Editor's note: The coalition agreement, signed by five parliamentary parties on Nov. 21, is a 66-page document that was created by designated working groups composed of members of parties that planned to join the coalition. The original agreement can be found here. Below is the English translation of one part of the agreement that deals with energy strategy and energy reform. This part has received the most praise from the analytical and academic communities.
VIII. ENERGY INDUSTRY AND
ENERGY INDEPENDENCE REFORM
We
shall establish state policy that will provide clear and predictable
benchmarks on energy industry structural development.
We
shall conduct structural reforms of the energy industry that envisage
gas, electricity and coal market liberalization, effective NAK
Naftogaz re-organization and transition to unified gas and
electricity market price setting for all consumers in order to
stimulate their saving, inefficient state losses decrease and
establishing economical development.
We
shall ensure required conditions for attracting investments into
energy industry to implement its structural modernization, renovate
infrastructure and build up domestic gas, oil and coal production in
order to establish competitive and effective industry infrastructure,
decrease dependence on energy sources import and ensure sustainable
energy sources supply to consumers.
We
shall conduct wide sources diversification of imported primary energy
sources and fuel for nuclear power stations in order to strengthen
energy supply security and reliability, develop competition between
suppliers, decrease level of Ukrainian energy market monopoly and
threat of isolation.
We
shall ensure transition to energy efficient and energy saving energy
sources use and consumption by introducing innovative technologies
that will allow decreasing GDP’s energy component by over 20% within
five years.
1. Energy markets reorganization and
European energy legislation implementation in accordance with Energy
Community Treaty
1.1. Reforming gas and electricity
markets in accordance with Third Energy Package requirements to
ensure effective division of main types of their production
activities:
1.1.1. conducting comprehensive NAK
Naftogaz restructuring and GTS operator certification in order to
separate natural gas extraction, transportation, storage and supply
activities and provide transparent and uninterrupted access to gas
transportation infrastructure; (Q4 2015)
1.1.2. providing for attracting
qualified investors to managing gas transportation system and
underground gas storage assets, which will imply keeping state
property and attracting foreign investors for comprehensive
modernization; (Q3 2015)
1.1.3. ensuring natural gas
transportation and distribution separation from other activities
conducted on gas market; (Q1 2015)
1.1.4. ensuring electricity hand-over
and distribution separation from other activities conducted by other
electricity market participants; (2015-2016)
1.2. Aligning Ukraine’s natural gas and
electricity markets regulatory environment functioning with the Third
Energy Package. Namely, updating basic legislation on gas market,
conversion to “entry-exit” transportation system tariff (Q1
2015)
1.3. Conducting regulatory and
technological measures on synchronizing Ukraine’s energy system
ENTSO-E; (until 2020)
1.4. Updating regulatory and technical
preconditions for establishing basis (hub) for natural gas trades to
use gas storages and other transportation infrastructure more
efficiently and gradual introduction of spot and futures transactions
to determine natural gas market price via transparent price-forming
mechanism; (2015)
1.5. Liberalizing electricity market by
conversion from single seller model to the model of direct contracts
between electricity suppliers and consumers and balancing market
(brush up Law of Ukraine on Ukraine’s Electricity Market Functioning,
including in compliance with third Energy Package, and its
implementation).
2. Stage-by-stage elimination of
cross-subsidizing and equalizing natural gas and electricity prices
2.1. Gradual cross-subsidizing
elimination (multi-level tariff system) by setting prices and tariffs
for all consumers, including population, on commercially grounded
level at the same time shifting to targeted subsidies to vulnerable
layers of population (during 2015-2017). Imposing, by law, moratorium
on offering new reduced electricity and gas prices and tariffs for
certain industries and consumers.
Making
domestically produced gas sale price for state gas producing
companies commercially grounded to cover required investment costs.
3. Ensuring energy markets
transparency and increasing their effectiveness
3.1. Ensuring, by passing respective
law, energy industry regulator’s independence in accordance with
Third Energy Package requirements to ensure relevant level of
transparency on monopoly markets and effective monitoring of
compliance with competition rules; (Q4
2014)
3.2. Introducing EITI Standards,
legislative support of extraction companies accounting and financial
reporting requirement strictly under international standards; (IFRS)
3.3. Introducing up-to-date European
State Energy Companies Corporate Management Standards in compliance
with International Organization for Economic Cooperation and
Development (OECD); (during 2015-2016)
3.4. Performing inventory of oil and
gas extraction industry joint activity agreements with state
companies’ participation and performing comprehensive audit of
subsoil use licenses application by both state-owned and private oil
and gas extraction application in order to cancel those licenses that
are not fully applied in terms of work program execution. (Q1-Q2
2015) Selling canceled licenses at open auctions;
3.5. Legislative reduction of quorum for
conducting general shareholder meetings of joint stock companies to
50% + 1 share; (Q4 2015)
Legislative
opening of the natural gas, electricity and heat energy and their
transportation tariff structure.
