On 25 March 2015 the Cabinet of Ministers of Ukraine (CMU) approved a comprehensive Plan for Implementation of Gas Sector Reform (CMU Resolution No 327-p dated 25 March 2015). This document is developed in line with the Memorandum of Economic and Financial Policies executed between Ukraine and the International Monetary Fund on 27 February 2015 (IMF Memorandum) and the new Law “On the Natural Gas Market” adopted by the Parliament on 9 April 2015. Its primary goal is to ensure Ukraine’s compliance with the Energy Community legal framework.

The Plan was drawn up by the Government in cooperation with the World Bank, European Commission and Energy Community Secretariat (EC Secretariat). Adoption of the Plan was a precondition for further financial assistance from the IMF and World Bank to Ukraine.

The plan outlines the steps to be undertaken by Ukraine’s state authorities to improve its gas market and meet its commitments under the Energy Community Treaty. Besides a new legislative and regulatory framework, the plan also contains a list of Government measures and actions to be taken in four main areas: (1) increase of domestic gas production, (2) unbundling of transmission and distribution system operators, (3) prices and social assistance programme, and (4) transparency and gas metering.

1.     Increase of the domestic gas production

One of the Government’s goals is to boost domestic gas production. The Plan provides for a number of measures and actions to achieve this goal.

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2.     Unbundling of transmission and distribution system operators

The state oil and gas monopoly Naftogaz, together with its subsidiaries, is currently carrying out gas production, transmission and supply functions in Ukraine. Naftogaz’s unbundling has always been one of the most important aspects of Ukrainian gas sector reform. The Government now by law has to ensure that the operator of the Gas Transportation System (currently – Naftogaz’s subsidiary “Ukrtransgaz”) is legally and functionally independent from Naftogaz and from any of its gas production and/or gas supply companies. The new gas market law provides for the possible implementation of two different unbundling models in Ukraine – “Ownership Unbundling” (OU) and “Independent System Operator” (ISO), and it is up to the Government to decide on the final model.

The plan provides for a number of actions and measures that would ensure the success of this restructuring process.

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3.     Prices and Social Assistance Programme

Ukraine is committed to stepped increases in gas prices for households and district heating tariffs over a two-year period. The prices for natural gas extracted by Ukrainian state-owned entities must also be increased.  The Government’s intention is to reach fair market prices in 2017. 

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4.     Transparency and gas metering

The plan foresees a number of actions to improve the metering of gas consumption, supply and distribution.

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LAW: the Resolution of the Cabinet of Ministers of Ukraine No 327-p “On the Issue of Reform of the Natural Gas Sector” dated 25 March 2015