On 23 November 2016, the Ukrainian President signed the long-awaited Law of Ukraine On National Energy and Utilities Commission of Ukraine No. 1540-VIII of 22 September 2016 (the Law on Regulator). It was officially published on 25 November 2016 and entered into force on 26 November 2017, except for provisions on the Regulator’s financing, which will enter into force starting from 1 January 2017.

The Law on Regulator for the first time in Ukrainian history offers a model of independent regulator in accordance with European practices. According to the Law on Regulator, the Regulator regulates, monitors and controls business entities in the energy and utilities spheres, in particular:

  • In the energy sector:
  • Production, transmission, distribution, supply of electricity;
  • Transportation, distribution, storage, LNG services, supply of natural gas;
  • Transpiration of oil, oil products and other substances by pipelines.
  • In the utilities sector:
  • Production, transportation, distribution and supply of heat (above amounts provided in licensing conditions);
  • Water supply and water sewerage (above amounts provided in licensing conditions);
  • Processing and burial of municipal wastes (above amounts provided in licensing conditions).

In the aforementioned spheres, the Regulator will be authorized to (within limits envisaged by the law):

  • Adopt legislative acts (licensing conditions, rules, codes etc.);
  • License business entities;
  • Establish tariffs;
  • Approve model and template agreements;
  • Control business entities and impose sanctions for violations,;
  • Other functions as provided by laws.

All current members of the Regulator shall leave their positions within 18 months after the Law on Regulator has entered into force.

Concluding provisions of the Law on Regulator also resolve the issues related to the discrepancy between the Law of Ukraine On Natural Gas Market and Law of Ukraine On Licensing Types of Business Activities by introduction of the respective changes to Law of Ukraine On Licensing Types of Business Activities, which will enable the Regulator to approve licensing conditions for gas suppliers and start issuing respective licenses as envisaged by the Law of Ukraine On Natural Gas Market.

Furthermore, the Law on Regulator introduces licensing for processing and the burial of municipal wastes in volumes which exceed thresholds established in respective licensing conditions to be approved by the Regulator. The Regulator will issue the respective licenses and control the license holders’ compliance with them.

It is expected that the entry into force of the Law on Regulator will unlock other legislative initiatives, such as stimulating tariff for heat from biomass or reformation of waste processing and burial system in Ukraine.

The creation of an independent Regulator with all powers vested by the Law on Regulator will create a more solid legal ground for its members to elaborate and adopt new methodology for establishing tariffs, in particular on the basis of a RAB approach, and to set the respective tariffs. This should become a trigger for the privatization of respective power facilities (distribution grids and power plants), because potential investors will feel more confident about their investment returns in these assets.