment is explained by the fact that some acts are only being developed and submitted for public discussion, as well as the fact that representatives of the expert environment in some cases criticized the essence of the norms proposed by the developer.

To assess the dynamics of real energy efficiency in Ukraine this time, experts have resorted to an analysis of the change in the energy intensity of the economy as a whole. This is due to the fact that the results of monitoring the implementation of the relevant National Action Plan, which is carried out by the State Agency on Energy Efficiency and Energy Saving and the Ministry of Regional Development for the Cabinet of Ministers, remains a non-public document. The estimation of the amount of money that the state contributes to financing real energy modernization and energy efficiency measures is carried out within the framework of fulfilling (granting) a budget request of the State Agency on Energy Efficiency and Energy Saving submitted during the preparation of the State Budget for 2018 to support the “warm loans” program and also taking into account the level of financing the newly established Energy Efficiency Fund at the state expense. While “warm loans” were financed only in the amount of UAH 400 million out of UAH 1.9 billion requested in the application, the charter of the Energy Efficiency Fund was filled by the government to the same extent as by international partners (UAH 1.6 billion and EUR 50 million, respectively).

Such indicators as the dynamics of the total area of budget premises that were repaired to meet the minimum energy efficiency requirements, as well as the dynamics of buildings with near zero energy consumption, were rated nil due to the lack of any information on the achievement of such goals. In addition, the indicator related to the amount of fines imposed through violations of the legislation on energy efficiency was not taken into account, which is related to the absence of such fines, as well as the system under which they could be imposed.

Finally, the indicator of heat metering in the housing stock was estimated in accordance with the most up-to-date information on the equipment of residential buildings by metering units, which was received from the Ministry of Regional Development. This figure is 70% on a nationwide scale.

total score: 19

ENERGY EFFICIENCY AND SOCIAL ISSUES

0

100 points

52 Degree of transposition of EU legislation into Ukraine’s law Not applicable Energy efficiency improvement trend at the national level

22 The amount invested under energy efficiency programs

0 Trend of growth in building with nearly zero energy consumption

0 Dynamics of growth in the space of budgetary institutions modernized to meet the energy performance requirements

70 Dynamics of installation of building and individual heat meters Not applicable Number of cases and the total amount in fines charged in energy efficiency claims

-10 !

Facts of non-compliance with EU acts, no implementation action

Environment and Renewable Energy Sources

The draft law on the state environmental policy strategy for the period up to 2030, registered in the Verkhovna Rada of Ukraine, is still waiting for consideration by MPs. Draft by-laws necessary for initiating the strategic environmental assessment procedure in accordance with the recently adopted law, have not yet been made public for commenting. The Action Plan for 2018 on the Implementation of the National Emissions Reduction Plan from Large Combustion Plants, which provides for institutional and organizational and financial measures, as well as work with combustion plant operators as regards identifying the needs for reconstruction, modernization and technical re-equipment of large combustion plants was adopted in June 2018.

Meanwhile, in the field of renewable energy, the work on legislation, which regulates the issue of state support for renewable facilities, has been intensified. In particular, eight draft laws on the solution of this issue were registered in the Verkhovna Rada during the month - one main and seven alternative ones.

Directive 2011/92/EU on the assessment of the effects of certain public and private projects on the environment (codification) (Article 363 of the Association Agreement) The Government has amended the resolution on the establishment of an Interdepartmental Coordination Council on the implementation of the Convention on Environmental Impact Assessment in Ukraine in a transboundary context 126. The indicated regulatory act is adjusted with the Law of Ukraine On Environmental Impact Assessment in terms of giving the Interdepartmental Coordination Council the authority to approve the decision to take into account the results of the assessment of transboundary environmental impact and the unification of terminology. The adoption of the regulation will facilitate the transposition of Directive 2011/92/EC of the European Parliament and of the Council on the assessment of the effects of certain public and private projects on the environment (codification).

Directive 2003/4/Đ„ĐĄ on public access to environmental information and cancelling Directive 90/313/EEC (Article 363 of the AA) The Ministry of Environment and Natural Resources and Ukrainian Hydrometeorological Center signed a memorandum of data exchange to create a unified system 127 where information on weather forecasts, air, water condition and climate change can be obtained. Ukraine still did not have a single standardized system that would display all environmental, weather and climate change data in a user-friendly manner. At the same time, Ukrainian Hydrometeorological Center has a powerful system for collecting indicators not only regarding the state of weather, but also the climate in general, the condition of rivers and reservoirs, atmospheric air and the collection of agrometeorological indicators. In the near future, the Ministry of Environment and Natural Resources and Hydrometeorological Center will start cooperation on data transmission. At the same time, the Ministry of Environment and Natural Resources is already developing Open Environment automated system, which will include data and information related to the environment.

Directive 2010/75/EC on industrial emissions (integrated pollution prevention and control) (Article 363 of the AA) The Cabinet of Ministers of Ukraine, by its order No. 428-p of June 13, 2018, approved the action plan for 2018 on the implementation of the National Emissions Reduction Plan from Large Combustion Plants 128.

The Ministry of Energy, which should report to the Cabinet of Ministers on the implementation of the tasks provided for by the plan by December 31, 2018, is responsible for the implementation of the plan.

According to the plan, in 2018, draft laws on the formation of an Organizing Committee on the Implementation of the National Plan, approval of the action plan for the reconstruction, modernization, technical re-equipment and decommissioning of large combustion plants included in the National Plan http://zakon5.rada.gov.ua/laws/show/456-2018-%D0%BF https://menr.gov.ua/news/32471.html 128 https://www.kmu.gov.ua/ua/npas/pro-zatverdzhennya-planu-zahodiv-na-2018-rik-shodo-vprovadzhennya-nacionalnogo-planuskorochennya-vikidiv-vid-velikih-spalyuvalnih-ustanovok 126 127

Environment and Renewable Energy Sources

(with determination of sources and the mechanism of financing of these measures) should be developed.

In 2018, a temporary working group on developing the mechanism for the implementation of the National Plan should be set up.

Operators of large combustion plants will be involved in the work: the need for reconstruction, modernization and technical re-equipment of large combustion plants, and the problems connected with it should be identified.

It is necessary to pay attention to financial issues, in particular, the determination of a mechanism for financial support of reconstruction, modernization, technical re-equipment and decommissioning of large combustion plants, optimal solutions for financial support for the functioning of the national monitoring, control and reporting system for pollutant emissions is provided for.

In addition, the plan provides for the definition and implementation of priorities of cooperation with international and regional organizations, foreign states and their credit and financial institutions regarding the introduction of technologies, attraction of credit resources, formation of programs and draft technical assistance projects to support the implementation of the National Plan.

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 Association Agreement) In June, MPs of the Verkhovna Rada Committee on FEC O. Dombrovskyi, L. Pidlisetskyi and other 15 parliamentarians from different factions registered the draft law No. 8449 129, which provides for the introduction of a system of auctions instead of the feed-in tariff for state support for solar and wind projects. At the same time, as of June 25, other 7 alternative draft laws were registered (from No. 8449-1 to No. 8449-7). Six out of eight draft laws provide for the introduction of a system of auctions instead of the feed-in tariff. The essence of the system proposed by the main draft law is that from July 1 next year, the right to state support of more or less large wind and solar power plants will be received by investors at auctions. The main draft law also provides for a significant (about 22% of the rate provided for by the current wording of the law for 2020 and approximately 30% of the current rate) reduction of the feedintariff for solar installations, the operations of which started in January 2020.

At the same time, the draft law No. 8449 has a significant drawback - it is proposed to leave a high feed-in tariff after 2020 for plants with a capacity less than 10 MW. Thus, this is a good loophole for the owners of large power plants, which can split their facilities into legally separate units of such power.

Against this background, in the most of these draft laws, defending of their interests by certain politicians is traced. In particular, the main draft law was signed by MPs, some of which are related to renewable energy business.

Meanwhile, the first alternative draft law - the draft law No. 8449-1 proposes to postpone the introduction of tariff auctions by 2025 for large facilities and increase the feed-in tariff for those who use domestic equipment. A representative of Poroshenko Bloc M.Efimov, who is a co-owner of LLC Furlender Windtechnology, a company producing equipment for WPPs, is among coauthors of the draft law. Thus, M. Efimov is the direct beneficiary of the norm on increasing the feed-in tariff through the use of Ukrainian equipment. M. Yefimov himself explains the unwillingness to introduce auctions with the fact that they slow down the development of wind energy sector, as it happened in Germany.

In parallel, the State Agency on Energy Efficiency and Energy Saving plans to consolidate cooperation with the National Academy of Sciences of Ukraine in the area of renewable energy 130. In particular, among the immediate steps is the work on legislative initiatives in “clean� energy sector, as well as financial and economic models for the establishment of bioethanol and biodiesel production plants, biogas plants at solid waste landfills, as well as waste processing and energy generation plants.

129 130

http://w1.c1.rada.gov.ua/pls/zweb2/webproc4_1?pf3511=64170 http://saee.gov.ua/uk/news/2434

Environment and Renewable Energy Sources

In addition, within the framework of the Memorandum of Understanding on Energy Efficiency and Renewable Energy between Ukraine and Portugal, signed in December 2017, a large-scale presentation of the investment attractiveness of the “green” energy sector of Ukraine among the Portuguese companies is planned 131.

Meanwhile, the EBRD is planning to launch USELF-III 132, a new program aimed at implementing “green” projects in Ukraine. The amount of funding planned for the program is EUR 250 million.

This month, in the Kherson region, there were successful public hearings on the Environmental Impact Assessment (EIA) Report devoted to the construction and further operation of the Myrnenska WPP (scheduled capacity - 163 MW, up to 45 turbines). It should be noted that this was the second hearing on EIA in the Ukrainian wind energy sector 133, which took place under the new Law on Environmental Impact Assessment and received support from the local community.

In general, since the beginning of the year, almost 270 MW of new “green” capacities have been installed in Ukraine (of which 206 MW are solar power plants) 134. This is more than 2 times more than for the same period last year (127 MW).

http://saee.gov.ua/uk/news/2430 https://www.ebrd.com/work-with-us/projects/psd/uselfiii.html 133 http://uwea.com.ua/ua/news/entry/obschestvennoe-obsuzhdenie-ocenki-vozdejstviya-na-okruzhayuschuyu-sredu-mir/ 134 http://saee.gov.ua/uk/news/2450 131 132

Environment and Renewable Energy Sources Assessment of Ukraine’s progress: 33 out of 100

The case on settling environmental disputes concerning the content of sulfur in certain fuels is currently considered by the Energy Community Secretariat.

In order to implement environmental directives, two system laws were adopted - the Law On Environmental Impact Assessment and the Law On Strategic Environmental Assessment. For the implementation of the first one, three subordinate regulatory legal acts have been adopted – the CMU Resolutions On Approval of the Procedure for Holding Public Hearings in the Process of Environmental Impact Assessment; On Approval of Criteria for the Definition of Planned Activities that are not Subject to Environmental Impact Assessment and Criteria for Determining the Extensions and Changes in Activities and Facilities that are not Subject to Environmental Impact Assessment; On Approval of the Procedure for the Transfer of Documentation to Provide a Conclusion on the Environmental Impact Assessment and Financing of Environmental Impact Assessment and the Procedure for Maintaining the Unified Register on Environmental Impact Assessment.

To begin work of the Law of Ukraine On Strategic Environmental Assessment, it is necessary to adopt a number of subordinate regulatory legal acts, but their drafts have not yet been made public. The draft law On the Territory of the Emerald Network was promulgated, but the draft law would not ensure the full implementation of the Birds and Habitation Directives. Due to the lack of necessary legislation, no special environmental protection area (SEPA) has been created for the protection of birds.

Work on reforming the system of state supervision (control) in the field of the environment is at an initial stage and is rather indirectly related to the issue of air quality. The Ministry of Ecology and Natural Resources published the draft Concept for the Creation of Open Environment State Automated System, the implementation of which will improve access to environmental information.

In order to comply with the National Plan for reducing emissions from large combustion plants, the CMU adopted the action plan for 2018 to implement it. Emissions of pollutants into the air from stationary sources for 2017 decreased by 19% compared with 2016 and amounted to 2,584.9 thousand tons.

The Environment section on data.gov.ua portal contains 420 sets of information. Data portals on water resources, landfills have been launched. The only register for environmental impact assessment commenced its work on December 18, 2017. It is currently working in the test mode and needs to be improved, especially in view of the systematization of information.

Regarding renewable energy schemes, attention should be paid to the draft law No. 8449, which provides for the introduction of a more competitive auctions system instead of the feed-in tariff for state support for RES, and 7 alternative draft laws. The National Transport Strategy up to 2030, including the development of electric transport, was also approved.

As of July 1, 2018, 388 RES facilities with the feed-in tariff, with the installed capacity 7,391.6 MW (including large HPSs and PSPs – 5,747.6 MW) worked in Ukraine. According to the National Renewable Energy Action Plan up to 2020, at the end of 2018, the capacity of RES facilities should be 9,431 MW.

total score: 33

ENVIRONMENT AND RENEWABLES

0

100 points

33,3 Degree of transposition of EU legislation into Ukraine’s law

60 Practical application of the environmental impact assessment system

0 Practical application of the strategic environmetanl assessment system

0 Dynamics of the creation of special conservation areas (SCA) for birds

60 Access to environmental information in practice Not applicable Reformed environment monitoring system, including ambient air quality

20 Control over emissions from stationary sources, in particular sulfur dioxide emissions Not applicable Availability and implementation of a national plan of action to reduce LCP emissions

78 Availability and usage of metering methods and monitoring of RES usage

50 Programs and mechanisms for promoting renewable energy production, investments

-10 !

Facts of non-compliance with EU acts, no implementation action

Oil

The Cabinet of Ministers made public its April decision to simplify and increase the transparency granting and extending special permits for the use of subsoil. The legal conflict that arose with the introduction of the procedure for assessing the impact of the development of hydrocarbon deposits on the environment in May 2017 has been eliminated. After a three-month delay, work on the draft law on maintaining minimum reserves of oil and oil products have been restored. At the same time, the discrepancies between the plans of action plans of the government and central executive authoirites and the poor quality of draft regulatory legal acts in the oil sector are still of great concern.

