Article by Tetiana Tugolukova, Associate, Salans, Kyiv

Gas Acquis

(1)   Directive 2003/55/EC concerning common rules for the internal market of natural gas (the “Gas Directive”)

The key objective of the Gas Directive is the creation of a fully operational, liberalised and competitive internal gas market covering the whole of the EU.  This includes market opening, unbundling, third-party access to gas infrastructure, public service obligations, customer protection, criteria and procedures for granting authorisations and licenses for transmission, distribution, supply and storage, as well as requirements for system operation and development.  The Gas Directive further specifies the functions, competences and administrative powers of regulatory authorities.

The implementation deadline for the Gas Directive expired on 1 January 2012.  Under the Accession Protocol, the gas market has to be open for all non-household customers as of 1 January 2012 and for all households as of 1 January 2015.

(2)   Regulation 1775/2005 on conditions for access to the natural gas transmission networks (the “Gas Regulation”)

The key objective of the Gas Regulation is to develop a harmonised framework for effective and non-discriminatory access to the gas transmission networks, taking the specifics of national and regional markets into account, with a view to ensuring the proper functioning of the EU internal gas market.  The Gas Regulation builds on the Gas Directive and lays down more detailed rules for access to the natural gas transmission network, such as: tariff principles, third-party access services, transparency requirements, balancing rules and imbalance charges, principles for capacity allocation, congestion management including secondary market trading of capacities.

The implementation deadline for the Gas Regulation expired on 1 January 2012

(3)   Directive 2004/67/EC concerning measures to safeguard security of the natural gas supply (the “Gas Supply Security Directive”)

The key objective of the Gas Supply Security Directive is to safeguard an adequate level for the security of the gas supply, particularly in the event of a major supply disruption, while also contributing to the proper functioning of the internal gas market.  The Directive established measures to safeguard an adequate level of security of supply, with a special focus on specific customers and a community mechanism.  It requires the Contracting Parties to define general, transparent and non-discriminatory security of supply policies, which are compatible with the requirements of the competitive market. They must also define the roles and responsibilities of market participants and the implementation procedures for safeguarding security of supply. 

The implementation deadline for the Gas Supply Security Directive expired on 1 January 2012.

Additionally, the Energy Community Treaty calls on the Contracting Parties to adopt Security of Supply Statements starting one year after the entry into force of the Energy Community Treaty.  The Statements must be communicated and updated every two years. Under the Accession Protocol, Ukraine had to fulfill this obligation by 1 February 2012.

Key Findings on Implementation of the Gas Acquis in Ukraine: 

(i)     Primary gas legislation in Ukraine is in place.  The Law on Principles of the Functioning of the Natural Gas Market (the “Gas Market Law”) was adopted by the Verkhovna Rada on 8 July 2010 and basically corresponds to the principles and requirements of the Gas Directive.  However, while the overall picture is optimistic, it is tarnished by a lack of the secondary legislation required for both the proper implementation of the Gas Market Law and full transposition of the EU Gas Acquis. 

(ii)   The requirement for proper unbundling in the Ukrainian gas sector is yet to be fulfilled.  On 2 September 2011 the President of Ukraine instructed the Prime Minister of Ukraine to prepare a draft Programme on Naftogaz reformation by 1 October 2011.  As of April 2012, such a draft Programme has not yet been prepared.  At the same time, on 13 April 2012 the Parliament of Ukraine adopted and on 28 April 2012 the President of Ukraine signed Law No. 4658-VI  “On Amending Law of Ukraine On Pipeline Transport (regarding reformation of oil and gas complex)”. The Law - authorises the Cabinet of Ministers of Ukraine to reorganise Naftogaz Naftogaz solely for the purpose of fulfillment of Ukraine’s commitments under the Energy Community Treaty. It also prohibits Naftogaz’s privatisation and the privatisation of companies created as a result of the reorganisation.

(iii) On 23 September 2011 the NERC launched a new EU Twinning Project “Providing Assistance to the NERC in Ensuring the Fulfillment of Gas Legislation In Accordance With the Energy Community Treaty Provisions”.  The key purpose of this Project is to provide the NERC assistance in developing secondary legislation for implementing the Gas Market Law and fulfilling its commitments in the Ukraine as the Contracting Party of the Energy Community.

(iv)  The requirement for third party access is also yet to be fulfilled.  To date, there is neither a sufficiently precise and detailed mechanism for ensuring non-discriminatory access to the gas transmission system, nor publicly available information on the available short and long-term capacity.  The draft Resolution of the NERC “On Approval of Procedure for Access to Unified Gas Transportation System of Ukraine” developed in March 2011 has still not been adopted.

(v)    The availability of interconnection gas capacities still remains a bottleneck and Ukraine needs to modernise its Gas Transportation System (“GTS”). It officially announced that modernisation commenced on 19 July 2011 (based on information placed on the official websites of the Energy Ministry and Naftogaz).  The first stage in this programme will be the modernisation and reconstruction of the Urengoi-Pomary-Uzhgorod main gas pipeline, with the involvement of international financial organisations, such as the European Bank for Reconstruction and Development (“EBRD”) and European Investment Bank (“EIB”).   According to information placed on the EBRD’s official website, each EBRD and EIB plans to invest USD 154 million (a total of USD 308 million) in the first stage of the GTS modernisation.  Financing will be provided against a 15-year sovereign guarantee from the Ukrainian government and is conditional on gas sector reforms (including Naftogaz’s reformation).

Tetiana Tugolukova
Associate
Real Estate, Energy & Natural Resources Groups
Salans LLC