On February 1, 2011, when Ukraine officially ratified the Energy Community Treaty (ECT), government officials beamed as they presented the milestone as an exceptional achievement. “We have become a full-fledged member of the Energy Community, a kind of energy EU. We are an equal among equals and have the same rights as, for example, Germany. We will be perceived in a different way than Ukraine and its energy problems have been treated in the past five years,” Energy and Coal Industry Minister Yuriy Boyko said at the time.
Indeed, the European Energy Community, which unites 39 countries (27 EU members and 12 other states) with half a billion population, does open great prospects for a member state. The essence of the EEC lies in creating a common European energy market by incorporating common “rules of the game” – EU directives and regulations – into national legislation.
By implementing European norms, Ukraine could greatly improve its energy security, introduce higher technical standards and regulations, increase competition on its domestic market, attract serious investors, increase the capitalization of Ukrainian assets in the fuel and energy sector and improve environmental conditions. Citizens would be able to freely receive detailed information about utility tariffs, including how they are calculated and what their structure is. Especially vulnerable consumers would be safeguarded against power and gas cutoffs.
SPEAKING DIFFERENT LANGUAGES
But the miracle did not happen. Less than a year later, Ukrainian top officials said the exact opposite. President Viktor Yanukovych criticized Europeans at his final press conference in December: “We have not seen any positive results so far. We see that Ukraine is being ignored by our colleagues in the Energy Community… If this dynamic persists, why do we need all of this? For the sake of appearance or as a tribute to fashion?”
Boyko was more specific. Speaking at a conference in January 2012, he said Ukraine's membership in the EEC was an opportunity to obtain two things from the EU: money to upgrade Ukraine's gas transportation system and support in Kyiv's opposition to Russia’s South Stream. But Ukraine “failed to receive a clear signal” on either issue.
Director of the Secretariat of EEC Slavco Nejkov said in his interview to Ukrainian Energy: “We do not deal with South Stream. … The position of the Energy Community is that we do not give priority to one project over another. This is the sovereign right of every state and company.” At the same time he lamented the lack of information from Kyiv on its commitments and said he was planning to dispatch a group of experts to Ukraine to see what progress had been made.
The European side points out that Ukraine must make good on the commitments it undertook when it joined the European Energy Community. On January 13, EU Energy Commissioner Günther Oettinger reminded Boyko in a telephone conversation that a chapter in the EU-Ukraine Association Agreement is based exactly on these obligations and any new agreement with Russia would have to be in line with them. This is the context in which Oettinger’s recent statement about the European Commission’s readiness to be the third party in Ukraine-Russia gas negotiations should be viewed.
This discrepancy between mutual expectations and a lack of proper communication led to a situation in which Ukraine does not have any special accomplishments to report. The president and the government have been so busy with political games around the “flow” and prices of gas that they have lost control over the process of harmonizing legislation. The Cabinet of Ministers only approved an Action Plan for meeting Ukraine’s commitments to the EEC at the late date of August 3, 2011, a full six months after ratification.
By now Ukraine has missed a series of deadlines for implementing acquis communautaire in the gas, electrical power and renewable energy sectors, which are clearly set out in the protocol on EEC accession. Moreover, a study by DiXi Group, an analytical center, supported by the International Renaissance Foundation shows that Ukraine missed all the deadlines that expired by 2012.
MUCH TO DO ABOUT EVERYTHING
The Law “On the Foundations for the Operation of the Natural Gas Market” (adopted in 2010) needs to be improved and enforced. In order to fully comply with Directive 2003/55/EC, Ukraine must adopt subordinate legislation. Some pieces have already been passed by the National Electricity Regulatory Commission (NERC). However, the gas market will not be free until there are free consumers. A regulation on categorizing consumers into distinct groups has been passed but still needs to be approved at the top level.
Another problem is the postponed restructurization of Naftogaz. The now infamous bill No. 9429 which grants the Cabinet of Ministers the exclusive right to reorganize the company does not have anything in common with European norms. The Procedure for Accessing the United Gas Transportation System of Ukraine, which NERC prepared in March 2011 in keeping with European Regulation 1775/2005, is yet to be approved. Another political complication is the still unclear format of how the gas transport system will be managed in the future. There are rumours of an “international consortium” in the making and an essential takeover by Russia.
There is virtually no progress in the power sector. Ukraine has to meet its commitments before the EEC at a time when it is making a difficult transition to a market based on bilateral agreements. On top of this, there are dubious privatization processes going on in the country. Directive 2003/54/EC requires that a new Law “On the Foundations for the Operation of the Natural Gas Market” be adopted. A draft of this law is in the pipeline, but it is not clear when parliament will consider it. There is no information in the public domain on the Energy and Coal Ministry making any efforts to fulfil Directive 2005/89/EC, which pertains to investment security in the power supply network and infrastructure.
No amendments have been made to the Law “On the Power Sector” to incorporate Regulation 1228/2003 on conditions for accessing the cross-border power network. Practices also remain discriminatory: almost all lots at power export auctions are purchased by Rinat Akhmetov’s DTEK or affiliated companies.
Despite growing interest from investors and a real boom on the market of renewable energy, Ukraine is in no hurry to adopt European standards here either. The Cabinet of Ministers had until July 1, 2011, to approve a plan to implement Directive 2001/77/EC (on the promotion of electricity from renewable energy sources) and Directive 2003/30/EC (on the promotion of the use of biofuels). The State Agency for Energy Efficiency and Energy Conservation drafted the papers in the early 2011, but they are yet to be approved and published.
Four directives regarding environmental protection have different deadlines but progress here is slow as well. So far the Natural Resources Ministry is focused on fulfilling Directive 2001/80/EC on limiting the emission of certain pollutants from large combustion plants into the air. There is virtually no data on implementing Directive 1999/32/EC on reducing the sulphur content of certain liquid fuels. By adopting the Law “On Regulating City Planning Activities,” which scrapped environmental audits, Ukraine actually moved further away from the norms contained in Directive 85/337/EEC.
Ukrainealso still has a long way to go to reach EU standards with regard to an independent regulatory body. A draft law on such an institution in the energy sector has been stuck in parliament since 2007. Last year, laws on regulating natural monopolies were adopted that put national commissions in direct subordination to the president, thus increasing their political dependence.
The overall impression is that both the Presidential Administration and the Cabinet of Ministers have forgotten about both the essence of the Energy Community and the price of the issue at stake – national energy security.