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 Association Agreement) On June 25, 2018, the Ministry of Economic Development and Trade proposed to the State Agency of Reserve to finalize the draft Government resolution On Approval of the Model of Minimum Oil and Oil Products Reserves Formation and its Financing in Ukraine, developed by it, and submit it for approval in accordance with the established procedure.

On June 26, 2018, Ukrainian and European experts at the regular meeting of the Working Group on the creation of minimum oil and oil products reserves analyzed the first wording of the draft law on support for the minimum oil and oil products reserves (task 749 135) 136. The largest discussion was provoked by the issue of division of duties and powers of the state and oil product market participants, which will take part in the formation of reserves, their volume and structure, the ownership form of the central company that will manage the stocks. According to the draft document: - minimum stocks of oil and oil products will be created in the volume represented by 90 days of average daily net imports (2 million tons of o.e.) with a ratio of oil and oil products 30:70; oil products mean automotive gasoline and diesel fuel in the ratio of 38:62; - operational management of oil and oil products will be carried out by a joint-stock company in which 70% will be owned by the state, 30% - by market operators; - stocks will be formed from target deductions from each liter of gasoline and diesel fuel sold; long-term loans from international financial institutions; stock-ticket deals (up to 12%).

Participants of the meeting noted that developing the draft law on maintaining minimum reserves would require much more time than it is determined by the action plan 137 and suggested the State Agency of Reserve to appeal to the Government for extending the deadline for this task till October 1, 2018.

Directive 99/32/EC 138 relating to a reduction in the sulfur content of certain liquid fuels and amending Directive 93/12/EC, as amended by Regulation (EC) 1882/2003 and Directive 2005/33/EC On June 06, 2018, the Ministry of Energy and Coal Industry included the development and submission to the Government for consideration of the draft Resolution of the Cabinet of Ministers of Ukraine On Invalidation of the Resoution of the Cabinet of Ministers of Ukraine of 21.03.2007 No. 545 and amending the Resolution of the Cabinet of Ministers of Ukraine of 20.12.1997 No. 1442 (paragraph 4, Annex 2, deadline for the implementation - December 2018) to the action plan for 2018 139. However, the relevant amendments were already approved by the Government on February 28 140.

Determining December 2018 as the deadline for the development of the Technical Regulation on Requirements for Aviation Gasoline and Fuel for Jet Engines (paragraph 6, Annex 2) is not quite

https://www.kmu.gov.ua/ua/npas/pro-vikonannya-ugodi-pro-asociaciyu-mizh-ukrayinoyu-z-odniyeyi-storoni-ta-yevropejskimsoyuzom-yevropejskim-spivtovaristvom-z-atomnoyi-energiyi-i-yihnimi-derzhavami-chlenami-z-inshoyi-storoni 136 https://rezerv.gov.ua/news/u-derzhrezervi-prezentuvali-pershij-variant-zakonoproektu-pr 137 Ibid.

138 Directive 99/32/EC (other designation – 1999/32/EC) was codified on May 11, 2016 (Directive 2016/802/EC).

139 http://mpe.kmu.gov.ua/minugol/doccatalog/document?id=245282918 140 http://zakon2.rada.gov.ua/laws/show/131-2018-%D0%BF 135

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understandable, since the work on this document should have been completed by January 1, 2018 (task 32 of the plan 141).

The problem of the implementation of the requirements of Directive 99/32/EC concerning the determination of the authorized body has not yet been resolved. The State Environmental Inspection was determined as such a body by the Government’s resolution 142(paragraph 21 of the approved list).

However, in its structure, there is no unit performing the corresponding functions. In addition, by the end of 2019, the State Environmental Inspection will be liquidated with the creation of the State Environmental Protection Service (task 1.2 of the plan 143). Therefore, the resolution 144 needs to be adjusted to quickly identify the body responsible for the organization of an effective system for checking the fuel quality by sampling, applying modern methods to determine the sulfur content and imposing sanctions for violating the established requirements.

On May 10, 2018, the Ministry of Energy and Coal Industry sent a revised draft resolution 145 amending the Technical Regulation 146 to bring it in line with the requirements of Directives 98/70/EC and 2016/802/EC (task 1702.4 of the Action Plan 147) for approval by the the State Regulatory Service. However, the preliminary analysis of this document suggests that there is a need to make more substantial amendments to the Technical Regulation due in particular to the fact that the deadline for the introduction into circulation of motor oil and diesel fuel of environmental clasess lower than Euro5 expired on December 31, 2017.

Directive 98/70/EC relating to the quality of petrol and diesel fuels and amending Directive 93/12/EEC, as amended by Directives 2000/71/EC, 2003/17/EC and 2009/30/EC and Regulation (EC) 1882/2003 (Annex XXX, Art. 360-363, 365, 366 of the AA) Despite the fact that SE Research Institute of Oil Refining and Petrochemical Industry MASMA was determined responsible for monitoring the resource content of the market of oil products and the price situation on it (the order of the Ministry of Energy and Coal Industry of April 20, 2018 No. 224 148), work in the area of monitoring the quality of fuel, as required by the task 1702.8 149, has not begun, although the deadline for its implementation has expired on March 20, 2018.

At the same time, in the work plan of the Ministry of Energy and Coal Industry for 2018 150, approved on June 06, 2018, there are no tasks regarding: - creation of uniform legal, organizational, financial and economic principles for the quality control of oil products in accordance with the EU norms and rules (task 1702 151); - assessment of national fuel consumption; development and implementation of a system for monitoring the quality and safety of oil products; ensuring the functioning of the system of interlaboratory comparisons of the test results to confirm the quality of the test; development and implementation of the system for collecting in-country data on fuel quality (task 1703.1-3 and 6).

At the same time, the Government has still not removed from the plan 152 the task 1703.4, which provides for establishing the requirements for off-road vehicles and agricultural and forestry tractors “to ensure the possibility of using unleaded gasoline”, already accomplished in 2003 (the law 153). http://www.me.gov.ua/Documents/Download?id=d8571d0b-53a6-4ade-88c1-75579be0cb39 http://zakon3.rada.gov.ua/laws/show/1069-2016-%D0%BF 143 https://www.kmu.gov.ua/ua/npas/pro-zatverd 144 http://zakon3.rada.gov.ua/laws/show/1069-2016-%D0%BF 145 http://www.drs.gov.ua/wp-content/uploads/2018/05/6795-10.05.18.pdf 146 http://zakon.rada.gov.ua/go/927-2013-п 147 https://www.kmu.gov.ua/ua/npas/pro-vikonannya-ugodi-pro-asociaciyu-mizh-ukrayinoyu-z-odniyeyi-storoni-ta-yevropejskimsoyuzom-yevropejskim-spivtovaristvom-z-atomnoyi-energiyi-i-yihnimi-derzhavami-chlenami-z-inshoyi-storoni 148 There is no this order in the list available at http://mpe.kmu.gov.ua/minugol/control/uk/doccatalog/list?currDir=50043 149 https://www.kmu.gov.ua/ua/npas/pro-vikonannya-ugodi-pro-asociaciyu-mizh-ukrayinoyu-z-odniyeyi-storoni-ta-yevropejskimsoyuzom-yevropejskim-spivtovaristvom-z-atomnoyi-energiyi-i-yihnimi-derzhavami-chlenami-z-inshoyi-storoni 150 http://mpe.kmu.gov.ua/minugol/doccatalog/document?id=245282918 151 https://www.kmu.gov.ua/ua/npas/pro-vikonannya-ugodi-pro-asociaciyu-mizh-ukrayinoyu-z-odniyeyi-storoni-ta-yevropejskimsoyuzom-yevropejskim-spivtovaristvom-z-atomnoyi-energiyi-i-yihnimi-derzhavami-chlenami-z-inshoyi-storoni 152 Ibid.

153 http://zakon2.rada.gov.ua/laws/show/2786-iii 141 142

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Directive 94/63/EC on the control of volatile organic compound emissions resulting from the storage of patrol and its distribution from terminals to service stations, as amended by Regulation (EC) 1882/2003 (Annex XXX, Articles 360-363, 365, 366 of the AA) In compliance with the requirements of Directive 94/63/EC on the inventory of terminals for storing and loading oil products, the plan 154 provides for the performance of the following actions by October 31, 2018 (task 1695, responsible executive agency – the Ministry of Environment and Natural Resources): - to develop, finalize with EU experts and submit for approval to the Cabinet of Ministers a draft technical regulation which will set requirements for the storage, transportation and transfer of fuel, relevant equipment and service stations; - inventory of terminals for storage and loading of gasoline; - development of recommendations for the control of the operation of gas stations and storage tanks for oil products of small size.

It is surprising that: -

tasks 1695 and 1695.4 refer only to gasoline, while Directive 94/63/EC applies to all oil products; task 1695.5 mentioned incomprehensible “reservoirs for storage of oil products of small size” in the work plan of the Ministry of Environment and Natural Resources 155 approved on May 30, 2018 , the above-mentioned tasks are absent. Instead, the work plan of the Ministry of Energy and Coal Industry 156 provides for “elimination of legal unregulatedness in terms of accounting of the norms of natural losses of oil and oil products in the course of acceptance, storage, issue and transportation” (task 5, Appendix 2, the deadline for implementation - December 2018).

Directive 94/22/EC on the conditions of granting and using authorizations for prospection, exploration and production of hydrocarbons (Annex XXVII, Articles 279, 280, 341 of the AA) On June 5, 2018, the Ministry of Justice registered the order of the Ministry of Environment and Natural Resources No. 182 of May 30, 2018 On Approving the Amount of the Fee for Conducting Public Discussion in the Process of Environmental Impact Assessment, which unblocked the work of regional state administrations on preparing relevant opinions 157.

On June 08, 2018, the Government resolution of April 25, 2018 No. 333 On Amendments to the Procedures Approved by the Resolution of the Cabinet of Ministers of Ukraine dated May 30, 2011 No. 594 and No. 615 158, on the approval of which the Head of the Ministry of Environment and Natural Resources O. Semerak reported on March 15 159 and April 4 160, was promulgated. The said document, which was combined with the draft resolution 161, eliminated the inconsistencies in the Procedure for Granting Special Permits for the Use of Subsoil and the Procedure for Holding Auctions for the Sale of Special Permits for the Use of Subsoil, based on the practice of their application, in particular: - abolished the charge for the increase of reserves and fee for the extension of the special permission for the use of subsoil, introducing the system for payment of fees for the use of subsoil harmonized with the European one: a fee for obtaining a license (bonus) and rental fee from raw materials extracted (royalty); - established a transitional period for carrying out by subsoil users of the environmental assessment procedures (by January 1, 2019), but did not specify that only projects for the industrial production of hydrocarbons require environmental impact assessments, as required by the direct rule of law; - introduced an electronic filing of documents for obtaining and extending the term of special permits for use of subsoil; https://www.kmu.gov.ua/ua/npas/pro-vikonannya-ugodi-pro-asociaciyu-mizh-ukrayinoyu-z-odniyeyi-storoni-ta-yevropejskimsoyuzom-yevropejskim-spivtovaristvom-z-atomnoyi-energiyi-i-yihnimi-derzhavami-chlenami-z-inshoyi-storoni 155 https://menr.gov.ua/news/32415.html 156 http://mpe.kmu.gov.ua/minugol/doccatalog/document?id=245282918 157 http://zakon.rada.gov.ua/go/z0676-18 158 http://zakon2.rada.gov.ua/laws/show/333-2018-%D0%BF 159 https://menr.gov.ua/news/32164.html 160 https://www.kmu.gov.ua/ua/news/ostap-semerak-uryad-sproshuye-umovi-dlya-nadrokoristuvachiv-zahishayuchi-interesiderzhavi 161 http://www.geo.gov.ua/sites/default/files/imce/proekt_postanovy_0.doc 154

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- established clear deadlines for informing the subsoil user about the decision taken and determination of the deadline for issuing the relevant documents; - reduced the term of agreement with local self-government authorities to grant permits for use of subsoil from 90 to 45 days; - abolished the necessity to agree granting permits for the use of subsoil on the shelf with the local selfgovernment authorities; - banned the alienation or transfer to private ownership of special permits issued to enterprises of the state sector of the economy, including by establishing new legal entities by them or in the case of participation in a legal entity of the subsoil user of another legal entity; - allowed private business entities to transfer licenses received to subsidiaries (but only by the end of 2018); - changed the previously introduced norm, abolishing from January 1, 2019 the possibility of obtaining permits for the use of subsoil outside the auction on the terms of testing the hydrocarbon reserves of previously explored deposits to determine their industrial value; - introduced the “ permit sale and purchase agreement with a deferral circumstance - concluded between the organizer and the winner of the auction, which is concluded upon receipt of a conclusion on the results of an environmental impact assessment, according to which the conduct of the planned activity is permissible”; - excluded the program of works on subsoil sites from the auction documentation package, which is filed together with the application for the issue of a permit for the use of the plot of land for the auction; - excludes a provision prohibiting the granting of a permit without an auction to a person who does not perform a program of work on subsoil areas, for which he has already been granted a permit or for which violations of the rules for the use of subsoil were detected at such sites as are recorded in the reports on inspections, instruction or orders of the relevant bodies in the field of subsoil use until they are eliminated; - removed norms on mandatory sealing of applications and other documents submitted by business entities for the granting of special permits for use of subsoil; - changed the previously introduced norm, having established that the presence of the customer’s tax debts is a reason to restrict the right to dispose of the extracted raw materials, and not the refusal to extend the period of validity of the permit for the use of subsoil.

At the same time, it is surprising that the developers of the adopted act, which modifies the existing procedures for the thirteenth time after their adoption, consider the corrections of the mistakes made by them earlier to be their achievements, in particular concerning: - uncertainty at what cost the environmental impact assessment will be carried out on a new plot, which is only planned to be auctioned (although subsoil users have drawn the Government’s attention to this issue since May 2017); - possibility of termination of a special permit in case a subsoil user has a tax debt; - lack of a transition period for the conduct by subsoil users of the procedure for environmental impact assessment, which resulted in the termination of at least 17 special permits owned by state-owned enterprises 162; - possibility of obtaining a permit for the use of subsoil outside the auction on the basis of the testing of hydrocarbon reserves of previously explored deposits to determine their industrial value 163.

