Luxembourg: Kinstellar Energy & Natural Resources Digest Ukraine, February 2019 In Review

Last Updated: 25 April 2019
Article by Olena Kuchynska and Viktoriia Pysmenna

MARCH 2019 – KINSTELLAR ENERGY DIGEST UKRAINE, FEBRUARY 2019 IN REVIEW

OIL & GAS: Ukraine introduces daily gas balancing as part of the natural gas market reform

From 1 March 2019, Ukraine's gas transmission system operator, Ukrtransgaz, has implemented daily gas balancing measures on the natural gas market, which is a major step towards its reform.

The start date for daily gas balancing was set as 1 March 2019 by the Resolution No. 1573 of Ukraine's National Energy and Utilities Regulatory Commission dated 30 November 2018.

OIL AND GAS: PSA tender documentation for nine oil and gas fields has been approved

On 28 February 2019, Ukraine's Ministry of Energy and Coal Mining published calls to enter into production sharing agreements ("PSA") and published the tender documentation for nine hydrocarbon fields: Balakliyska, Berestianska, Buzivska, Ivanivska, Rusanivska, Sofiyivska, Ungivska, Varvynska and Zinkivska.

According to the tender documentation, the deadline for submitting applications and supporting documents is 5:30 pm on Tuesday, 28 May 2019.

To apply, an applicant submits a sealed set of documents (the "Application") together with a supporting letter and proof of payment of the participation fee, which is UAH 300,000 (approximately EUR 9,810 or USD 11,200). The Application must be also submitted in electronic form. The documents submitted must be in the Ukrainian language or translated into Ukrainian.

The PSA Interagency Commission is a special state agency responsible for the entering into and executing of PSAs. The Commission will reject Applications if no evidence of payment of the participation fee is enclosed. After the deadline the Commission opens the Applications to check whether all required information and documents have been provided; if not, the Commission adopts a decision by which it rejects the application on the basis of incomplete documentation.

The Applications will be evaluated within a month from the application deadline using a score-based system. The following criteria will be taken into account:

  • Work Programme: the best Work Programme; its focus on the comprehensive development of the field and early production – maximum 80 points;
  • Work Programme – environment: rational use of resources according to the Work Programme – maximum 15 points;
  • Work Programme – financing: level of financing of the Work Programme – maximum 30 points;
  • know-how:experience in exploration and production of hydrocarbons, including from unconventional sources – maximum 45 points;
  • investments:the highest amount of investment – maximum 35 points;
  • state's share:attractiveness of the suggested state share (the minimum share is 11%) – maximum 30 points;
  • local component:ensuring use of goods, services and works of Ukrainian origin – maximum 20 points;
  • environment: effectiveness of the environmental protection measures – maximum 15 points.

Although the tender documentation is available in Ukrainian language only, the outline of the fields in English can be found at this website.

On a separate note, Ukraine's State Geology and Subsoil Service (the "Derzhgeonadra") is currently preparing the Third International Licensing Round of e-auctions for the sale of exploration and production rights to onshore hydrocarbon fields.

OIL AND GAS: Proposals for amendments to the PSA Law

A draft law to improve the administration of entering into production sharing agreements (PSAs) was registered with Ukraine's parliament on 4 February 2019 ("Draft Law 9525").

Draft Law 9525 is intended to facilitate the transfer of subsoil licences (the special permit required for the use of subsoil) into PSAs. It details the rules for so-called compensation production covering an investor's expenses carried out prior to entering into a PSA and specifies the investor's obligation to carry out an environmental impact assessment.

Draft Law 9525 also suggests eliminating the double approvals currently required by the local authorities when transferring a subsoil licence into a PSA.

The draft law is currently awaiting evaluation by the relevant parliamentary committees. Based on committee recommendations, it may be approved for the first reading in parliament.

ENERGY: Regulator approves alternative dispute resolution mechanism among market players

On 5 February 2019, Ukraine's National Energy and Utilities Regulatory Commission (the "Regulator") adopted Resolution No. 156 whereby it approves the Regulations on the Settlement of Disputes Arising between Business Entities Operating in the Sectors of Energy and Utilities (the "Regulations").

According to the Regulations, market players may submit disputes to the Regulator for an amicable resolution. The scope of disputes eligible for amicable resolution of the Regulator includes:

  • access and connection to the electrical grid, heat and gas pipelines, oil pipelines, product pipelines, systems of water supply and water sewage;
  • breach of the licencing terms and conditions;
  • other issues within the competence of the Regulator.

The dispute settlement is free-of-charge and may be initiated by the joint application of the parties. The application form is included as Annex 1 to the Regulations.

Within ten business days of initiating an amicable resolution the Regulator decides whether it can proceed with the dispute settlement and informs the parties thereof. The application may be left undecided on the following grounds:

  • defects of competence: (a) the scope of the dispute is outside the Regulator's competence or (b) there is no sign of a dispute where the settlement would fall under the Regulator's competence;
  • defects of application: (a) the application is not compliant with its proper form (Annex 1 to the Regulations) or (b) it bears no signature or it is signed by unauthorised parties or (c) only one party initiated the dispute settlement;
  • eliminating competing proceedings: (a) the dispute has already been heard by the Regulator or a court, and a decision on merits has been adopted, or (b) the Regulator receives information that court proceedings relating to the dispute have been initiated.

The dispute shall be resolved within two months, although the Regulator may interrupt the term to collect evidence. The Regulator may hold hearings leading either to the conclusion of an agreement on dispute settlement (Annex 2 to the Regulations) or to a draft resolution of the Regulator.

At the final stage of the dispute settlement, the Regulator may decide either to oblige one or both of the parties to eliminate any breaches of applicable regulations (including licencing terms and conditions) or to terminate the dispute settlement procedure.

The Regulations have not yet entered into force; they will become effective on the day following publication in the official gazette.

ENERGY: Decision on sale of the state share in Odesa CHP has been adopted

On 11 February 2019, the State Property Fund of Ukraine adopted a decision on the sale of 99.9895% of shares in PJSC "Odesa CHP", the monopolist for thermal power production in Odesa.

PJSC "Odesa CHP" uses natural gas and to some extent heavy oil for heating. Thermal power is transmitted via heated water for heating and hot water supply. Power for heating and electricity are produced during the heating season, normally from October to April.

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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