4. Bringing oil and gas extraction
tax burden in compliance with best international practices
4.1. Setting equal subsoil use payment
during gas production at commercially grounded level that will make
the industry profitable for companies of all types of ownership.
Ensuring fiscal regime stability and permanence for hydrocarbon
production industry to attract significant foreign investments under
Tax Code of Ukraine.
Introducing
diversified subsoil use payment rate system to create favorable
conditions for hydrocarbon production in depleted fields, low-rate
wells and fields with difficult development conditions (3000 – 5000 m
deep) that will allow developing currently commercially unattractive
deposits. (Q4 2014)
5. Improving legislation and
regulatory framework to attract more private investors into energy
industry
5.1. Creating favorable and clear to
foreign investor background legislation that would include (Q4 2014):
5.1.1. subsoil use legislation
codification by passing revised Subsoil Code that will combine
improved provisions of Oil and Gas Law, Coal-Bed Methane Law, State
Geological Service Law and Mining Law, as well as regulation, by law,
subsoil license awarding and license auction procedures;
5.1.2. formalize, by law, exhaustive
list of the reasons for suspending or canceling licenses, as well as
natural resources explorer’s priority right on production;
5.1.3. simplification of land
allocation procedure for the purposes of geological exploration
activities, field development and completion, laying pipelines and
power lines;
5.1.4. increasing initial license price
calculation transparency, namely introducing diversified approach
depending on the target work designation (exploration or production),
geological data reliability degree (reserves or resources) and type
of deposit depending on the difficulty of production (conventional or
unconventional);
5.1.5. taking unconventional
hydrocarbons development and production peculiarities into account;
5.1.6. canceling license awarding
preferences for companies with state stake;
5.1.7. removing mandatory subsoil
user’s requirement to perform monitoring and scientific supervision
of the compliance with specific subsoil use provisions;
5.1.8. introducing simplified on-line
access to state geological data in the scope and digital quality that
is sufficient to attract private subsoil users’ commercial interest;
5.1.9. improving state and private
company partnership under JAA and/or PSA mechanism.
5.2. Switching to stimulating natural
gas transportation and distribution, electricity hand-over and
supply, as well heat energy transportation and supply tariff forming
principle; (2015-2016)
5.3. Providing legislative background
for implementation of investment programs in nuclear energy industry
to enhance current and create new elements of nuclear fuel cycle in
line with international nuclear legislation. Increasing nuclear
reactor safety, extending reactor life cycle, building new generation
of reactors, building spent nuclear fuel storage and making Shelter
facility ecologically friendly environment. (starting in 2015)
6. Coal mining industry reform
6.1. Privatization of all coal-mining
companies under Law of Ukraine in Coal-Mining Objects Privatization
Peculiarities; (during 2015-2016)
6.2. Abandonment/suspension of all mines
that will not have been privatized; (during 2015-2019)
6.3. Implementing coal-mining industry
workers and coal-mining areas population social support concept.
During five years, annual increase of Ukraine’s HSSE support,
coal-mining industry restructuring and disengaged workers’ social
support; (Q4 2015)
6.4. Optimizing state support for
coal-mining industry to conduct effective industry restructuring
(mine abandonment and suspension), ensuring coal production
self-repayment and decreasing, by 2020, state support to a minimum
scope (solely for the purposes of water handling and environmental
protection) by preparing respective law to cover the following
principles: (Q2 2015)
6.4.1. prohibiting state support of
mine improvement/technical refit, new mine construction and mines in
rent and concession;
6.4.2. fixing annual total amount of
state support of coal-mining industry for five years in the scope
that does not exceed current level of support (not taking temporarily
occupied territories into account), providing for annual decrease (at
least by 20%) of coal production costs with the increase (at least by
20%) of HSSE, coal-mining industry restructuring and disengaged
workers’ support costs;
6.4.3. starting in 2021, prohibiting all
kinds of state support of coal-mining industry, except for water
handling and environmental protection purposes.
6.5. Coal market liberalization: (Q2
2015)
6.5.1. introducing stock-exchange coal
trade (electronic trade) to switch to energy coal market price
forming;
6.5.2. switching to direct coal sale
contracts, Vugillia Ukraiiny dissolution.
7. Imported primary energy sources
and fuel for nuclear power plants source diversification
7.1. Increase gas import from EU by
increasing North-South European gas transportation corridor technical
capabilities;
7.2. Fuel for nuclear power plants
suppliers and certain nuclear fuel cycle service providers
diversification;
7.3. Gradual implementation of the
requirement that the amount of natural gas, oil/oil products and coal
import to Ukraine by a single source cannot exceed 30%.