It is worrying that the situation around the Subsoil Code of Ukraine, the new wording of which should have been approved in 2016, does not change for a long time 164. As of June 20, 2018, its draft was sent by the State Service of Geology and Mineral Resources for approval by the Ministry of Environment and Natural Resources (paragraph 64 165), and the deadline for submission has been postponed to the fourth quarter of 2018 (task 1 of the plan166). It is surprising that: - the plan 167 provides for the approval by the end of 2018 of only "technical specifications for the EU project on the development of the new Subsoil Code of Ukraine” (task 9, priorities of the Ministry); http://geo.gov.ua/novyna/derzhgeonadra-vidterminuvaly-zupynennya-diyi-17-specialnyh-dozvoliv-na-korystuvannya-nadramy https://www.epravda.com.ua/rus/columns/2018/03/6/634743/ 164 http://www.kmu.gov.ua/document/248102926/Dir_94_22.pdf 165 http://www.drs.gov.ua/deregulation/plan-deregulyatsiyi-2016-2017-rr/ 166 http://geo.gov.ua/sites/default/files/imce/nakaz_no_557.pdf 167 https://menr.gov.ua/news/32415.html 162 163

Oil

- the plan 168 provides for that, within the same term, the State Service of Geology and Mineral Resources should prepare amendments to Article 62 of the current Code (task 4); - the plan 169 provides for the submission to the Cabinet of Ministers for consideration by October 31, 2019 of the draft law on amendments to the current Subsoil Code of Ukraine on the introduction of switching from the system for obtaining special permits for use of subsoil to the conclusion of contracts for the use of subsoil (task 1765.1, responsible executive agency - Ministry of Environment and Natural Resources).

The state of preparation of the following draft Government regulations is still unknown: - On Amendments to the Methodology for Determining the Value of Reserves and Resources of Mineral Resources of the Deposit or Subsoil Areas Provided for Use 170 (the deadline for implementation is postponed to October 171 and December 2018 172173), rejected by the State Regulatory Service (decision No. 202 of May 7, 2018 174) due to non-compliance by the developers with the key principles of the state regulatory policy, and On Introducing Amendments to the Methodology for Determining the Initial Sale Price at the Auction for a Special Permit for the Use of Subsoil 175 (the deadline for implementation is postponed to November 2018 176) that have to introduce a differentiated approach to the evaluation depending on the intended purpose of the work (exploration or production), the degree of reliability of the geological materials (resources or reserves) and the type of deposits depending on the complexity of production (traditional or non-traditional methods); - On Amendments to the Classification of Reserves and Resources of Mineral Resources of the State Fund of Subsoil (the deadline was postponed to September 2018) 177, which was intended to ensure the possibility for sub-users to apply the provisions of the United Nations Framework for Fission Energy and Mineral Resources 2009 (UNFC 2009). The classification 178 was proposed to be supplemented by paragraph 28, which provides for the use for the needs of the user of the subsoil upon his application of international standards UNFC 2009, CRIRSCO, PRMS, etc. 179 In addition to these documents, the work plan of the Ministry of Environment and Natural Resources 180 approved on May 30, 2018 provides for the development and submission to the Cabinet of Ministers of Ukraine of draft: - resolution on ensuring the possibility of submission by business entities of documents for obtaining/extending the validity of special permits for the use of subsoil in electronic form with the use of electronic digital signature, as well as the ability to track the status of the submitted documents with the help of an applicant’s personal account (section 1, task 2, Government priorities, deadline - October 2018); - resolution on the implementation of a pilot project on the implementation of auctions for the sale of special permits for the use of subsoil through electronic bidding and amendments to certain resolutions of the Cabinet of Ministers of Ukraine (section 1, task 3, Government priorities, deadline - August 2018); - Law of Ukraine On Amendments to the Law of Ukraine On Approval of the Nationwide Program for the Development of the Mineral Resources Base of Ukraine until 2030 (section 1, task 8, priorities of the Ministry, the deadline for implementation - December 2018).

http://geo.gov.ua/sites/default/files/imce/nakaz_no_557.pdf https://www.kmu.gov.ua/ua/npas/pro-vikonannya-ugodi-pro-asociaciyu-mizh-ukrayinoyu-z-odniyeyi-storoni-ta-yevropejskimsoyuzom-yevropejskim-spivtovaristvom-z-atomnoyi-energiyi-i-yihnimi-derzhavami-chlenami-z-inshoyi-storoni 170 http://www.drs.gov.ua/wp-content/uploads/2018/04/5795-16.04.18.pdf 171 https://menr.gov.ua/news/32415.html 172 https://menr.gov.ua/files/docs/nakazy/nakaz_475.pdf 173 http://geo.gov.ua/sites/default/files/imce/nakaz_no_557.pdf 174 http://www.drs.gov.ua/wp-content/uploads/2018/04/4384-vid-07.05.18.pdf 175 http://zakon0.rada.gov.ua/laws/show/1374-2004-%D0%BF 176 https://menr.gov.ua/news/32415.html 177 Ibid. (section 1, task 4) 178 http://zakon2.rada.gov.ua/laws/show/432-97-%D0%BF 179 http://www.geo.gov.ua/sites/default/files/imce/proekt_pkmu_pro_zminy_do_pkmu_no432_okk.doc 180 https://menr.gov.ua/news/32415.html 168 169

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Article 279 of the Association Agreement as regards ensuring equity of access and exercising of the activities of prospecting, exploring and producing hydrocarbons Since, according to paragraph 3 of Article 279, each party must ensure equal access of all subsoil users to subsoil plots, on June 12, 2018, the State Service of Geology and Mineral Resources reported on holding of the first auction for the sale of special permits for the use of four oil and gas fields in the Sumy and Lviv regions on October 25 181. Potential subsoil users have 75 days to submit applications - until August 27, 2018. However, despite the announcement of the “four” areas, in the published List of Subsoil Sites, Special Permits for Use on Which are Put on the 2nd Auction in 2018 182, the question is only about two of them Surmachivska and Yavorivska. In view of this, it is not known whether special permits for geological study, including research and industrial development of Chernytska and Lypovetska oil and gas areas (Lviv region) will be put on auction, which will be held on October 25 183. In this case, subsoil users emphasize that they are forced to buy a “pig in a poke”, since the State Service of Geology and Mineral Resources does not provide information sufficient to evaluate the sited proposed by it 184.

On June 18, 2018, speaking at the round table “Key Priorities for the Reform of the Extractive Sector” 185, temporary Acting Head of the State Service of Geology and Mineral Resources O. Kyryliuk once again said that “all explored areas of subsoil have already been granted permits”, and “in the near future”, it is planned to put up for auction another 44. The possibility of selling permits for the development of 14 area on the Black Sea shelf is also discussed186. At the same time, according to O. Prokhorenko, the Head of the Board of PJSC Ukrgazvydobuvannya, for 145 applications submitted for new subsoil areas, the company received 135 refusals, including the Poltava Regional Council did not approve any of 69 applications. In addition, despite the assurance of the management of the State Service of Geology and Mineral Resources that all special permits will be granted “only in a transparent contest” 187, the work plan of the Ministry of Environment and Natural Resources approved on May 30, 2018 188 provides for the “issuance of special permits for the use of subsoil without an auction during the year” (task 2 on p. 13).

Since, in accordance with Article 279, paragraph 4, each party “may require that the entity, to which the permit for exploration, extraction and production of hydrocarbons have been granted, have paid a financial contribution or a contribution in hydrocarbons”, the State Service of Geology and Mineral Resources was granted the permit 189 to carry out the scheduled inspections “of the activities of subsoil users who submitted to the State Fiscal Service zero payments from the rent for the use of subsoil and/or did not submit to the State Service of Geology and Mineral Resources the report on the annual form of balance sheet 6-гр as regards available extraction (loss of hydrocarbons), which was set as the breach of agreements on subsoil conditions” by the end of 2018 190. The ultimate goal of inspections is to remove unused (“sleeping”) licenses. On June 18, 2018, temporary Acting Head of the State Service of Geology and Mineral Resources O. Kyryliuk said that the relevant work will be completed “within two months” 191, although the transparent and understandable mechanism for achieving the goal set by the Ukrainian legislator is not provided for.

Article 280 of the Association Agreement as regards ensuring transparency in granting licenses for prospecting or exploring hydrocarbons

http://www.geo.gov.ua/12076/ http://www.geo.gov.ua/organizator-aukcionu-derzhavna-sluzhba-geologi%D1%97-ta-nadr-ukra%D1%97ni-ogoloshuye-proprovedennya-ii-aukcionu-2018-roku-z-prodazhu-specialnix-dozvoliv-na-koristuvannya-nadrami/ 183 http://geo.gov.ua/sites/default/files/imce/166.doc 184 http://kompek.rada.gov.ua/documents/krugl_st/73589.html 185 Ibid.

186 http://www.geo.gov.ua/resursi-gazu-na-planovanix-do-prodazhu-licenzi%d1%97-mi-ocinyuyemo-v-1-triljon-m-kub-kirilyuk/ 187 http://www.geo.gov.ua/oleg-kirilyuk-dlya-nv-biznes-najochikuvanisha-reforma-nadrokoristuvannya/ 188 https://menr.gov.ua/news/32415.html 189 https://www.kmu.gov.ua/ua/npas/pro-zatverdzhennya-pereliku-organiv-derzhavnogo-naglyadu-kontrolyu-na-yaki-neposhiryuyetsya-diya-zakonu-ukrayini-pro-timchasovi-osoblivosti-zdijsnennya-zahodiv-derzhavnogo-naglyadu-kontrolyu-u-sferigospodarskoyi-diyalnosti 190 http://geo.gov.ua/novyna/bilshe-70-nadrokorystuvachiv-podavaly-nulovi-pokaznyky-u-podatkovi-rozrahunky-kabmin-znyav-0 191 http://kompek.rada.gov.ua/documents/krugl_st/73589.html 181 182

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On June 18, 2018, while speaking at Key Priorities of the Reform of the Mining Sector round table 192, O. Belkova, Deputy Chairman of the Committee the Verkhovna Rada of Ukraine on Fuel and Energy Complex, Nuclear Policy and Nuclear Safety, addressed the leadership of the Ministry of Energy and Coal Industry with a request to initiate a review of the composition of the Interdepartmental Commission on the Organization of the Conclusion and Implementation of Production Sharing Agreements 193, which, according to her, “investors do not trust”.

According to the task 206 of the plan 194 and tasks 7 of the plan 195, in the first quarter of 2017, the Ministry of Environment and Natural Resources had to introduce simplified digital access to real-time secondary geological information. However, it was not possible to coordinate the positions of the concerned authorities throughout the year. Only on April 05, 2018, the State Regulatory Service, by its decision No. 152 196, agreed “a compromise version” of the draft Resolution On Approval of the Procedure for the Administration of Geological Information, the Introduction of Amendments to Certain Resolutions of the Cabinet of Ministers of Ukraine and the invalidation of the Resolution of the Cabinet of Ministers of Ukraine of June 13, 1995 No. 423 197. The document, in particular, provides for: • establishing the procedure for the acquisition of geological information that will ensure equal access to it by all interested parties; • cancellation of the requirement for the necessity to agree on the sale of geological information created (purchased) on own funds of legal entities and individuals; • replacement of agreement with the State Service of Geology and Natural Resources of the sale of geological information by notification; •

introduction of exclusive grounds for refusal to sell geological information;

• ensuring the possibility of familiarizing third parties with geological information provided to the subsoil user under the contract of sale of the right to use it, for the performance of a part of the work and/or provision of services by these persons; •

creation of the Geological Information Catalogue that will determine its location and owner.

As of July 5, 2018, the draft resolution sent to the Cabinet of Ministers by a letter of the Ministry of Environment and Natural Resources of 15.05.2018 No. 5/4-11/4838-18 (paragraph 63 198) was pending review. The temporary Acting Head of the State Service of Geology and Mineral Resources O. Kyryliuk considers that in case of its approval, the digital Catalogue of Geological Information of Ukraine will be created during two years 199.

Although the plan 200 provides for the creation and implementation by 31 October 2019 of a mechanism for the formation and sending to the European Commission of an annual report containing information on geographical areas open to search, exploration and extraction, permits issued, the list of authorized organizations, and hydrocarbon reserves resources (task 1765.9), in the plan approved by the Ministry of Environment and Natural Resources on May 30, 2018 201, measures aimed at the timely execution of this instruction are not provided for.

Ibid. http://zakon2.rada.gov.ua/laws/show/644-2013-%D0%BF 194 http://www.kmu.gov.ua/document/249935381/R0275.doc 195 http://zakon2.rada.gov.ua/laws/show/1079-2016-%D1%80/paran146#n146 196 http://www.drs.gov.ua/wp-content/uploads/2018/04/3526-vid-05.04.18_18.pdf 197 https://menr.gov.ua/news/32210.html 198 http://www.drs.gov.ua/deregulation/plan-deregulyatsiyi-2016-2017-rr/ 199 http://kompek.rada.gov.ua/documents/krugl_st/73589.html 200 https://www.kmu.gov.ua/ua/npas/pro-vikonannya-ugodi-pro-asociaciyu-mizh-ukrayinoyu-z-odniyeyi-storoni-ta-yevropejskimsoyuzom-yevropejskim-spivtovaristvom-z-atomnoyi-energiyi-i-yihnimi-derzhavami-chlenami-z-inshoyi-storoni 201 https://menr.gov.ua/news/32415.html 192 193

Oil

Article 337 of the Association Agreement in terms of informing and protecting customers from unfair selling practices, and access to oil products, including liquefied petroleum gas, for consumers, including for the most vulnerable citizens On June 1, 2018, the Government resolution202, which regulates the issue of determining the starting price of liquefied gas sold at specialized auctions for the needs of the population, entered into force. By August 1, 2018, it, as earlier, will be determined at the price of natural gas for the needs of the population (adjusted for different heat of combustion), which is calculated on the basis of the provision 203. Thus, the initiative of the Ministry of Energy and Coal Industry, which proposed to amend paragraph 19 of the procedure 204 in order to calculate the starting price based on the customs value of imported liquefied petroleum gas (including VAT) imported into Ukraine, averaged 30 days before the date of registration of applications for a specialized auction was rejected.

