The natural gas market reform must continue in accordance with market principles

21/ 02/ 2022

Last week, the Energy Committee of the European Business Association launched a series of regular expert meetings on energy topics. The first meeting was dedicated to the reform of the natural gas market in the context of the latest novelties in the field of gas market regulation in Ukraine. The participants of the meeting unanimously expressed their support for the reforms in the gas market and positively noted the developments that have been made in recent years. Thus, Head of Gas unit at the Energy Community Secretariat Predrag Grujicic noted that Ukraine has the most developed natural gas market among all member states of the Energy Community, and successfully implemented reforms have a positive effect on the market. At the same time, state interference into the natural gas market is not solely the attribute of Ukraine. Given the rising energy prices, the authorities in different countries are increasingly trying to protect the local consumers. However, the international experience and practice of EU countries still highlight such mechanisms as targeted subsidies, tax exemptions, tax benefits, and more to help vulnerable groups and businesses. Adrian Prokip, an expert on the Energy Program at the Ukrainian Institute of the Future, said that, in fact, energy regulation got trapped into a vicious circle. Thus, attempts to lower prices and tariffs almost completely limit the ability to modernize assets, which, in turn, only worsens the deterioration of infrastructure, complicates the ability to maintain prices for energy and related services. The recent initiative to increase rents for gas production not only threatens to reduce production volumes, but also demonstrates the unpredictability of government regulation, which could once again hit the investment attractiveness not only of gas production or the gas sector, but the energy sector and the economy as a whole. This contradicts the program, declared by the countrys leaders, which provides a focus on increased gas production and transparent working conditions for investors. This is the second problem of the gas market - the practice of hasty decisions of the authorities, such as imposed obligation to sell social gas. Surely, consumers need to be protected, but the decision must be consensual. And such hasty decisions are often challenged in court, leaving behind a number of problems for the market. For example, there was a decrease in gas consumption rates in violation of the procedure. The decision was eventually appealed and overturned, leaving many unresolved questions behind, as well as financial claims and debts in the market. So, it is important to keep a balance in decisions. After all, sometimes there is no middle ground - either haste or procrastination. For example, this May the country plans to switch to gas metering in energy units. However, as of the end of February, part of the regulatory framework has not yet been adopted. We are talking about the approval of tariffs for distribution and transportation of gas in energy units by the regulator, the adoption of technical regulations for natural gas by the Ministry of Energy. Draft documents will likely be also hastily published for rapid public discussion. But we very much hope that such a situation will not take place. Leonid Unigovskyi, Director General at Naftogazbudinformatyka Ltd, noted that it is important to ensure the sustainable operation of markets given the international experience and market experts who predict a gradual decline in natural gas prices. At the same time, it is important to ensure the unprofitable operation of companies in the industry and take into account geopolitical risks. Volodymyr Buzhan, the founder of Energy4Future and an expert at the Center for Economic Recovery, stressed that even during the development of the National Economic Strategy, its authors were guided by best market development practices and noted the importance of minimizing government interference and respect for investors. The European Business Association sincerely thanks all participants for the discussion and we very much hope that the reform of the natural gas market will continue in accordance with market principles. Be the first to learn about the latest EBA news with our Telegram-channel – EBAUkraine.

Last week, the Energy Committee of the European Business Association launched a series of regular expert meetings on energy topics.

The first meeting was dedicated to the reform of the natural gas market in the context of the latest novelties in the field of gas market regulation in Ukraine.

The participants of the meeting unanimously expressed their support for the reforms in the gas market and positively noted the developments that have been made in recent years. Thus, Head of Gas unit at the Energy Community Secretariat Predrag Grujicic noted that Ukraine has the most developed natural gas market among all member states of the Energy Community, and successfully implemented reforms have a positive effect on the market. At the same time, state interference into the natural gas market is not solely the attribute of Ukraine. Given the rising energy prices, the authorities in different countries are increasingly trying to protect the local consumers. However, the international experience and practice of EU countries still highlight such mechanisms as targeted subsidies, tax exemptions, tax benefits, and more to help vulnerable groups and businesses.

Adrian Prokip, an expert on the Energy Program at the Ukrainian Institute of the Future, said that, in fact, energy regulation got trapped into a vicious circle. Thus, attempts to lower prices and tariffs almost completely limit the ability to modernize assets, which, in turn, only worsens the deterioration of infrastructure, complicates the ability to maintain prices for energy and related services. The recent initiative to increase rents for gas production not only threatens to reduce production volumes, but also demonstrates the unpredictability of government regulation, which could once again hit the investment attractiveness not only of gas production or the gas sector, but the energy sector and the economy as a whole. This contradicts the program, declared by the country’s leaders, which provides a focus on increased gas production and transparent working conditions for investors. This is the second problem of the gas market – the practice of hasty decisions of the authorities, such as imposed obligation to sell “social gas”. Surely, consumers need to be protected, but the decision must be consensual. And such hasty decisions are often challenged in court, leaving behind a number of problems for the market. For example, there was a decrease in gas consumption rates in violation of the procedure. The decision was eventually appealed and overturned, leaving many unresolved questions behind, as well as financial claims and debts in the market. So, it is important to keep a balance in decisions. After all, sometimes there is no middle ground – either haste or procrastination. For example, this May the country plans to switch to gas metering in energy units. However, as of the end of February, part of the regulatory framework has not yet been adopted. We are talking about the approval of tariffs for distribution and transportation of gas in energy units by the regulator, the adoption of technical regulations for natural gas by the Ministry of Energy. Draft documents will likely be also hastily published for “rapid” public discussion. But we very much hope that such a situation will not take place.

Leonid Unigovskyi, Director General at Naftogazbudinformatyka Ltd, noted that it is important to ensure the sustainable operation of markets given the international experience and market experts who predict a gradual decline in natural gas prices. At the same time, it is important to ensure the unprofitable operation of companies in the industry and take into account geopolitical risks.

Volodymyr Buzhan, the founder of Energy4Future and an expert at the Center for Economic Recovery, stressed that even during the development of the National Economic Strategy, its authors were guided by best market development practices and noted the importance of minimizing government interference and respect for investors.

The European Business Association sincerely thanks all participants for the discussion and we very much hope that the reform of the natural gas market will continue in accordance with market principles.

Be the first to learn about the latest EBA news with our Telegram-channel – EBAUkraine.