On 14 August 2014 the Parliament of Ukraine adopted the law “On Bringing Amendments to Some Laws of Ukraine with Respect to Reforming the System of Management of the Unified Gas Transportation System (the “GTS”) of Ukraine” (the “Law”). The Law follows the Government’s plans to change the ownership structure of the GTS by offering European and American investors up to a 49% share in the company. Currently both the GTS and the underground gas storage facilities (the “UGS”) are operated by Public JSC “Ukrtransgaz”, which is a 100% state-owned company.

The Law is pending the President’s approval and its text has not yet been officially published. However, we do not expect the final text to substantially differ from the draft Law, where the main concepts are as follows: 

  • the Law expressly allows transfers of the state-owned GTS and UGS assets to a commercial entity(-ies) for lease on a paid basis, subject to the following conditions:  
    • the assets shall be leased for a fixed period of time;   
    • the commercial entity shall not be entitled to further dispose of such objects;   
    • the commercial entity shall be performing the functions of GTS and/or UGS operator;   
    • the assets shall be leased for the purposes of performance and must be used in accordance with the obligations accepted by Ukraine under the Protocol on the Accession of Ukraine to the Energy Community (as signed on 24 September 2010 and ratified on 15 December 2011); and   
    • the assets shall be leased under an agreement accompanied by a due account of the principles of economic safety, with the terms and conditions of such agreement to be approved by the Government.
  • the Law provides that the functions of the GTS operator may be performed by a commercial entity established and owned exclusively by either:  
    1. the State of Ukraine (including via Naftogaz of Ukraine); or   
    2. a joint venture, where the State (or Naftogaz of Ukraine) holds no less than 51% and theinvestor(s) owns the remaining share.

Such investor(s) must:

  • be owned and controlled by residents of the EU, the US or members of the Energy Community;   
  • be an operator of a gas transportation system or a member of the GTE (Gas Transmission Europe);   
  • be certified in accordance with Article 10 of the EU Directive № 2009/73/EС concerning common rules for the internal market in natural gas and Article 3 of the Regulation (EC) No 715/2009 on conditions for access to the natural gas transmission networks; and   
  • have at least 5-years experience in management of a gas transportation system in the European or American market. 
  • The Law provides that the Ministry for the Energy and Coal Industry of Ukraine may take the decision to separate functions of the operator of UGS from the functions of the GTS operator. The UGS may be operated by a commercial entity established and owned exclusively by either:
    1. the State of Ukraine; or   
    2. by a joint venture, where the State holds no less than 51% and the investor(s) owns the remaining share.

Such investor(s) must:

  • be owned and controlled by residents of the EU, the US or members of the Energy Community.   
  • The Law provides that the GTS and UGS Operator(s) shall be selected according to the results of tenders held by the Government. However, the winners and potential operators will still have to be approved by the Parliament of Ukraine.   

    LAW: the Law of Ukraine “On Bringing Amendments to Some Laws of Ukraine with Respect to Reforming the System of Management of the Unified Gas Transportation System of Ukraine” dated 14 August 2014 (based on the Draft Law No 4116a).