Ukraine Needs Reform for Investments: Dtek

The CEO of Ukrainian energy holding company DTEK, Maxim Timchenko, says the process of market reform in Ukraine is critical for foreign investment in its infrastructure and the integration of Ukraine into the EU energy market.

Referring to political discussions in Brussels July 9-10, Timchenko said in a July 17 statement that the reform and modernisation of Ukraine’s energy market is vital to the future of Ukraine, but can also play a very important role in the security and economic development of the region, and the wider European continent.

“The EU’s ongoing recognition of Ukraine’s importance as a strategic gas transit country and the extension of its partnership on the Energy Strategy to 2035 will help ensure secure, sustainable and affordable energy to the region. The EU’s partnership will also help Ukraine meet its climate change obligations under the Paris Agreement, and we welcome new co-operation on improving energy efficiency in residential buildings through the Energy Efficiency Fund,” he said.

Regarding gas, he said the process of corporatisation and the unbundling of state-owned energy companies needs to be completed. For Naftogas the unbundling is about separating transit from gas extraction. 

He also said that a consumer information campaign on energy reform was needed to win consumers round to an idea that can be unpopular. "It is important to explain the long-term benefits of these reforms for Ukraine’s economic development, energy security and euro-integration to offset the risk that the process of reform is further delayed due to the politicisation of the energy liberalisation process," he said.

Timchenko added that: “Energy market reform will deliver massive benefits to consumers, society and business, but Ukraine only has a small window of opportunity to maximise these benefits before grid wear and tear becomes critical. It is vital that the pace of energy market reform in Ukraine, which has slowed recently, is accelerated. DTEK stands ready to assist both the government of Ukraine and European Union and as they move this process forward.”

Ukraine energy day

The European Parliament hosted the Ukrainian Energy Day July 10, following the 20th EU-Ukraine Summit on the previous day, which was the first since the entry into force of the association agreement on September 1, 2017. The EU has described it as “the most ambitious agreement it has ever concluded with any partner country”, as it covers many areas, including energy and security.

Ukraine's gas consumption in 2017 was about 31bn m³, down from 33.2bn m³ in 2016. Domestic production remained stable at 20bn m³. Both the Ukrainian government and state-owned company Naftogaz have stated that their target is to match consumption and production at 27bn m³/yr by 2020.

According to Alexander Dombrowski, Chairman of the Committee of Energy of the Ukrainian Parliament, becoming energy independent is the utmost priority in Ukraine's strategy. “Ukraine has already decreased its annual gas consumption by 6bn m³ in only three years,” which presumably has saved the country €1.2bn ($.14bn)  in 2017. He expects a further 5bn m³ reduction from energy efficiency and decentralisation policies in the coming years, up to 2020. The government also expects to substitute 3bn m³ of natural gas with biomass in district heating by then.

Additionally, Ukraine has apparently adopted more than 90% of the new legislation required to reach EU energy law standards, and although the pace of implementation is not as fast as hoped, the energy market sees swifter reforms than other areas. One of the main issues remains the unbundling of Naftogaz, a process that started in June 2017 and that the law now dictates should be completed by June 2019. Elections expected in March 2019 complicate the picture.

The Energy Day was also the occasion to showcase other EU-Ukraine energy projects, in particular concerning the power market and nuclear energy, such as the Energy bridge which would allow Poland and neighbouring countries to use Ukraine’s surplus nuclear power. Yurii Nedashkovskyi, the president of Ukraine’s nuclear state-company Energoatom, argued that 5% of the Ukrainian grid is already integrated in the EU market, and that the country agreed with the European transmission network association (ENTSO-E) on a detailed roadmap for the full synchronisation of the Ukrainian grid with the electricity systems of European countries.