On June 21, 2018, the Antimonopoly Committee of Ukraine fined 16 business entities for anticompetitive concerted actions in the liquefied petroleum gas market, which led to restriction of competition and overstatement of retail prices for the specified resource in August 2017 205.

http://zakon5.rada.gov.ua/laws/show/415-2018-%D0%BF/paran2#n2 http://zakon2.rada.gov.ua/laws/show/187-2017-%D0%BF 204 http://zakon1.rada.gov.ua/laws/show/570-2014-%D0%BF 205 http://www.amc.gov.ua/amku/control/main/uk/publish/article/142475 202 203

Oil

Assessment of Ukraine’s progress: 26 out of 100

During 2017 and the first half of 2018, the Energy Strategy and Action Plan for the Implementation of its First Phase have been approved, new rules for the development of oil fields and auctions for the sale of rights to their development have been introduced, hydrocarbon production activities have been simplified significantly and interactive maps of oil and gas fields have been published, licensing terms of transportation of oil and oil products by pipelines have been approved and the process of creation of the minimum reserves of oil and oil products in Ukraine has been unlocked. Nevertheless, the last year’s report of the Energy Community Secretariat has shown that Ukraine has not fulfilled any of the priority tasks in the oil sector.

Implementation of EU legislation acts in this area of government policy is too slow. As of July 1, 2018, only 29 were approved out of at least 81 laws, by-laws, regulations, and national standards that had to be adopted to fulfill Ukraine’s international obligations.

Messages on approval of decisions became more frequent dispute the continuing work on them. An example of this “disease” is the updated action plan for the implementation of the Association Agreement, approved on October 25, 2017, but published only in early March 2018.

The unpredicted extension of deadlines became typical, although resources for the implementation of postponed tasks in subsequent periods are not provided for. In this way, in particular, the deadlines for the adoption of the new Subsoil Code (Directive 94/22/EC), the organization of an efficient system for monitoring the quality and safety of oil products (Directive 99/32/EC), approval of recommendations for the control of the work of service stations (Directive 94/63/EC) and so on have been extended.

Only two draft regulatory legal acts aimed at meeting the requirements of Directive 2009/119/EC have been prepared. So far, no decision has been made on the choice of the model, which will create the minimum oil and oil products reserves, the mechanisms and conditions for their formation, storage, use and updating are not developed. For storage of reserves, only 43% of the required capacities are ready.

Although in 2017 and the first half of 2018, seven regulatory legal acts that enhanced transparency and significantly simplified the procedures for granting and continuing special permits for the use of oil and gas mines, no auction for their sale took place. The first tenders under the new rules, at which four plots will be put up, are scheduled only on October 25, 2018. Another 40 areas will be offered to subsoil users only in February 2019.

The system for monitoring the quality and safety of oil products, adapted to the European requirements, has not been created. Out of 45 national standards required to implement the requirements of Directives 94/63/EC, 98/70/EC and 99/32/EC, only 15 have been put into effect, while work on 11 has not even started. Nevertheless, in the reporting documents of the Ministry of Energy and Coal Industry, it is noted that “the systems for monitoring and testing the fuel quality in the retail market are functioning and cover all regions of Ukraine and market operators”.

total score: 26

OIL 0

100 points

36 Degree of transposition of EU legislation into Ukraine’s law

14

43

Readiness of legal framework for creation of reserves of oil and/or oil products

43 Degree of readiness of the oil and/or petroleum products storage infrastructure Not applicable Volumes of the created oil and/or petroleum products stocks

14 Transparency in granting subsoil for use

23 Readiness of legal framework for fuel quality ensurance system Not applicable Fuel quality assurance system

Business Climate

In June, there were many events favorable for the development and improvement of the business climate. The main ones are the laws On Currency and On Creation of the Anti-Corruption Court. The first one cancels the license to conduct business transactions in foreign currency, the second one is the first step in the creation of the last anti-corruption institution. At the same time, the action plan for the implementation of the first stage of the Energy Strategy until 2035 was approved.

The draft law on providing the Accounting Chamber with public audit functions at all stages, which will improve control over the use of public funds, has been registered. Meanwhile, new rules for the transparent sale of state-owned enterprises at the cost of up to UAH 250 million were approved. Against this background, the implementation of the Law on the Provision of State Aid to Business Entities in the part of bringing the state aid mechanism in compliance with the competition law is moving too slowly.

Article 378-379 as regards creating favorable conditions for business The Ministry of Economic Development and Trade has established the Council on Trade and Sustainable Development. It is obliged to organize the work of the Advisory Group, which will monitor the implementation of trade development tasks. The Council will also select candidates for the Expert Group to take part in the development of decisions to implement the EU-Ukraine Association Agreement on Trade Support and Sustainable Development. The Council on Trade and Sustainable Development includes representatives of public authorities and civil society 206.

The President signed the Law On Currency, which provides for free movement of capital, which simplifies the activity of investors in Ukraine. In particular, the law grants the right to perform basic and other activities, determined by the legislation both in the national and foreign currency, without obtaining the corresponding license of the NBU. Article 37 on sanctions and fines for the execution of foreign exchange transactions without licenses is totally removed from the Law on Foreign Economic Activity (FEA), and other simplified procedures for working with the currency 207.

The National Bank has expanded the possibilities of attracting borrowed resources, which can now be serviced by the depositary of the National Bank, by local authorities. Local government authorities can place local loan bonds on the stock exchange using settlements based on the principle of “supply of securities without payment”, which could not be done before 208. This is a key step towards the implementation of the world practice of “green” municipal bonds issued for exclusively energy efficient and environmentally friendly projects that promote sustainable urban development.

One of the steps of improving the business environment is the disclosure of information about electrical networks. Thus, in Kyiv, DTEK has published information on location, voltage level, length of overhead transmission lines, addresses and names of transformer substations, distribution substation capacity, distance from the land plot to the point of connection to the network can be obtained online through the geographic information systems (GIS). This information provides the opportunity for other companies to form an optimal investment project for connecting to the electic system.

June was also marked by the fact that the President signed the Law of Ukraine On the Establishment of the Highest Anticorruption Court. This court completes the formation of anti-corruption institutions in Ukraine and will deal exclusively with cases that are investigated by detectives of the National Anti-Corruption Bureau upon the recommendation of the Specialized Anti-Corruption Prosecutor’s Office. It is expected that this will promote transparency in the performance of the duties of civil servants and MPs and, accordingly, will improve investors’ trust in Ukraine 209.

http://me.gov.ua/News/Detail?lang=uk-UA&id=44725857-ddc4-4a47-b2721afd5ffeb5c5&title=UriadStvorivRaduZPitanTorgivliTaStalogoRozvitku 207 http://www.president.gov.ua/news/prezident-pro-uhvalennya-zakonu-pro-valyutu-ce-pravo-ukrayin-48298 208 https://bank.gov.ua/control/uk/publish/article?art_id=72365312&cat_id=55838 209 http://www.president.gov.ua/news/prezident-pidpisav-zakon-pro-utvorennya-vishogo-antikorupcij-48342 206

Business Climate

Articles 150, 153 on public procurement (as regards the implementation of certain provisions of Directives 2014/24/EC, 2014/25/EC, 89/665/EEC and 92/13/EEC) The Verkhovna Rada registered the draft Law on Amendments to the Law on Public Procurement, in particular Article 77. The amendments, but rather supplements, provide for granting the function of state external financial control (audit) of public procurement at all stages to the Clearing House. This implies inspecting and analyzing the legality and effectiveness of procurement by customers, compliance with the procedures, assessing the timeliness of receipt of goods, services and works, as well as analyzing the state of transparency and adherence to the established procurement principles 210.

Since June 5, the rules of transparent sale of small state-owned enterprises and companies with a significant share of state capital have entered into force. Thus, the regulatory framework, which is necessary for launching a small privatization program in Ukraine, was completely formed. Small-scale privatization facilities mean facilities the cost of which does not exceed UAH 250 million, as well as these are uniified property complexes of state-owned enterprises and block of shares of business entities, more than 50% of which belong to the state. There are over 600 such facilities. According to the Law On Privatization of State and Communal Property, which entered into force in March, small-scale privatization will take place through ProZorro.Sales electronic system 211.

The website of the Ministry of Economic Development and Trade reports on the launch of pilot electronic land trades on ProZorro platform. The Cabinet of Ministers approved the relevant resolution on this 212. It is provided for that the State Service for Geodesy, Cartography and Cadastre will the orgnizor of the tenders, and will be able to use external electronic platforms for the sale of rights to lease land plots for agricultural use of the state form of ownership. Such an innovation in the land lease procedure will add transparency, attract more participants and may potentially be used for land allocation and for energy projects 213.

Article 258 as regards ensuring fair competition in the markets of natural monopolies According to the Cabinet of Ministers Concept on the implementation of state policy in the field of heat supply, it is provided for, in particular, to increase the share of use of alternative energy sources in the production of heat energy to 30-40%, as well as to introduce a market mechanism during the production and supply of heat energy. In June, the AMCU held a meeting on favorable conditions for unhindered access to heat supply markets for RES heat energy producers. Participants of the meeting noted that one way is to introduce auctions for heat producers. A step towards solving problems voiced at the meeting may be the change of tariff formation, in particular, by introducing marginal tariffs for heat energy producers from alternative sources of energy; possible application of differentiation of tariffs depending on the capacity of boiler houses. In addition, the system of legal relations between owners of heat networks and producers of heat energy, which is produced using alternative energy sources, and consumers, is not settled 214.

Articles 262-264, 267 on providing state aid The Antimonopoly Committee discussed problematic issues of state and local guarantees as a form of state aid. An exchange of experience took place and discussion issues were discussed by EU experts and representatives of the Antimonopoly Committee 215.

http://w1.c1.rada.gov.ua/pls/zweb2/webproc4_1?pf3511=64231 http://me.gov.ua/News/Detail?lang=uk-UA&id=b11ab77b-f2fd-40f7-8a7ef5a42bae0dfd&title=UriadZatverdivPravilamaloiPrivatizatsii 212 https://www.kmu.gov.ua/ua/npas/250271086 213 http://me.gov.ua/News/Detail?lang=uk-UA&id=598b6381-e569-4ddf-b9ce37a5db0522d8&title=ElektronniZemelniAuktsioniBudutProkhoditiZVikoristanniamPlatformiProzorro-prodazhi 214 http://www.amc.gov.ua/amku/control/main/uk/publish/article/142252 215 http://www.amc.gov.ua/amku/control/main/uk/publish/article/142485 210 211

Business Climate

Article 337-339 on cooperation in the field of energy (as regards the implementation of certain provisions of Directives 2012/27/EC, 2009/72/EC and 2009/73/EC) Almost a year after the approval of the Energy Strategy up to 2035, the Government approved the Action Plan up to 2020 to implement it 216. The plan includes measures for the reform of the electricity market, the gas market and the coal industry. Submitting the draft targeted monetization of benefits and subsidies during the third quarter of 2018 to the Government for consideration was also among them.

Articles 381, 382 on the transparency of the extractive sector The draft Law No. 6229 on ensuring transparency in the extractive industries was included in the agenda, however, MPs did not reach the actual consideration 217. More information about the draft law can be found in the monitoring reports for March 2017 218 and March 2018 219.

Article 277 on the Regulator (provisions of Directives 2009/72/EC and 2009/73/EC in parts on the regulatory body) In the end of May, newly appointed members of the NEURC elected the Head - Oksana Kryvenko 220. The distribution of functional responsibilities between the Chairman of the NEURC, members of the NEURC and the head of the apparatus was also approved221. Against this backdrop, the second competition for the selection of two candidates for vacant posts in the Regulator has still been blocked by a court decision.

https://www.kmu.gov.ua/ua/news/uryad-shvaliv-plan-zahodiv-z-realizaciyi-energetichnoyi-strategiyi-ukrayini-do-2035-roku http://w1.c1.rada.gov.ua/pls/zweb2/webproc4_2?id=&pf3516=6229&skl=9 218 http://enref.org/wp-content/uploads/2017/04/Monthly-March-2017_rs.pdf 219 http://enref.org/wp-content/uploads/2018/05/Monthly-March-2018_UA_rs.pdf 220 http://www.nerc.gov.ua/?news=7601 221 http://www.nerc.gov.ua/?id=32278 216 217

Business Climate

Assessment of Ukraine’s progress: 56 out of 100 The Energy Community Secretariat, together with the entry into force of the Law of Ukraine On State Aid to Business Entities initiated the closure of the case initiated in 2014 on the absence of such legislation. However, this law does not fully comply with the EU legislation, so it should be finalized.

Traditionally, the implementation of the public procurement reform is being implemented at a high level. The system is expanding and deepened with new tools, including with summary information on both suppliers and customers. The work of controlling bodies has also been optimized: the relevant changes to the legislation have been approved and the risk management system has been implemented A similar situation with the introduction of state aid control. The development and adoption of the sublegislative framework has been completed, and the process of making amendments to the main law for its improvement has been started. The Antimonopoly Committee also began to fill the Register of State Aid. In addition, the approximation of competition legislation to European norms has been completed, but the insufficient institutional capacity of the AMCU to perform their functions qualitatively needs the politicians’ attention. In particular, the assessment of the effectiveness of the AMCU regarding the protection of economic competition did not change compared with the previous period.

Compared to the previous period, the significant progress was made in the NEURC reform: a competition for 5 vacancies in the Regulator was held and new commission members were appointed.

However, it should be noted that the second competition - for 2 more vacant posts in the NEURC - was blocked by a court decision within the framework of a lawsuit by one of those willing to take part in the competition because he was not allowed by the Competition Commission through the lack of sufficient experience. At the same time, there are still communication difficulties between the NEURC and the State Statistics Agency in the context of the implementation of the provisions of Directive 2008/92/EC: Eurostat has no data on gas prices for commercial consumers for the 2nd half of 2017.

The investment attractiveness of energy markets has improved overall, comparing with the previous period. Comparing the data for six months from March 2018 through September 2017 with from September 2017 through March 2017, the largest increase in capital investment was recorded in the production of coke and refined oil products - 193% (UAH 620.6 million), then in the extractive industry 142% (UAH 22,289 million), then in supply of electricity, gas, steam and air-conditioned air - 130% (UAH 17,570.7 million). The dynamics of foreign investment also has a positive dynamics, with the exception of the extractive industry. As of April 1, 2018, compared to October 1, 2017, foreign direct investment (share capital) to Ukraine in the mining industry amounted to 99% (USD 1,790.3 million), in coke and refined oil products production - 134% (USD 242.3 million), in the supply of electricity, gas, steam and air-conditioned air - 111% (USD 791.4 million).

