Luxembourg: Kinstellar Energy Digest: Ukraine. July 2018 In Review

Last Updated: 10 September 2018
Article by Olena Kuchynska

OIL AND GAS: Ukraine supports new roadmap for the sale of hydrocarbon licences by auction

On 26 July 2018, Ukraine's Cabinet of Ministers approved a roadmap to hold international auctions for the sale of special permits (licences) for hydrocarbon exploration and production.

Preparation for the first international auction will start in September 2018, with the auction expected to be held in early 2019.

Although as of 31 July 2018 the respective government decision was not yet published, according to Ukraine's State Service on Geology and Mineral Resources ("Derzhgeonadra"), the key features of the new auction model include holding auctions using an electronic format that would allow long-distance participation in the bidding process and shorter terms for the whole procedure. The payment for a documentation set will be kept at the current level of 3.12% of the starting permit price, but shall not exceed UAH 72,555 (approximately EUR 2,300). The guarantee payment is set as 20% of the starting permit price.

According to the Derzhgeonadra, licences will be sold for fields totalling 150 billion cubic metres of natural gas. The estimated starting price for a permit is UAH 3 billion (approximately EUR 95 million). The value of geological information is approximately UAH 40 million (approximately EUR 1.2 million).

If proven successful, the pilot e-auction project may be implemented as a default option for the sale of rights to oil and gas fields. Ukraine still has one of the largest deposits of natural gas in Europe – the most recent edition of the BP Statistical Review of World Energy cites Ukraine's total proven reserves of natural gas at 1.1 trillion cubic metres (as at end-2017). Upcoming changes to Ukraine's regulatory framework are expected to attract international oil and gas investors.

NETWORK TARIFFS: Updated draft methodology for network tariffs

On 20 July 2018, Ukraine's National Commission for the Regulation of the Energy and Public Utilities Sectors ("Regulator") published draft regulations to amend the regulatory asset base (RAB) methodology for electricity distribution network tariff setting ("Draft Regulations").

The Draft Regulations are aimed at adjusting the methodology of applying the RAB tariff to recent changes in legislation and establishing a detailed procedure for calculating the tariff. In addition to detailing the organisational aspects of setting the tariff, the Draft Regulations specify the procedure for calculating costs (required income) and shape the definition of operating costs by economic elements and their individual components.

The current model of RAB methodology has been criticised by many experts, including the Energy Community Secretariat, as not being entirely in line with the key principles of the network tariffs setting and, in particular, for allowing "the possibility of windfall profits for operators."

The Regulator will be accepting proposals and comments to the Draft Regulations until 21 August 2018.

RENEWABLE ENERGY: Ukraine to stimulate investments in renewables by issuing green bonds

In July 2018, Ukraine's State Agency on Energy Efficiency and Energy Saving ("SAEEE") held several meetings with international financial institutions and other stakeholders to discuss the implementation of a "green bond" issue in Ukraine. SAEEE's plans include preparation of a blueprint for the implementation of a green bond market based on a review of basic scenarios, which are elaborated further on a communication platform operated under the auspices of SAEEE. Once the blueprint is ready, it will be submitted to the government for review.

A "green bond" can be any type of bond instrument issued to raise capital to support green endeavours, such as climate-related or other environmentally friendly projects. The green bond market first emerged in 2007 when the European Investment Bank issued a EUR 600 million climate awareness bond. In Q1 2018, issues of green bonds totalled USD 25.8 billion (71 green bonds from 52 issuers). Green bonds can be used to finance projects in areas of renewable energy, energy efficiency, clean transportation and sustainable water management.

ENERGY EFFICIENCY: Evolving secondary legislation to make the practical realisation of energy-efficient measures more feasible in Ukraine

Ukraine`s Ministry of Regional Development, Construction, Housing and Utilities has approved secondary acts required to implement energy efficiency legislation adopted in 2017. Newly approved acts include:

  • Methodology for Calculating the Energy Performance of Buildings;
  • Methodology for Determining the Economically Feasible Level of Energy Efficiency of Buildings;
  • Regulations on the Certification of Energy Efficiency and Form of Energy Certificate;
  • Methods of Inspection of Engineering Systems.

The adoption of secondary legislative acts is seen as a move towards full-scale implementation of energy-efficient legislation that will enable Ukraine to reach its energy efficiency goals. However, to further improve energy efficiency in Ukraine, several additional legislative acts still need to be implemented.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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