EBA urges to resolve the situation in the fuel and energy sector of Ukraine

06/ 04/ 2020

Energy security is a matter of strategic importance for any country and in times of emergency, it gains crucial functions of ensuring the continued operations of businesses and the normal daily life of the public.

According to experts of the European Business Association, the global economic downturn has already resulted in negative processes in the energy spheres of the countries across the world, in particular, due to the reduction of energy consumption – natural gas, oil, and electricity. Obviously, these factors will affect both the further development of the sector and the economy of the country in the long run.

However, in the Ukrainian energy sector, even before the COVID-19 pandemic, there were already several issues requiring constructive intervention, such as:

incomplete reform of the electricity market and lack of measures to continue its implementation;
imports of electricity from non-ENTSO-E countries, which jeopardize the commitments made to integrate Ukraine into ENTSO-E (European Network of Transmission System Operators for Electricity);
forced shutdown of TPP / CHPP power units, which threatens the stable operation of TPP / CHPP and significantly reduces coal consumption. This has already led to the stoppage of some mines, while the state continues to subsidize 33 state mines;
economic volatility and record low prices for natural gas, forcing gas companies to cut drilling programs and terminate investment programs;
• the regulation crisis regarding the revision of the “green tariff”;
the lack of incentives for the development of non-traditional hydrocarbon deposits (outlined in the Plan of Measures for the Implementation of the Concept of Gas Industry Development);
the absence of approval by the CMU of annual support quotas for the green auction;
financial imbalance of the SE “Guaranteed Buyer” and the lack of timely green tariff payments;
risks of systemic generation constraints with Renewable Energy without regulatory compensation mechanisms for such technical constraints and others.

Furthermore, it should be noted that, even with an emergency and the existence of abovementioned issues, the energy sector fully ensures the uninterrupted supply of energy both to the public and the enterprises, and fully fulfills the obligations laid down by Law No. 530 IX dated March 17, 2020, aimed at preventing the coronavirus disease (COVID-19) and its spread. These include restrictions on the application of penalties and other sanctions to individuals and economic entities, as well as a ban on the suspension/termination of providing housing and communal services to citizens of Ukraine in the event of their failure to pay in full or non-payment. Although, this has already led to a rapid decline in suppliers’ income from electricity and gas. Thus, in March, the operators received less than 30% of the planned tariff revenue. Therefore, in the opinion of the business, countermeasures should be taken to ensure the non-application of sanctions to energy suppliers (electricity and gas) and gas distribution network operators for the failure to fulfill their obligations, including those to their counterparties, during the quarantine.

At the same time, a profile minister has not yet been appointed in the systemically important sector of Ukraine’s economy, who will be responsible for all decisions taken to ensure the uninterrupted operation of the fuel and energy sector in case of an emergency, find solutions to the long-existent problems of the industry and propose an action plan for further measures to save the energy sector from the decline.
The members of the EBA Energy Committee note that the absence of the head of the energy sector has caused the deterioration of the crisis for the energy industry and therefore appeal to Volodymyr Zelensky, the President of Ukraine, Dmytro Razumkov, the Speaker of the Verkhovna Rada of Ukraine and Denys Shmyhal, the Prime Minister of Ukraine, to appoint the Minister of Energy and the Environmental Protection as soon as possible in order to pull the sector out of a dangerous situation.

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