All necessary information on procedures and requirements for licensing and connection is freely available on the NEURC website in Licensing (Administrative Services) Section. According to official data, Ukraine is far behind the EU countries (Germany was taken as an example) as regards connecting to gas and electricity networks. In particular, for connecting to the gas network (Gas Distribution Systems Code), 7 procedures should be undergone that take 115 days, to the electricity grid (Doing Business rating) - 5 procedures and 281 days, respectively.

total score: 56

BUSINESS CLIMATE 0

100 points

88,4 Degree of transposition of EU legislation into Ukraine’s law

44,7 Investment attractiveness of energy markets (dynamics)

52,8 Degree of excessive regulation

69 Compliance with the competition rules

50 The state aid system is brought into compliance

-5 !

Facts of non-compliance with EU acts, no implementation action

Methodology

ANNEX 1.

List of Articles of the Association Agreement and Acquis Subject to Monitoring

The group Electricity and Nuclear Security conducts monitoring and assessment of issues relating to electricity, nuclear energy, coal and elimination of consequences of the Chornobyl accident. Acquis concerned: Article 269, Chapter 11, Title IV, Directive 2009/72/EC (market-related provisions) Article 270, Chapter 11, Title IV, Regulation (EC) 714/2009 Article 271, Chapter 11, Title IV, Regulation (EC) 714/2009 Article 273, Chapter 11, Title IV, Regulation (EC) 714/2009, Directive 2009/72/EC Article 274, Chapter 11, Title IV, Regulation (EC) 714/2009, Directive 2009/72/EC Article 305, Chapter 14, Title IV, Directive 2009/72/EC, Directive 2005/89/EC Article 338, Chapter 1, Title V Article 338, Chapter 1, Title V, Cooperation Agreements with IFIs Article 339, Chapter 1, Title V, coal market Article 342, Chapter 1, Title V, cooperation in the nuclear safety sector, Council Directive 2014/87/Euratom, Council Directive 2013/59/Euratom, Council Directive 2006/117/Euratom Article 342, Chapter 1, Title V, cooperation in the nuclear safety sector The group Gas conducts monitoring and assessment of issues relating to gas, in particular, the implementation of the following acquis: Articles 338, 341, Directive 2009/73/EC (market-related provisions) Articles 338, 341, Regulation (EC) 715/2009 Articles 338, 341, Directive 2004/67/EC + Annex XXVI (Early Warning Mechanism), Articles 275 (Unauthorised taking of energy goods), 276 (Interruption), 309 and 314 (resolution of disputes) of the Association Agreement Chapter 11 Trade-related energy, in particular Articles 269 (Domestic regulated prices), 270 (Prohibition of dual pricing), 271 (Customs duties and quantitative restrictions), 272 (Transit) and 273–274 (Transport, cooperation on infrastructure) Annex XXVII to Chapter 1 Energy cooperation, including nuclear issues — Directive 94/22/EC + Articles 279– 280 (Access to and exercise of the activities of prospecting, exploring for and producing hydrocarbons, and licensing conditions) The group Energy Efficiency and Social Issues conducts monitoring and assessment of the implementation of the following acquis: Directive 2010/30/EU Directive 2010/31/EU Directive 2006/32/EU Directive 2012/27/EU Directive 2009/72/EC (social issues) Articles 338, 341 of the Association Agreement Directive 2009/73/EC (social issues) Articles 338, 341 of the Association Agreement

Methodology

The group Environment and Renewable Energy Sources conducts monitoring and assessment of the implementation of the following acquis: Article 363, Directive 2011/92/EU Article 363, Directive 2001/42/EC Article 363, Directive 2003/42/EC Article 363, Directive 2003/35/EC Directives 85/337/EEC and 96/61/EC Article 363, Directive 2008/50/EC Article 363, Directive 1999/32/EC Article 363, Directive 94/63/EC Article 363, Directive 2009/147/EC Article 363, Directive 2010/75/EU Article 338, Directive 2009/28/EC The group Oil conducts monitoring and assessment of the implementation of the following acquis: Directive 2009/119/EC Directive 94/22/EC Directive 98/70/EC Articles 274, Chapter 11 of the Association Agreement (Trade-related energy) Articles 275, Chapter 11 of the Association Agreement (Trade-related energy) Articles 276, Chapter 11 of the Association Agreement (Trade-related energy) Articles 279, Chapter 11 of the Association Agreement (Trade-related energy) Articles 280, Chapter 11 of the Association Agreement (Trade-related energy) Article 337 of the Association Agreement Article 338 of the Association Agreement Article 339 of the Association Agreement The group Business Climate conducts monitoring and assessment of the implementation of the following acquis: Article 27, Chapter 11 (Title IV TRADE AND TRADE-RELATED MATTERS) of the Association Agreement Article 28, Chapter 11 (Title IV TRADE AND TRADE-RELATED MATTERS) of the Association Agreement Article 29, Chapter 11 (Title IV TRADE AND TRADE-RELATED MATTERS) of the Association Agreement Article 88, Chapter 6 (Title IV TRADE AND TRADE-RELATED MATTERS) of the Association Agreement Article 93, Chapter 6 (Title IV TRADE AND TRADE-RELATED MATTERS) of the Association Agreement Articles 97-102, Chapter 6 (Title IV TRADE AND TRADE-RELATED MATTERS) of the Association Agreement Article 104, Chapter 6 (Title IV TRADE AND TRADE-RELATED MATTERS) of the Association Agreement Article 105, Chapter 6 (Title IV TRADE AND TRADE-RELATED MATTERS) of the Association Agreement Article 107, Chapter 6 (Title IV TRADE AND TRADE-RELATED MATTERS) of the Association Agreement Articles 144-147, Chapter 7 (Title IV TRADE AND TRADE-RELATED MATTERS) of the Association Agreement Chapter 8 (Title IV TRADE AND TRADE-RELATED MATTERS) of the Association Agreement and the Directive 2014/25/EU Article 255, Chapter 10 (Title IV TRADE AND TRADE-RELATED MATTERS) of the Association Agreement Article 256, Chapter 10 (Title IV TRADE AND TRADE-RELATED MATTERS) of the Association Agreement Article 258, Chapter 10 (Title IV TRADE AND TRADE-RELATED MATTERS) of the Association Agreement

Methodology

Article 263, Chapter 10 (Title IV TRADE AND TRADE-RELATED MATTERS) of the Association Agreement Article 267, Chapter 10 (Title IV TRADE AND TRADE-RELATED MATTERS) of the Association Agreement Article 277, Chapter 11 (Title IV TRADE AND TRADE-RELATED MATTERS) of the Association Agreement and Directives 2003/54/EC and 2003/55/EC (as regards the regulatory authority) Articles 355-359, Chapter 5, (Title V ECONOMIC AND SECTOR COOPERATION) of the Association Agreement and Directive 2008/92/EC Article 379, Chapter 10 (Title V ECONOMIC AND SECTOR COOPERATION) of the Association Agreement

Glossary

ANNEX 2.

Glossary (Short Description) of EU Acquis Subject to Implementation Monitoring

Gas

Directive 2009/73/EC concerning common rules for the internal market in natural gas and repealing Directive 2003/55/EC This Directive establishes common rules for the transmission, distribution, supply and storage of natural gas. The rules established by this Directive apply to natural gas, liquefied natural gas (LNG), biogas and gas from biomass. They aim to achieve a competitive, secure and environmentally sustainable market. This Directive provides for compulsory functional unbinding (supply) of transmission system operators (TSO) in vertically integrated undertakings. EU Member States must ensure that all customers are entitled to freely choose natural gas supplier and can easily change supplier within three weeks. At the same time, Member States may impose on suppliers selling gas to household customers obligations which may relate to security, including security of supply, regularity, quality and price of supplies, and environmental protection, including energy efficiency.

Regulation (EU) No. 715/2009 on conditions for access to the natural gas transmission networks and repealing Regulation (EC) No. 1775/2005 This Regulation sets common rules for access to gas transmission systems, LNG terminals and storage facilities taking into account the special characteristics of national and regional markets. The document establishes the procedures of certification of transmission system operators, as well as development, elaboration and implementation of network codes (with the participation of the European Network of Transmission System Operators — ENTSO — for Gas). The key objective of this Regulation is to ensure that all market participants have free and non-discriminatory access to relevant infrastructure and capacities.

Directive 2004/67/EC concerning measures to safeguard security of natural gas supply This Directive establishes a common framework within which Member States must define general, transparent and non-discriminatory security of supply policies compatible with the requirements of a competitive market, and clarify the roles and responsibilities of market players (including in case of emergency). The government must specify minimum security of supply standards to be complied with by the market players, prepare and update national emergency measures, identify “vulnerable” customers and ensure adequate security for them, establish cooperation with the European Commission and other stakeholders.

Electricity and Nuclear Security Council Directive 2014/87/Euratom of 8 July 2014 amending Directive 2009/71/Euratom establishing a Community framework for the nuclear safety of nuclear installations The Directive establishes a European framework for maintaining and promoting consistent improvement of nuclear safety and its regulation. It sets an ambitious safety goal across the EU in order to prevent accidents and avoid radioactive waste from nuclear installations. The directive applies to any nuclear installation subject to licensing.

Council Directive 2013/59/Euratom laying down basic safety standards for protection against the dangers arising from exposure to ionising radiation The Directive establishes basic safety standards to protect the health of employees, the general public, patients and others from the dangers of exposure to ionising radiation. The Directive applies to any planned, existing or emergency situation which involves a risk to ionising radiation. In particular, it applies to: the manufacture, production, processing, handling, disposal, use, storage, holding, transport, import to and export from the EU of radioactive material; the manufacture and operation of electrical equipment emitting ionising radiation; human activities withnatural radiation sources that could lead to a significant increase in the exposure of employees or the public, such as the exposure of space crew to cosmic radiation; domestic exposure to radon gas in indoor air and external exposure to gamma radiation from

Glossary

building materials; managing emergency exposure situations that require measures to protect the public and workers.

Directive 2009/72/EC concerning common rules for the internal market in electricity and repealing Directive 2003/54/EC 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 freely to choose their suppliers and all suppliers freely 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.

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 This Regulation establishes the rules for cross-border exchanges of electricity with the view to enhancing competition and achieving harmonization within the internal market in electricity. Comparing to the 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. 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 so as 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. It establishes a framework within which 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 actors. 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, ensure regular renewal of networks.

Council Directive 2006/117/Euratom on the supervision and control of shipments of radioactive waste and spent fuel 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.

Energy Efficiency and Social Issues

Directive 2010/30/EU on the indication by labelling and standard product information of the consumption of energy and other resources by energy-related products This Directive regulates labelling 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 labelled 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

Glossary

allowing identification of similar models. The technical documentation must be available for inspection purposes for a period ending 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.

Directive 2010/31/EU on the energy performance 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. National authorities must establish reasonable minimum requirements to energy efficiency to be reviewed every five years. They also establish a system of certification of the energy efficiency. Such certificates provide information to prospective buyers or tenants on the energy performance of buildings, and advice on enhancing it.

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 Union in order to ensure the achievement of the Union’s 2020 20% headline target on energy efficiency. Such measures include: • annual 1.5% energy savings resulting from implementing energy efficiency measures by distribution network operators and suppliers; • enhancing energy performance of heating systems, installation of double-glazed windows and roof insulation; • purchase of buildings, products and services with high energy-efficiency performance by public bodies; • annual energy modernization of at least 3% of the total floor area of buildings owned and occupied by public bodies; • expanding rights and possibilities of consumers in the area of energy management which includes easy and free access to the metering data on the actual consumption; • national incentives for small and medium-sized enterprises to conduct energy audit that should be mandatory for all large enterprises; • monitoring of the energy performance of new energy generating capacities.

Environment and Renewable Energy Sources

Directive 2011/92/EU on the assessment of the effects of certain public and private projects on the environment (codification) This Directive introduces an important instrument of the environmental policy — environmental impact assessment. Member States must ensure, first of all, that projects likely to have significant effects on the environment (by virtue, inter alia, of their nature, size or location) are made subject to a requirement for development consent and an assessment with regard to their effects. This Directive contains two lists of projects subject to environmental impact assessment (from nuclear power stations, gas pipelines, etc., to large pig farms). An important element is stricter publicity requirements, including to the public participation in the environmental impact assessment.

Directive 2001/42/EC on the assessment of the effects of certain plans and programmes on the environment This Directive introduces an important instrument of environmental policy — strategic environmental assessment. An environmental assessment must be carried out of certain plans and programmes during their preparation. Such assessment includes preparation of the environmental report (that must contain detail information on the likely significant environmental effects and reasonable alternatives) and consultations with the relevant authorities and the public. Where a transboundary effect is possible, an assessment and consultations in a transboundary context must be carried out.

Glossary

Directive 2003/4/EC on public access to environmental information and repealing Council Directive 90/313/EEC This Directive implements the provisions of the Aarhus Conventions relating to public access to environmental information. It aims to guarantee public access to environmental information owned by public authorities — both upon request and through active dissemination thereof. Environmental information must be made available to an applicant within one month after the receipt by the public authority of the applicant’s request. A request for environmental information may be refused if the request is manifestly unreasonable, or formulated in too general a manner, concerns an unfinished document or internal communications.

Directive 2003/35/EC providing for public participation in respect of the drawing up of certain plans and programmes relating to the environment and amending with regard to public participation and access to justice Council Directives 85/337/EEC and 96/61/EC This Directive addresses the implementation of the Aarhus Convention in respect of public participation and access to justice. It sets the requirements to the introduction of mechanisms of informing the public, holding consultations with the public and taking account of comments and proposals of the public in decision-making. Member States 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 listed in Annex I of the Directive.

Directive 2008/50/EC on ambient air quality and cleaner air for Europe This Directive establishes ambient air quality and ambient air quality management standards. For this purpose, it establishes upper and lower assessment thresholds, target and threshold values, sets objectives for the reduction of the effect of particulate matters, defines and classifies zones and agglomerations, introduces the systems of informing the public and ambient air quality assessment with respect to various pollutants. Where, in a given zone or agglomeration, there is a risk that the levels of pollutants will exceed the alert thresholds, short-term action plans must be drawn up.

