The message coming from the natural gas industry was one of despair at the three-day Ukraine Energy Forum in Kyiv this week. Instead of moving towards European Union standards, Ukraine has moved further away, some participants said.
“Entry into Ukraine has become complicated and very expensive and competition is not being encouraged,” said Didier Magne, head of the European gas division at Trailstone.
According to panelists, legislation passed by parliament in October would have bought Ukraine in line with European Union standards. But amendments included in secondary legislation, implemented in January, have made the market overregulated and uncompetitive.
“The secondary legislation has failed to deliver what thegas market law should have delivered,” said Graham Tiley, head of Shell Ukraine. Yurii Vitrenko, managing director of international marketsat state-owned Naftogaz, suggested that the Ministry of Energy and regional energy companies were to blame. Vitrenko called on market players to communicate their grievances with the ministry and politicians.
The law has introduced an entry-exit tariff system for gas importers. Local producers will also have to pay the tariffs starting in April.The fee is linked to the U.S. dollar, making it increasingly expensive. According to Yaroslav Mudryy, managing partner at Energy Resources of Ukraine, the tariff charged by Ukrstransgaz has increased by 13 percent in two months.
“It has created an additional burden on market players that is shifted to consumers,” Mudryy said. On another issue, investors questioned the continued practice of keeping gas in storage in light of Ukraine’s successful diversification of suppliers and less reliance on Russia.
“It does not deliver security, a fully functioning market will deliver security. What it does is provide significant financial burden ontraders,” Tiley said.
Naftagaz has put forward an initiative to the Ministry so that gas reserves would be for social security purposes only: households and some municipal buildings such as hospitals. At the moment companies are obliged to put 50 percent of what they import into storage. Vitrenko said he is waiting for them to state the quantities of gas that would be needed.
Yet another issue is export restrictions.
“Gas should be able to flow in and out of the country and again this is not in compliance with the EU,” Vitaly Radchenko, a partner atCMS Cameron McKenna law firm in Kyiv.
Currency controls, the bane of all foreign businesses operating in Ukraine, were highlighted for causing delays.
Secondary legislation also has not addressed the issue of licenses. The Ministry of Energy still has no power to issue licenses, leaving suppliers operate without them.
“Since July or June of last year there has not been a single gas license issued by the regulator and that’s obviously a major, major problem for new entrants,“ said Radchenko of CMS Cameron McKenna.
Mudryy said: “The Ukrainian government bodies are pointing to each other, blaming each other for not adopting the law… We need to create asingle body that deals with reform.”
Kyiv Post staff writer Isobel Koshiwcan be reached at [email protected]
