On 1 July 2016, the Cabinet of Ministers of Ukraine (the “CMU”) approved a comprehensive plan for restructuring of national joint stock company “Naftogaz of Ukraine” in line with the new law “On the Natural Gas Market” adopted by the Parliament on 9 April 2015. Naftogaz’s unbundling has been a key aspect of the Ukrainian gas sector reform. The CMU resolution has not yet been officially published; however the draft text (the “Draft Plan”) is available.

The Draft Plan was created by the Government in cooperation with the Energy Community Secretariat (the “ECS”) and its primary goal is to ensure Ukraine’s compliance with the Energy Community legal framework. In particular, the Draft Plan outlines a number of steps to be undertaken by Ukraine’s state authorities to meet the country’s commitments under the Energy Community Treaty and the “3rd Energy Package” of the European Union (in particular - Directive 2009/73/EC concerning common rules for the internal market in natural gas) with respect to unbundling of the transmission system operator (TSO).

The state oil and gas monopoly Naftogaz is, together with its subsidiaries, currently carrying out gas production, transmission, storage and supply functions in Ukraine. The Government must ensure that TSO - Naftogaz’s subsidiary Ukrtransgaz is legally and functionally independent from Naftogaz and from any of its gas production and gas supply operations. The Draft Plan contains a list of Government measures and actions to be taken for such unbundling, and also provides for strict implementation deadlines.

It is worth noting that according to the Gas Market Law, the Government was entitled to decide upon the unbundling model – either Ownership Unbundling (“OU”) or Independent System Operator (“ISO”). According to the Draft Plan, the Government opted for the OU Model – please refer to the chart below.

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Please find below an overview of actions and measures to achieve success of the restructuring process.

1. TSO Functions

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2. SSO Functions

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LAW: Resolution of the Cabinet of Ministers of Ukraine “On Unbundling of Activities on Transportation and Storage (Injection, Withdrawal) of the Natural Gas” dated 1 July 2016