Directive 1999/32/ЕС relating to a reduction in the sulphur content of certain liquid fuels and amending Directive 93/12/EEC, as amended by the Regulation (EC) No. 1882/2003 and Directive 2005/33/EC The purpose of this Directive is to reduce the emissions of sulphur dioxide resulting from the combustion of certain types of liquid fuels and thereby to reduce the harmful effects of such emissions on man and the environment. It sets the maximum sulphur content in heavy fuel oil, gas oil and marine gas oils. It also specifies methods of sampling and analysis of sulphur content in fuel to check compliance with the requirements.

Directive 2009/147/EC on the conservation of wild birds (Article 4.2) This Directive relates to the conservation of all species of naturally occurring birds in the wild state in the European territory of the 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 protection areas need to be established based on ornitological criteria. Special measures also need to be taken to protect migratory species naturally occurring in the territory of a particular state, especially in wetlands.

Directive 2010/75/EU on industrial emissions (integrated pollution prevention and control) This Directive lays down rules on integrated prevention and control of pollution arising from industrial activities. It requires using the integrated approach to activities referred to in Annex I thereto. All installations covered by this Directive must prevent or reduce pollution due to using best available techniques, efficient energy use, prevention and control of emissions. Transparency of the integrated approach is ensured by the public participation.

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

Glossary

This Directive provides for setting mandatory national targets for the overall share of energy from renewable sources in the overall energy balance to take account of statistics and potential of each particular country. These targets include the achievement of a 20% share of energy from renewable sources in overall Energy Community energy consumption by 2020 and a 10% target to be achieved for the share of RES in the transport sector. This Directive, among other, establishes rules for joint green energy projects between Member States and third countries and access to the grid-system of electricity produced from renewable energy sources.

Oil

Directive 2009/119/EC imposing an obligation on Member States to maintain minimum stocks of crude oil and/or petroleum products This Directive lays down rules aimed at ensuring a high level of security of oil supply in the Community through reliable and transparent mechanisms based on solidarity amongst Member States. It provides for the adoption of such laws, regulations or administrative provisions as may be appropriate in order to ensure that the total oil stocks maintained at all times within the Community for their benefit 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.

Directive 98/70/EC relating to the quality of petrol and diesel fuels The EU introduced rules prohibiting leaded petrol and limiting the permitted sulphur content in diesel fuel with the view to improving air quality and reducing greenhouse gas emissions. This Directive sets technical specifications applicable to petrol, diesel fuels and biofuels used in vehicles, as well as to gas oils used in non-road mobile machinery. Apart from the prohibition of marketing leaded petrol, Member States must conduct assessment of national consumption of fuel, adopt laws and identify the authorized body (bodies) to introduce the fuel quality monitoring system.

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 No. 1882/2003 222 This Directive provides for the registration of all terminals used for storage, loading and unloading of oil products, installation of technical means allowing reduction of VOC emissions from mobile containers with oil products, bringing all stationary tanks, rail, marine and motor vehicle tanks and loading installations in compliance with the established requirements.

Directive 94/22/EC on the conditions for granting and using authorizations for the prospection, exploration and production of hydrocarbons This Directive establishes common rules to ensure the non-discriminatory access to and pursuit of activities relating to the prospection, exploration and production of hydrocarbons. These objective and transparent rules reinforce integration of the internal energy market, encourage greater competition and improve security of supply. The document provides for the implementation of measures to ensure: • equal access to all organizations possessing necessary resources for prospecting, exploring for and producing hydrocarbons; • granting authorizations on the basis of objective, published criteria; • communication of all necessary information to all organizations participating in the established procedures.

222

The official translation has a lot of mistakes resulting from inaccurate translation

Glossary

Business Climate

Directive 2014/25/EU on procurement by entities operating in the water, energy, transport and postal services sectors and repealing Directive 2004/17/EC This Directive aims to ensure market openness, as well as fair procurements, in particular in the energy sector: extraction (production), transmission and distribution of gas, heat, electricity.

Directive 2009/72/EC concerning common rules for the internal market in electricity and repealing Directive 2003/54/EC This Directive provides for the implementation of laws on the electricity market which defines electricity as an energy-related product to be purchased/sold/produced/transmitted/stored. These operations may be carried out by all licensed companies on equal competitive conditions. The state also ensures nondiscriminatory access to the existing infrastructure, creates favourable conditions for electricity producers to invest in new forms of energy (wind, solar, etc.).

Directive 2009/73/EC concerning common rules for the internal market in natural gas and repealing Directive 2003/55/EC This Directive provides for the implementation of laws on the gas market which defines gas as an energyrelated product to be purchased/sold/produced/transmitted/stored. These operations may be carried out by all licensed companies on equal competitive conditions. The state also ensures that companies have non-discriminatory access to distribution networks, gas storage facilities and cross-border gas pipelines.

Directive 2008/92/Eะก concerning a Community procedure to improve the transparency of gas and electricity prices charged to industrial end-users Pursuant to that Directive, open, generally accessible mechanisms of providing information on the prices of energy resources for customers must be introduced. A particular methodology of collection of respective information about gas and electricity prices is to be drawn up and the respective mechanism to that effect is to be introduced.

Benchmarks

ANNEX 3

Key indicators for assessing Ukraine’s progress in implementing the EU-Ukraine Association Agreement in the energy and environmental sectors

GAS

1

Outcomes

Outputs, effects

Facts of non-compliance with EU acts, lack of implementation actions

The number of cases concerning the settlement of disputes raised by the Secretariat of the Energy Community Number and level of regulatory legal acts adopted for the implementation of a specific directive/regulation 224

Degree of transposition of EU legislation into Ukrainian legislation

Assessment (score) -10 223

85

Directive 2009/73/EC 2

Regulation (EC) No. 715/2009 Directive 2004/67/EC

3

223 224

Degree of independence of TSOs/storage facilities

Implementation of the plan for restructuring NJSC Naftogaz of Ukraine with the

30 Execution is practically suspended.

Assessment scale

Assessment of availaibility/absence Availability: -10 of the total score Absence: no changes Assessment from 0 to 100 scores 0: no RLAs have been developed and adopted 1-20: certain RLAs have been developed, none has been adopted 21-40: most of RLAs have been developed, some have been adopted 41-60: all RLAs have been developed, a part have been adopted 61-80: the majority of RLAs have been developed and adopted 81-100: all RLAs have been developed and adopted The final score is the arithmetic mean for all directives in the section.

Assessment from 0 to 100 scores 0: lack of practical independence, complete vertical integration

1 case initiated (https://energy-community.org/legal/cases/2017/case0217UE.html), 1 more registered (https://energy-community.org/legal/cases/2018/case0518UE.html) Includes laws and by-laws, as well as their action plans, report on supply security, etc.; does not include policy products, i.e. RLA drafting plans, implantation plans, etc.

Specifi c weigh t 1

1

1

Benchmarks

Degree of independence of DSOs

purpose of separating natural gas transportation and storage (injection, selection) activities

The CMU has previously adopted a decision to change the “unbundling” model, but the detailed model has not been made public.

Number of documented violations by operators, which are discriminatory 225

N/A 226

4

Degree of the market openness

5a

Market share with unregulated prices or lack of restrictions under public service obligations

Scheduled inspections: 0 of 2 operators, 0 of 2 zbuts (supply companies)

(40+45)/2 = 42.5 40 (MECI data: total consumed for 5 months of 2018 – 17.1 bcm (with technological costs), unreg. – 7 bcm) 227

1-30: the preparatory stage is completed (subparagraphs 1-5, 8 of the plan) 31-50: RLAs have been developed and approved (sub-paragraph 6 of the plan) 51-70: transfer of assets has been carried out, certification of the TSO has been carried out (subparagraph 7.9 of the plan) 71-90: allotment of gas storage facilities has been carried out (sub-paragraphs 10 to 15 of the plan) 91-100: the independence of both operators is confirmed by certification and relevant control reports of the NEURC Assessment from 0 to 100 score Score = a share of violating operators among the total number of inpected operators 0: 90-100% 1-20: 75-90% 21-40: 50-75% 41-60: 25-50% 61-80: 10-25% 81-100: 0-10% Assessment from 0 to 100 scores Score = share of open market

1

1

According to the NEPURC data on the results of state control measures, in particular data on the facts of granting preferences to any customer or gas supply company when concluding contracts on gas transportation by distribution pipelines, facts of direct or indirect perverting or counteraction to other gas supply enterprises in their natural gas supply activities, and other facts of abuse of a monopoly position.

226 Number of scheduled inspections conducted – 2 DSOs and 2 PSO suppliers (http://www.nerc.gov.ua/?id=30255) does not allow making an adequate assessment; as well as formal reports of DSOs on implementing compliance programs do not provide this information (http://www.nerc.gov.ua/?id=32189) 225

Benchmarks 5b

Availability of distinctly regulated mechanisms of suppliers change 6

Level of dependence from import of gas and diversification

7

Indicators of market concentration in the retail market (number of players, their shares) 228

45

The real ability to choose between suppliers (a share of households that changed the supplier, per year 231)

0

Shares of import in the structure of general consumption

(50+75)/2 = 82.5

A share of each supplier in the structure of import

63% (the NEURC data 229)

In 2017, 12 household consumers changed the supplier (NEURC data 232)

75 (dependant on import: 19.3%, gas imported for 5 months of 2018 â&#x20AC;&#x201C; 3.3 bcm) 233 90 (diversification: min 4 suppliers, all with a share <30%)

http://mpe.kmu.gov.ua/minugol/control/uk/publish/article?art_id=245285282&cat_id=245030702 NEPURC monitoring data (will be available in future).

229 http://www.nerc.gov.ua/data/filearch/Catalog3/Richnyi_zvit_NKREKP_2017.pdf 230 Amount of market shares of three biggest suppliers.

231 NEPURC monitoring data (will be available in future).

232 http://www.nerc.gov.ua/data/filearch/Catalog3/Richnyi_zvit_NKREKP_2017.pdf 233 http://195.78.68.67/minugol/doccatalog/document?id=245285281 227 228

Assessment of CR3 indicator 230 from 0 to 100 scores 0: 95-100% 1-20: 85-95% 21-40: 70-85% 41-60: 60-70% 61-80: 50-60% 81-100: below 50% Assessment of the so-called switching rate from 0 to 100 scores 0: below 0.5% 1-20: 0.5-1% 21-40: 1-4% 41-60: 4-6% 61-80: 6-8% 81-100: over 8% Assessment of dependence on import from 0 to 100 scores 0: full dependance (95-100%) 1-20: partial dependance (70-95%) 21-40: partial dependance (55-70%) 41-60: partial dependance (25-50%) 61-80: partial dependance (5-25%) 81-100: full dependance (0-5%) Assessment of diversification from 0 to 100 scores 0: monopoly dependence from 1 supplier 1-20: a share of alternative suppliers less than 30%

1

1

1

Benchmarks

Influence of supply disruptions

8

State of settlements

9

21-40: a share of alternative suppliers between 30% and 50%, there are at least 2 such suppliers 41-60: a share of alternative suppliers between 50% and 66%, there are at least 3 such suppliers, one or two have a share over 30% 61-80: a share of alternative suppliers between 66% and 75%, there are at least 4 suppliers, one or two have a share over 30% 81-100: there are at least 4 suppliers, all with a share of less than 30%

Volume of gas shortage, created in case of supply disruptions, for the period of failures (in % of the total consumption) If available - duration of the emergency period (in days) Dynamics of current calculations of end users (except industrial ones) to supplying companies 234

80 10% from industrial consumption 5 days

10 (debts to Naftogaz as of 03.07.2018 â&#x20AC;&#x201C; UAH 30.1 billion 235), which is 40% less than as of 03.01.2018 (UAH 21.5 billion 236) + debts of gazzbuts (gas supply companies) 237, which is by 6,6% more htatn as of

Score = arithmetic mean (a score for dependence on import, a score for diversification) Assessment from 0 to 100 scores 0: 65-100% 1-20: 20-65% 21-40: 15-20% 41-60: 10-15% 61-80: 5-10% 81-100: less than 5% Assessment from 0 to 100 scores, in % from the total consumption for the period 0: less than 50% 1-20: 50-70% 21-40: 70-85% 41-60: 85-90% 61-80: 90-97% 81-100: 97-100%

Without taking into account the previous periods. http://www.naftogaz.com/files/Information/TKE-tabl-04-07-2018.pdf 236 http://www.naftogaz.com/files/Information/TKE-tabl-03-01-2018.pdf 237 http://www.naftogaz.com/www/3/nakweb.nsf/0/1D4F82ABC9B19F72C22582C0002FE883?OpenDocument&year=2018&month=07&nt=%D0%9D%D0%BE%D0%B2%D0%B8%D0%BD%D0%B8& 234 235

1

1

Benchmarks

09.01.2018 (UAH 20.36 billion 238) Total score: 37 239

ELECTRICITY AND NUCLEAR SAFETY Outcomes

Facts of non-compliance with EU acts, absence of implementation actions

1

Outputs, effects

The number of cases concerning the settlement of disputes raised by the Secretariat of the Energy Community

Assessment (score)

-25 On February 2, 2018, the EU Council of Ministers adopted Decision 2018/02/MC-EnC on Ukraineâ&#x20AC;&#x2122;s failure to comply with the Energy Community Treaty (Case ECS-1/12) in the area of free trans-border electricity trade.

Procedurally, the case is closed.

Assessment scale

Availability/absence assessment Availability: -10 of the total score Absence: no changes

Cases ECS-08/15 on a similar issue and ECS-06/17 on separation of 238 239

Spe cifi c wei ght

http://www.naftogaz.com/www/3/nakweb.nsf/0/A0F6FB0EA52E331FC2258216002CD34F?OpenDocument&year=2018&month=01&nt=%D0%9D%D0%BE%D0%B2%D0%B8%D0%BD%D0%B8& Arithmetic mean, excluding indicators without initial data (N/A), taking into account the specific weight of individual indicators.

1

Benchmarks

Degree of transposition of EU legislation into Ukrainian legislation

Number and level of regulatory legal acts adopted for the implementation of a specific directive/regulation 240:

Directive 2009/72/EC 241

2

Regulation 714/2009/EC 242

transmission system operators remain open.

