Ukraine’s energy development strategy will be based on three principles

12/ 02/ 2021

Energy independence must be a component of Ukraines national security. This is one of the principles according to which it is planned to develop the energy sector in our country. Other basic principles include European integration of the sector and its sustainable development. This vision of the industry was presented by Yuriy Vitrenko, Acting Minister of Energy of Ukraine, during a meeting with the EBA community, which took place on 11 February. There was a discussion of electricity imports from Belarus and Russia in the context of energy security. It should be noted that the state of the electricity generation system in Ukraine is unsatisfactory, so there are often problems with energy shortages. In order not to depend on emergency assistance from the energy systems of Russia and Belarus to which Ukraine is currently connected, our country must disconnect from those systems and instead join the ones of the European Union. According to Mr. Vitrenko, such integration will be implemented in 2023. In addition to security issues, it will also allow the country to access liquid markets with transparent rules of the game. Therefore, for its part, Ukraine needs to bring its regulatory framework, namely network codes, in line with European legislation. The focus on sustainable development involves replacing coal with green energy by developing energy storage systems, energy efficiency, and increased maneuverability of nuclear generation. Also, the Acting Minister of Energy stressed, sustainable energy development is impossible without protecting vulnerable consumers - both from abuse by market participants and from the volatility of the market itself. It was also stressed that the Minenergo and the State Food and Consumer Service will join forces to combat the gray market of petroleum products. In particular, it is planned to introduce zero excise duty on condensers that are used to produce gray fuel. This will allow the State Tax Service and other authorities to better monitor the movement of excisable products. The use of markers and digitalization are also seen as effective measures to regulate the shadow market. Mr. Vitrenko stressed that these plans are still under discussion. Therefore, separate sectoral meetings will be held, so that related companies have the opportunity to submit their proposals to combat counterfeit petroleum products. There was also talk of a critical shortage of coal in Ukraine during the current heating season. Thus, Ukraine solves it by extracting its own coal, as well as by purchasing coal in Kazakhstan. At the same time, Mr. Vitrenko noted that green energy, nuclear energy of the future, as well as electricity storage systems will be an alternative to coal generation in Ukraine. Hydrogen energy is also a promising industry for Ukraine, and it has already attracted German investors. The business raised the issue that manual regulation of gas prices by the Cabinet of Ministers is a violation of the terms of cooperation with the IMF and the abolition of market reform. Mr. Vitrenko assured that he was personally in favor of the market and against state intervention in situations when it is not necessary. However, in his opinion, the state should intervene when the market itself cannot provide fair competition, otherwise, it is bad both for good faith market players and their consumers. The current state regulation of gas prices is temporary - it has eliminated the abuse of dominant players in the retail market and protected people during the cold and quarantine. Given this, this measure will not affect the continuation of Ukraines cooperation with the IMF. Instead, a systematic vision for solving existing energy problems has been developed and is now being constructively discussed with the Fund and other international partners. At the same time, the Ministry of Energy continues to work on the repayment of debts in accordance with its obligations under the Memorandum with Renewable Energy Producers. Thus, the government plans to issue green bonds worth up to UAH 24 billion as a “quick” solution to the problem. Ukrenergo will also partially use UAH 10.25 billion in loans from state-owned banks to repay debts to investors, which also partially repay the existing debts. According to Mr. Vitrenko, this together will be enough to cover the debt, but in the future, it is necessary to think about a sustainable version of the market to avoid re-accumulation of debt. Thus, the business was informed that a new model of covering the costs of the SEGuaranteed Buyer is proposed, which provides for direct state funding through carbon tax revenues. During the meeting, we also discussed the investment attractiveness of Ukraine’s energy, payment for the use of gas distribution networks, revision of the RAB-tariff concept, introduction of unbundling, state strategy for hydrocarbon production, etc. On behalf of the European Business Association, we truly thank Mr. Vitrenko for this professional dialogue! We hope that in the near future a final decision will be made on the appointment of the Head of the Ministry of Energy to ensure the stable functioning of the industry, as well as the resolution of the current energy problems of the business!

