Business concerns about the gas and energy sectors’ developments under Analytical Report by the European Commission

15/ 03/ 2023

On February 2, 2023, the European Commission published the Analytical Report following the Communication from the Commission to the European Parliament, the European Council, and the Council Commission Opinion on Ukraines application for membership of the European Union. The Report assesses (as of June 2022) the countrys overall capacity to uphold the obligations of membership (the full body of EU law as expressed in the Treaty on European Union, secondary legislation, and the EUs policies). Among other areas, the gas and energy sectors were also covered by the Report. However, since the state of play in June 2022, distinct steps in the Ukrainian gas market were taken that, in the opinion of the European Business Association in Ukraine member companies, may negatively affect the following assessment by the European Commission of the overall situation in the gas industry in Ukraine. The business community united under the European Business Association is strongly devoted to the European pathway; following the EU acquis, including the Third Energy Package implemented in the Ukrainian legislation, addresses concerns about non-compliance with the market principles and achieved reforms in the Ukrainian gas sector. The introduction of a single operator of gas distribution networks (national state-owned energy company), that will provide services for gas distribution across the territory of Ukraine, in the structure of a vertically integrated undertaking (VIU) already present in gas production, trading, supply, and distribution does not fully correlate with the EU acquis and Ukraines obligations as a candidate status in the energy field. We hope that the situation will be carefully considered because there are warnings that such concentration may seriously and negatively affect the whole market structure and previous developments on reforming the gas market of Ukraine. Moreover, the Report covers an issue in the electricity sector. It is mentioned that debts accumulated before the war in the electricity sector. This is partly due to non-paying public customers, a poorly designed supply of last resort scheme, and a renewable surcharge embedded in the transmission tariff, as the regulated prices applied by universal service suppliers to households are not cost-reflective. It is worth mentioning that the liquidity of the energy sector is heavily affected by the war. Therefore, the business asks high officials to help to facilitate this situation and have a competitive decision – for consumers but also to cover all necessary and justifiable costs of NEC «Ukrenergo», particularly to pay for the service of ensuring the increase of the amount of electric power generated from the alternative energy sources. Given the current state of play in the gas and energy sectors, the EBA draws attention to the mentioned issues to the EU Ambassador and Head of the European Union Delegation to Ukraine, Mr. Matti Maasikas, Director of the Energy Community Secretariat, Mr. Artur Lorkowski, IMF President Mr. Vahram Stepanyan, Deputy Director-General – Directorate-General Neighbourhood and Enlargement Negotiations (DG NEAR) Ms. Katarína Mathernová and asks to help to resolve this situation.

The Report assesses (as of June 2022) the country’s overall capacity to uphold the obligations of membership (the full body of EU law as expressed in the Treaty on European Union, secondary legislation, and the EU’s policies). Among other areas, the gas and energy sectors were also covered by the Report.

However, since the state of play in June 2022, distinct steps in the Ukrainian gas market were taken that, in the opinion of the European Business Association in Ukraine member companies, may negatively affect the following assessment by the European Commission of the overall situation in the gas industry in Ukraine.

The business community united under the European Business Association is strongly devoted to the European pathway; following the EU acquis, including the Third Energy Package implemented in the Ukrainian legislation, addresses concerns about non-compliance with the market principles and achieved reforms in the Ukrainian gas sector. The introduction of a single operator of gas distribution networks (national state-owned energy company), that will provide services for gas distribution across the territory of Ukraine, in the structure of a vertically integrated undertaking (VIU) already present in gas production, trading, supply, and distribution does not fully correlate with the EU acquis and Ukraine’s obligations as a candidate status in the energy field. We hope that the situation will be carefully considered because there are warnings that such concentration may seriously and negatively affect the whole market structure and previous developments on reforming the gas market of Ukraine.

Moreover, the Report covers an issue in the electricity sector. It is mentioned that debts accumulated before the war in the electricity sector. This is partly due to non-paying public customers, a poorly designed supply of last resort scheme, and a renewable surcharge embedded in the transmission tariff, as the regulated prices applied by universal service suppliers to households are not cost-reflective. It is worth mentioning that the liquidity of the energy sector is heavily affected by the war. Therefore, the business asks high officials to help to facilitate this situation and have a competitive decision – for consumers but also to cover all necessary and justifiable costs of NEC «Ukrenergo», particularly to pay for the service of ensuring the increase of the amount of electric power generated from the alternative energy sources.

Given the current state of play in the gas and energy sectors, the EBA draws attention to the mentioned issues to the EU Ambassador and Head of the European Union Delegation to Ukraine, Mr. Matti Maasikas, Director of the Energy Community Secretariat, Mr. Artur Lorkowski, IMF President Mr. Vahram Stepanyan, Deputy Director-General – Directorate-General Neighbourhood and Enlargement Negotiations (DG NEAR) Ms. Katarína Mathernová and asks to help to resolve this situation.