90 There was a lag behind the plan of adoption of RLAs â&#x20AC;&#x201C; for more than 2 months, the NEURC had no quorum and did not accept RLAs. A number of the most important RLAs for the new electricity market: Transmission System Code; Distribution System Code; Commercial Electricity Metering Code; Market rules; Day-Ahead and Intraday Market Rules; Retail Electricity Market Rules

Assessment from 0 to 100 scores 0: no RLA has been developed and adopted 1-20: certain RLAs have been developed, none has been adopted 21-40: most of RLAs have been developed, a part of them has been adopted 41-60: all RLAs have been developed, a part of them has been adopted 61-80: most of RLAs have been developed and adopted 81-100: all RLAs have been developed and adopted

1

The final score is the arithmetic mean for all directives in the section

16 RLA have been approved - Connection Methods, Limit

Includes laws and regulations, as well as action plans, delivery safety reports, etc .; does not include policy products, i.e. plans for the preparation of RLAs, implementation plans, etc..

Adoption of the Laws On the Electricity Market, concerning the peculiarities of repayment of arrears for electricity generated in the wholesale electricity market. Adoption of RLAs for the creation of infrastructure market actors and the creation of the Coordination Center, RLAs regulating the functioning of the electricity market (Market Rules, Day-Ahead Market Rules, etc.), regarding the definition of categories of vulnerable consumers and their support mechanisms, the introduction of public service obligations, the methodology for calculating the regulated price, the separation of electricity distribution and supply activities.

242 Adoption of RLAs to determine the conditions for access to electricity networks (in particular, the Electricity Codes), concerning the conditions of electricity export/import (in particular, the Rules for Conducting Electronic Auctions for the Distribution of Capacity of Intergovernmental Electric Networks).

240 241

Benchmarks

Management Rules and Procedure for Throughput Distribution, Procedure for Developing Development Plans, Procedure for Building a Direct Line, Methodology: Calculation of Fees for Sharing the Calculation of Fee for Small Distribution System Services , Formation of prices/tariffs of a universal services supplier, formation of prices/tariffs of USP Directive 2005/89/EC

55 On February 19, 2018, an open discussion was held on the comments and proposals submitted to the NEURC draft Resolution On Approval of Restriction Management Rules and Procedure for the Distribution of Interstate Crossing Capacity.

Transmission System Code has been adopted Procedure of Developing Development Plans, Procedure for Construction of a Direct Line have been approved.

Benchmarks Directive 2013/59/Euratom Directive 96/29/Euratom Directive 2003/122/Euratom

244 245

http://w1.c1.rada.gov.ua/pls/zweb2/webproc4_1?pf3511=60744 http://w1.c1.rada.gov.ua/pls/zweb2/webproc4_1?pf3511=61158

35 10 Draft Law No. 5550 244 of 16.12.2016 (bringing the legislation into line with the provisions of Directive 2013/59/Euratom) was not adopted.

Draft Law No. 6089 245 (bringing the legislative framework in the field of radioactive waste management in line with the internationally agreed security requirements for improving the radioactive waste classification system for their disposal) was not adopted.

The draft law No. 7471 of 29.12.2017 (ensuring compliance of state supervision and control in the field of nuclear and radiation safety with the requirements of international treaties and conventions) was not adopted.

Benchmarks

The draft CMU Resolution On Amendments to the Procedure for the Issuance of Permits for International Radioactive Materials Transportation was developed246. The work on the development of standard document forms for filing an application for the processing of international radioactive waste and spent nuclear fuel transportation, processing or refusal to agree and notification of confirmation of receipt of the application or the cargo will be carried out by the SNRI after the adoption of the aforementioned draft CMU Resolution.

DIrective 2006/117/Euratom 243

10 In accordance with the Implementation Plan of Directive 2006/117/Euratom 247, the relevant amendments to the legislation of Ukraine in

Adoption of the CMU Resolution On Amendments to the Procedure for the Issuance of Permits for the International Carriage of Radioactive Materials, RLAs on the Approval of Forms for the Harmonization of International Carriage of Radioactive Waste and spent nuclear fuel, the provision of an agreement or refusal to agree, etc.

243 246 247

http://www.snrc.gov.ua/nuclear/uk/publish/article/325712;jsessionid=103312C9BF61F19D531E7F1E731D2665.app1

Benchmarks Degree of dependence of main the network operator

3

Degree of distribution system operatorsâ&#x20AC;&#x2122; (oblenergo) independence

4

Degree of the market openness 5a

Implementation of the process of separation of functions of electricity transmission and dispatching activities Change of corporate governance of Ukrenergo

The number of documented violations by operators that are discriminatory (in accordance with licensing conditions for distribution and transmission of electric energy) 248

Market share with unregulated prices or lack of restrictions on under public service obligations

order to bring it into line with Directive 2006/117/Euratom should take place in 2017 35 The corporatization of SE NPC Ukrenergo was launched, competitions for independent members of the Supervisory Board have been announced. The registered draft law No. 8468 concerning the ownership of the TSO property.

N/A On April 5, the NEURC placed an announcement on the procedure for obtaining licenses for the distribution and supply of electric energy in accordance with the requirements of the Law On the Electricity Market 12 The share of suppliers at the unregulated tariff in the total amount of electricity purchased in the WEM remains at the level

Assessment from 0 to 100 scores 0: absence of separation 1-20: the preliminary stage have been performed 21-40: RLAs have been developed and approved 41-60: separation has been performed 61-80: certification of the operator has been carried out 81-100: independence has been confirmed by the relevant NEURCâ&#x20AC;&#x2122;s certificates of control Assessment from 0 to 100 scores Score = fraction of violating operators among the total number of inspected operators 0: 90-100% 1-20: 75-90% 21-40: 50-75% 41-60: 25-50% 61-80: 10-25% 81-100: 0-10% Assessment from 0 to 100 scores Score = a share of the open market

1

1

1

According to the NEPURC data on the results of state control measures.Monitoring the implementation RLAs to separate the activities of distribution and supply of electricity, the compliance of licensees for electricity distribution and transmission.

248

Benchmarks Indicators of market concentration in the retail market (number of players, their shares) 249

5b

Availability of clearly regulated mechanisms for the change of suppliers 6

7

Terms and conditions of trade, including trans-border one

NEPURC monitoring data (will be available in future).

Total of market share of three largest suppliers.

251 NEPURC monitoring data (will be available in future).

249 250

of 2017 - according to Energorynok, in the first half of 2018, it amounted to 11.98%.

85 According to the NEURC annual report for 2017, in the retail market, there were 32 suppliers acting at the regulated tariff and 94 suppliers supplying on a competitive basis. The share of the three largest suppliers in terms of the scope of supply to all categories of consumers was 31.97%.

The real ability to choose between suppliers (a share of households that changed the supplier, per year 251)

N/A According to the NEURC, 340 consumers changed the electricity supplier in 2017.

Non-discriminatory terms of import/export of electricity (customs rates, restrictions, auctions, etc.)

75 The adjusted Forecast Balance for 2018 does not include imports, since

Assessment of CR3 indicator value 250 from 0 to 100 scores 0: 95-100% 1-20: 85-95% 21-40: 70-85% 41-60: 60-70% 61-80: 50-60% 81-100: below 50%

Assessment of the so-called switching rate from 0 to 100 scores 0: below 0.5% 1-20: 0.5-1% 21-40: 1-4% 41-60: 4-6% 61-80: 6-8% 81-100: over 8% Assessment from 0 to 100 scores (on the basis of the monitoring of the market)

1

1

1

Benchmarks Supply security

8

Decision-making on the procedure for consultations on issues of flow (transit) of electric energy Decision-making on the introduction of a state of emergency in the electricity industry, the UES of Ukraine, etc.

If available - duration of the emergency period (in days)

Creating a radiation monitoring and reporting system

9

Adoption and implementation of the 10-year Development Plan of the UES of Ukraine Dynamics of the implementation of the relevant state target program (national action plan for reducing the risks of long-term irradiation by radon products) 252

demand is covered by its own generation of electricity. there was not

Assessment from 0 to 100 scores

(<1) there was not

90 Plans are adopted and updated in proper time 30

1

Assessment from 0 to 100 scores

Until the amendments to the Law On Protection of Human Rights from Ionizing Radiation have been adopted, the National Action Plan (the state target program) for the reduction of the risk of long-term irradiation by radon products has not been developed.

Total score: 28 253

OIL 252 253

Creation of Database of Radon Radiationof Representative Population Groups, State System of Accounting and Control of Doses of Irradiation of Population of Ukraine.

Arithmetic mean, excluding indicators without initial data (N / A), taking into account the specific weight of individual indicators.

1

Benchmarks

Outcomes

Outputs, effects

Assessment

Assessment

(score)

1

Facts of non-compliance with EU acts, lack of implementation actions

Degree of transposition of EU legislation into Ukrainian legislation

The number of cases concerning the settlement of disputes raised by the Secretariat of the Energy Community Number and level of regulatory legal acts adopted for the implementation of a specific directive/regulation 254

Availability/absence assessment Availability: -10 to the total score

36

Direcitve 98/70/EC

Directive 98/70/EC

3 254

Degree of readiness of the regulatory legal

Number of regulatory legal acts

1

Absence: no changes

Directive 2009/119/EC

2

Specific weight

14

Assessment from 0 to 100 scores depending on the share of performance of the planned (81 regulatory legal acts = 100) 0: no RLA has been developed and adopted 1-20: certal RLAs have been developed, none has been adopted 21-40: most of RLAs have been developed, a part of the has been adopted 41-60: all RLAs have been developed, a part of them has been adopted 61-80: most of RLAs have been developed and adopted 81-100: all RLAs have been developed and adopted Total score â&#x20AC;&#x201C; arithmetic mean on all directives in the section

1

Assessment from 0 to 100 scores

1

Includes laws and regulations, as well as action plans, delivery safety reports, etc .; does not include policy products, i.e. plans for the preparation of RLAs, implementation plans, etc..

Benchmarks 4

framework for the formation of oil and oil products

adopted to implement Directive 2009/119/EC

The degree of readiness of the infrastructure to create the required supply of oil and/or oil products.

Availability of technical facilities for the proper storage of oil and/or oil products required to comply with Directive 2009/119/EC Volumes of oil and oil products reserves

Availability of minimum stocks of oil and oil products

43

N/A

5

Transparency of granting subsoil for use

6

Number of regulatory legal acts adopted pursuant to Directive 94/22/EC, Articles 279 and 280 of the Association Agreement

33

Number of oil and gas subsoil plots put up for open auctions according to the new procedure (in annual terms)

9

Number of oil and gas subsoil plots granted for use according to the new procedure (in annual terms) 7

Degree of readiness of regulatory legal base for implementation of the quality and fuel safety assurance system

Number of regulatory legal acts adopted pursuant to Directives 94/63/EC, 98/70/EC and 99/32/EC

depending on the share of performance of the planned (7 regulatory legal acts = 100) Assessment from 0 to 100 scores depending on the share of existing tank capacities (the required park is 2.87 mŃ m = 100) Assessment from 0 to 100 scores, depending on the share of formed reserves on demand (2.0 million t = 100) 0: 0-10% 1-20: 10-25% 21-40: 25-50% 41-60: 50-75% 61-80: 75-90% 81-100: 90-100% Assessment from 0 to 100 scores depending on the share of performance of the planned. The final score â&#x20AC;&#x201C; arithmetic mean

1

1

1

0

Average value 14 13

Assessment from 0 to 100 scores depending on the share of performance of the planned. The

1

Benchmarks

Number of national standards adopted pursuant to Directives 94/63/EC, 98/70/EC and 99/32/ EC

final score â&#x20AC;&#x201C; arithmentic mean 33 Average value 23

The degree of coverage of the market by the oil products quality and safety monitoring system 8

The share of coverage by the oil products quality and safety monitoring system, which is adapted to European requirements, of oil products in circulation in Ukraine

N/A

Assessment from 0 to 100 scores 0: there is no fuel quality assurance system

1

1-100: depending on the revealed number of violations and scale of the problem Total score: 26 255

ENERGY EFFICIENCY AND SOCIAL ISSUES Outcomes

1

2

Facts of non-compliance with EU acts, lack of implementation action Degree of transposition of EU legislation into Ukrainian legislation

Outputs, effects

Assessment (score)

The number of cases concerning the settlement of disputes raised by the Secretariat of the Energy Community Number and level of regulatory legal acts adopted for implementation:

-10 256

Directive 2010/30/EC 257

80

Arithmetic mean, excluding indicators without initial data (N / A), taking into account the specific weight of individual indicators. https://www.energy-community.org/legal/cases/2018/case0118UE.html 257 Marking and standard information on the product of consumption of energy and other resources by energy products 255 256

Assessment scale

Availability/absence assessment Availability:/ -10 to the general score Absence: no changes Assessment from 0 to 100 scores (for Directive 2012/27/EC specific weight = 3) 0: no RLA has been developed and adopted

Spe cifi c wei ght 1

1

Benchmarks

3

4

Directive 2010/31/EC 258

45

Directive 2012/27/EC

45

The dynamics of increasing the efficiency of using energy at the national level (according to the National Action Plan for Increasing Energy Efficiency)

Percentage of energy saved through the implementation of energy efficiency measures

The amount of funds invested under energy efficiency increase programs

Amount of funds allocated or attracted to all available energy efficiency increase programs (e.g. “warm loans”, the size of the Energy Efficiency Fund)

N/A

If available - the energy capacity of GDP

22 The average between the financing of the “warm loans” program and the activities of the Energy Efficiency Fund

1-20: certain RLAs have been developed, none has been adopted 21-40: most of RLAs have been developed, a part of them has been adopted 41-60: all RLAs have been developed, a part of them has been adopted 61-80: most RLAs have been developed and adopted 81-100: all RLAs have been developed and adopted The final score is the arithmetic mean for all directives in the section, taking into account the specific weight of Directive 2012/27/EC Assessment from 0 to 100 scores __ according to the percentage of implementation of the plan In the absence of -% reduction of the energy intensity of the economy compared with the previous year Assessment from 0 to 100 scores __ according to the percentage value of performance of expected financing indicators

Establishing minimum requirements for energy efficiency of buildings and their elements; national plan to increase the number of buildings with almost zero energy consumption; the application of minimum requirements for the energy efficiency of new buildings; energy certification; installation of independent certification control systems.