01/

Energy independence must be a component of Ukraine’s national security. This is one of the principles according to which it is planned to develop the energy sector in our country. Other basic principles include European integration of the sector and its sustainable development. This vision of the industry was presented by Yuriy Vitrenko, Acting Minister of Energy of Ukraine, during a meeting with the EBA community, which took place on 11 February.

There was a discussion of electricity imports from Belarus and Russia in the context of energy security. It should be noted that the state of the electricity generation system in Ukraine is unsatisfactory, so there are often problems with energy shortages. In order not to depend on emergency assistance from the energy systems of Russia and Belarus to which Ukraine is currently connected, our country must disconnect from those systems and instead join the ones of the European Union. According to Mr. Vitrenko, such integration will be implemented in 2023. In addition to security issues, it will also allow the country to access liquid markets with transparent rules of the game. Therefore, for its part, Ukraine needs to bring its regulatory framework, namely network codes, in line with European legislation.

The focus on sustainable development involves replacing coal with green energy by developing energy storage systems, energy efficiency, and increased maneuverability of nuclear generation. Also, the Acting Minister of Energy stressed, sustainable energy development is impossible without protecting vulnerable consumers – both from abuse by market participants and from the volatility of the market itself.

It was also stressed that the Minenergo and the State Food and Consumer Service will join forces to combat the gray market of petroleum products. In particular, it is planned to introduce zero excise duty on condensers that are used to produce gray fuel. This will allow the State Tax Service and other authorities to better monitor the movement of excisable products. The use of markers and digitalization are also seen as effective measures to regulate the shadow market. Mr. Vitrenko stressed that these plans are still under discussion. Therefore, separate sectoral meetings will be held, so that related companies have the opportunity to submit their proposals to combat counterfeit petroleum products.

There was also talk of a critical shortage of coal in Ukraine during the current heating season. Thus, Ukraine solves it by extracting its own coal, as well as by purchasing coal in Kazakhstan. At the same time, Mr. Vitrenko noted that “green” energy, nuclear energy of the future, as well as electricity storage systems will be an alternative to coal generation in Ukraine. Hydrogen energy is also a promising industry for Ukraine, and it has already attracted German investors.

The business raised the issue that “manual” regulation of gas prices by the Cabinet of Ministers is a violation of the terms of cooperation with the IMF and the abolition of market reform. Mr. Vitrenko assured that he was personally in favor of the market and against state intervention in situations when it is not necessary. However, in his opinion, the state should intervene when the market itself cannot provide fair competition, otherwise, it is bad both for good faith market players and their consumers. The current state regulation of gas prices is temporary – it has eliminated the abuse of dominant players in the retail market and protected people during the cold and quarantine. Given this, this measure will not affect the continuation of Ukraine’s cooperation with the IMF. Instead, a systematic vision for solving existing energy problems has been developed and is now being constructively discussed with the Fund and other international partners.

At the same time, the Ministry of Energy continues to work on the repayment of debts in accordance with its obligations under the Memorandum with Renewable Energy Producers. Thus, the government plans to issue green bonds worth up to UAH 24 billion as a “quick” solution to the problem. Ukrenergo will also partially use UAH 10.25 billion in loans from state-owned banks to repay debts to investors, which also partially repay the existing debts.

According to Mr. Vitrenko, this together will be enough to cover the debt, but in the future, it is necessary to think about a sustainable version of the market to avoid re-accumulation of debt. Thus, the business was informed that a new model of covering the costs of the SE”Guaranteed Buyer” is proposed, which provides for direct state funding through carbon tax revenues.

During the meeting, we also discussed the investment attractiveness of Ukraine’s energy, payment for the use of gas distribution networks, revision of the RAB-tariff concept, introduction of unbundling, state strategy for hydrocarbon production, etc.

On behalf of the European Business Association, we truly thank Mr. Vitrenko for this professional dialogue! We hope that in the near future a final decision will be made on the appointment of the Head of the Ministry of Energy to ensure the stable functioning of the industry, as well as the resolution of the current energy problems of the business!