258

1

1

Benchmarks 5

6

7

8

The dynamics of buildings with almost zero energy consumption

Number of buildings with almost zero energy consumption

0

The dynamics of the total area of heated and/or cooled buildings owned by its central government and occupied by them, which were repaired to meet at least the minimum energy efficiency requirements The dynamics of equipping consumers and multi-apartment buildings with individual heat meters The number of cases and the total amount of fines imposed on claims for non-compliance with the implemented provisions on energy efficiency.

% of the total area of energy modernized public institutions

0

Percentage of consumers equipped with heat meters

70

The number of cases and the total amount of fines imposed on claims for non-compliance with the implemented provisions on energy efficiency.

N/A

Assessment from 0 to 100 scores __ according to the percentage value of performance of expected indicators Assessment from 0 to 100 scores __ 0 for negative dynamics __ 100 for positive dynamics

1

1

Assessment from 0 to 100 scores __ according to the percentage of implementation of the plan Assessment from 0 to 100 scores __ according to the percentage of expected indicators

1

1

Total score: 19 259

ENVIRONMENT AND RENEWABLE ENERGY Outcomes

Outputs, effects

Assessment

Assessment scale

(score)

1 2 259

Facts of non-compliance with EU acts, lack of implementation actions

Degree of transposition of EU legislation into

The number of cases concerning the settlement of disputes raised by the Secretariat of the Energy Community Number and level of regulatory

-10

Arithmetic mean, excluding indicators without initial data (N/A), taking into account the specific weight of individual indicators.

Availability/absence assessment Availability: -10 to the total score Absence: no chages Assessment from 0 to 100 scores

Specific weight

1 1

Benchmarks Ukrainian legislation

260

legal acts adopted for the implementation of a specific directive/regulation 260: Directives 2011/92/EC, 2003/4/EC, 2003/35/EC (creating the environmental impact assessment system)

80 - Law of Ukraine on Environment Impact Assessment has been adopted - three subordinate regulatory legal acts have been adopted

Directive 2001/42/EC (creating the environmental impact assessment system)

40 - Law of Urkaine On Strategic Environmental Assessment

Directive 2003/4/EC (creating the strategic environmental assessment system)

20 - Draft Law of Ukraine On Amendments to Certain Legislative Acts of Ukraine regarding Access to Environmental Information,

0: no RLA has been developed and adopted 1-20: certain RLAs have been developed, none has been adopted 21-40: most of RLAs have been developed, a part of them has been adopted 41-60: all RLAs have been developed, a part of them has been adopted 61-80: most RLAs have been developed and adopted 81-100: all RLAs have been developed and adopted

The final score is the arithmetic mean for all directives in the section.

Includes laws and regulations, as well as action plans, supply security reports, etc.; does not include policy products, i.e. plans for the preparation of RLAs, implementation plans, etc.

Benchmarks

Directive 2003/35/EC on the provision of public participation in the preparation of individual plans and programs

Directive 2009/147/EC on the conservation of wild birds

developed by the Working Group, but not publichsed - draft Concept for the creation of the State â&#x20AC;&#x153;Open Environmentâ&#x20AC;?

Automated System 40 - the Law on Strategic Environmental Assessment was adopted (taking into account most of the provisions on public participation in the preparation of plans and programs) 25 - the draft Law On the Territories of the Emerald Network was published - a number of regulatory legal acts in the field of nature protection and the NRS that are not directly related to birds are adopted, however, in the case of adoption and

Benchmarks

proper application, will have a positive impact on the protection of birds

Directive 2008/50/EC on ambient air quality and cleaner air for Europe

- the Law On Amendments to Certain Legislative Acts of Ukraine on the Protection of Forests under the Framework Convention for the Protection and Sustainable Development of the Carpathians was adopted (does not have a direct impact on the protection of birds, but will promote their protection) 15 - CMU Resolution On Issues of Implementation of the Concept of Reforming the System of State Supervision (Control) in the Field of Environmental Protection

Benchmarks

Directive 2010/75/EC on industrial emissions (comprehensive pollution prevention and control)

- Action Plan for Implementation of the Concept for Reforming the System of State Supervision (Control) in the Field of Environmental Protection 35 - The Law of Ukraine On Amendments to Certain Legislative Acts of Ukraine regulating the relations related to obtaining permits - National plan for reducing emissions from large combustion plants

Directive 1999/32/EC on the

- CMU Resolution On Approval of the Action Plan for 2018 on the Implementation of the National Plan for Reducing Emissions from Large Combustion Plants

Benchmarks

reduction of sulfur content in certain liquid fuels

Directive 2009/28/EC on the promotion of energy produced from renewable sources

15 - Draft Resolution On Amendments to the CMU Resolution of June 1, 2011 No. 573 and August 1, 2013 No. 927 (published for discussion) Resolution On Amendments to Paragraph 2 of the Technical Regulation Regarding Requirements for Automotive Gasoline, Diesel, Ship and Fuel Boilers (-5 points) 30 - Draft Law No. 6081 On Amendments to the Law of Ukraine On Regulation of Urban Development on Improving Investment Opportunities in the Field of the Production of Electricity from Alternative Sources expects second reading

Benchmarks

Application of the system of environmental impact assessment in practice

Availability of an electronic register of conducted EIAs

3

4

Application of the system of strategic environmental assessment in practice

Conducting SEA at the national and local levels

- the Cabinet of Ministers approved a national transport strategy for the period up to 2030 (Drive Ukraine 2030), which provides for the construction of 2 plants that will be engaged in the issue of electric vehicles - the draft law No. 8449, which provides for the introduction of a system of auctions instead of the â&#x20AC;&#x153;greenâ&#x20AC;? tariff for state support of RES and 7 alternative draft laws, is registered.

60 - since December 18, 2017, the Unified Register on Environmental Impact Assessment has begun work, but still works in the test mode 0 - is not carried out in connection with the lack of necessary subordinate

Assessment from 0 to 100 scores 0-20 - register is created 21-40 - contains minimal information 41-100 - depending on the completeness of the information provided

Assessment from 0 to 100 scores Depending on the number and quality of SEA

1

1

Benchmarks 5

The dynamics of creation of special protected areas (SPAs) for the protection of birds

The number and adequacy of the SPAs proposed for creation

Access to ecological information in practice

The dynamics of the volume of environmental information that is available in electronic format

6

7

A reformed environmental monitoring system that meets the requirements of Directive 2008/50/EC on ambient air quality and cleaner air for Europe Control over emissions from stationary sources, in particular emissions of sulfur dioxide

The dynamics of the volume of environmental monitoring data that is available in electronic format Dynamics of emissions of pollutants from stationary sources into atmospheric air

8

Dynamics of emissions of sulfur

regulatory legal acts 0 â&#x20AC;&#x201C; are not created, through the lack of special legislation 60 â&#x20AC;&#x201C; the information is evaluated according to the availability of data on the Unified State web portal of open data data.gov.ua (the portal is currently in the test mode) Environment Section contains 420 sets of information. The last update took place on April 24, 2018.

Data portals on water resources, landfills have started the work.

N/A

20 The emissions in 2017 amounted to 2,584.9 thousand tons, which is 19% less than in 2016 N/A

Assesment from 0 to 100 scores depending on the number and sufficiency of SPAs proposed for the creation Assessment from 0 to 100 scores depending on the completeness of the information provided

1

1

Assessment from 0 to 100 scores depending on the completeness of the information provided Assessment from 0 to 100 scores Depending on the dynamics of reducing emissions of pollutants into the atmosphere from stationary sources Assessment from 0 to 100 scores

1

1

1

Benchmarks Presence and implementation of the National Action Plan for reducing pollutant emissions into the atmosphere from large combustion plants

Statistics for 2017 as of 01.07.2018 are not yet available

The dynamics of emissions of pollutants by combustion plants is more than 50 MW

N/A

Dynamics of investment volume in the modernization of energy facilities, aimed at reducing harm to them from the environment, in the construction of new facilities

9

Availability and state of application of accounting and monitoring techniques for the use of RES

10

dioxide from stationary sources into atmospheric air

The dynamics of the amount and capacity of renewable energy facilities, as well as the volume and share of electricity produced by them in the structure of consumption, production and sales of bioethanol, biofuels (according to the National Plan indicators)

Depending on the dynamics of reducing sulfur dioxide emissions from stationary sources into atmospheric air Assessment from from 0 to 100 scores depending on the dynamics of emissions of pollutants by burning units is more than 50 MW Score from 0 to 100 points __ according to the percentage of the expected financing indicators

78 As of July 1, 2018, 388 RES facilities with the â&#x20AC;&#x153;greenâ&#x20AC;? tariff were operating in Ukraine (excluding the occupied territory of the Autonomous Republic of Crimea).

The capacity of RES facilities (except for large HPSs and PSPs) is 1644 MW, of which 269 MW was put into operation in the first quarter. The capacity of large HPSs and PSPs

1

The total score is the arithmetic mean Assessment from 0 to 100 scores __ in accordance with the percentage of the execution of the expected National Plan indicators

1

Benchmarks

11

Programs and mechanisms for stimulating renewable energy, the amount of funds invested under these programs

Number of RES support schemes, assessment of implementation of the National Action Plan

is 5747.6 MW. Thus, the total capacity of RES facilities as of July 1, 2018 is 7391.6 MW. According to the National Renewable Energy Action Plan for the period up to 2020, at the end of 2018, the capacity of RES facilities should be 9431 MW. 50 Assessment from 0 to 100 scores PPA is valid, the __ according to the percentage of number of investors is the expected financing indicators increasing Total score: 33 261

1

BUSINESS CLIMATE Outcomes Facts of non-compliance with EU acts, lack of implementation actions

1

2

261

Degree of transposition of EU legislation into Ukrainian legislation

Outputs, effects The number of cases concerning the settlement of disputes raised by the Secretariat of the Energy Community Number and level of regulatory legal acts adopted for the

Assessment (score) -5

Average meaning: 88.4

Arithmetic mean, excluding indicators without initial data (N/A), taking into account the specific weight of individual indicators.

Assessment scale Availability/absence assessment Availability: -10 to the general score Absence: no changes Assessment from 0 to 100 scores 0: no RLA has been developed and

Specific weight 1

1

Benchmarks

implementation of a specific directive/regulation 262: Directive 2014/25/ЄС Directive 2009/72/ЄС and 2009/73/ЄС (in terms of requirements for the Regulator) Directive 2008/92/EC State aid to business entities Competitive legislation

85 87

85 85

100 Investment attractiveness of energy markets (dynamics)

3

262 263

Capital investmentsї 263: A) mining industry (mining of stones and brown coal, crude oil and natural gas, metal ores and other minerals) B) production of coke and refined products C) electricity, gas, steam and air conditioning supply

Average meaning: 77.3 A) 72 (142%) B) 100 (193%) C) 60 (130%)

adopted 1-20: certain RLAs have been developed, none has been adopted 21-40: most of RLAs have been developed, a part of them has been adopted 41-60: all RLAs have been developed, a part of them has been adopted 61-80: most RLAs have been developed and adopted 81-100: all RLAs have been developed and adopted

The final score is the arithmetic mean for all directives in the section.

Assessment from 0 to 100 scores 0: relation to the previous period <100% 1-20: 100-110% 21-40: 110-120% 41-60: 120-130% 61-80: 130-150% 81-100:> 150% The final score is the arithmetic mean for all indicators.

Includes laws and regulations, as well as action plans, supply security reports, etc.; does not include policy products, i.e. plans for the preparation of RLAs, implementation plans, etc..

According to the State Statistics Service for January-September 2016

1

Benchmarks

Degree of overregulation

4

Direct foreign investments (share capital) in Ukraine: A) mining industry (mining of stones and brown coal, crude oil and natural gas, metal ores and other minerals) B) production of coke and refined products C) electricity, gas, steam and air conditioning supply

A) 0 (99%) B) 27 (134%) C) 9 (111%)

The number and time for processing the necessary permits (in comparison with European legislation) for licensing or certification: A) activity in the electricity market B) activities in the gas market C) oil/gas extraction (the volume of the package of documents for obtaining a specific permit) The number and time for the processing of the required documents (in comparison with European legislation) for: A) Connection to gas networks (main and distributive) B) Connection to electric networks (main and distributive)

A) 5* 1 = 5 B) 6 * 1 = 6

Average meaning: 12

Average meaning: 5.5

Assessment from 0 to 100 scores 0: relation to the previous period <100% 1-20: 100-125% 21-40: 126-150% 41-60: 151-175% 61-80: 176-200% 81-100: >200%

1

The final score is the arithmetic mean for all indicators.

Assessment from 1 to 100 scores, where 1 is an absolutely nonoverregulated environment, as much as possible similar to the European standards, 100 is the opposite value.

Determined by the product of two parameters: â&#x20AC;˘ Number of required permissions/documents 1-2: the same number in comparison with EU legislation 3-4: more by 1 5-6: more by 2-3 7-8: more by 3-5 9-10: more by> 6 â&#x20AC;˘ Time required for obtaining a license/permit (calendar days) 1-2: <7 days 3-4: <14 days

1

Benchmarks

5-6: <21 days 7-8: <45 days 9-10:> 45 days

Availability of publicly available information on procedures and requirements for licensing and connection

Compliance with competitive rules

5

The state aid system is brought into compliance 6

100

Operation of the AMCU in accordance with the EU regulations in cases of violations of the legislation on the protection of economic competition

69

Functioning of the electronic register of state aid mechanisms in the energy markets (and related ones)

50

Total score: 56 265 264 265

The share of published online procedures for obtaining permits/licensing from the total number Arithmetic mean, excluding indicators without initial data (N/A), taking into account the specific weight of individual indicators.

Assessment form 0 to 100 scores: available <20% of the necessary information 264 21-40: available <40% 41-60: available <60% 61-80: available <80% 81-100: available <100% Assessment from 0 to 100 scores 0: AMCU is non-functional 1-100: in view of the implementation and enforcement of competition law (taking into account positions in the Global Competitiveness Rating in Antitrust Policy Effectiveness category, specific cases and court practice in AMCU cases, data of AMCU investigations) Assessment from 0 to 100 scores 0: the registry is not created 1-100: the registry is created, assessment depending on the completeness of information, the frequency of updates, relevance

1

1

1