On 4 June 2014 the Cabinet of Ministers of Ukraine adopted Resolution No 172 “On Immediate Steps for Reforming the System of Management of the Unified Gas System of Ukraine (UGSU)” (“Resolution”). The Resolution is adopted in line with the 3rd European package and is one of the legislative tools to facilitate Ukraine’s implementation of (i) EU Directive № 2009/73/EС concerning common rules for the internal market in natural gas and (ii) Protocol on the Accession of Ukraine to the Energy Community signed on 24 September 2010 and ratified on 15 December 2011 by Ukraine. The Resolution mainly allows reorganisation of Public Joint-Stock Company “Ukrtransgaz”, which is a fully state-run operator of both the Ukrainian gas transportation system and underground storage facilities (USFs).

In particular the Resolution allows:

  • to entrust Ukrtransgaz with functions of operator of UGSU (currently it is NJSC “Naftogaz of Ukraine“ which operates the system);  
  • to establish two separate public joint-stock companies 100% owned by the State – (1) “Main Gas Pipelines of Ukraine” as an operator of the national gas pipelines and (2) “Underground Gas Storage Facilities of Ukraine” as an operator of the Ukrainian USFs;  
  • to transfer (from Ukrtransgaz to the new PJSCs) the property and fixed assets used by Ukrtransgaz for the gas storage and transportation through national pipelines.

The Resolution provides only for fundamentals and basic principles of further restructuring. The necessary secondary legislation and internal regulations of the new PJSCs are expected to be developed by the Ministry of Fuel and Energy, the State Property Fund, state companies “Naftogaz of Ukraine” and “Ukrtransgaz”. Unfortunately the Resolution does not establish any timelines for adoption of the necessary secondary legislation.

Reorganisation of UGSU operator appears to be only one of the steps towards a bigger reform in Ukrainian gas sector. The Government has recently announced its plans to completely change the ownership structure of UGSU by offering European and American investors up to 49% share in it. A respective draft law No. 4116а to allow such restructuring has been submitted by the Government to the Parliament on 18 June 2014.

The joint control over UGSU should make possible the Government’s old plans on its modernisation and make other gas transportation projects bypassing Ukraine less attractive for European investors. It is also worth mentioning that the Government is not considering any Russian investments into UGSU, which news obviously received Gazprom’s disapproval.

LAW: Resolution No 172 “On Immediate Steps for Reforming the System of Management of the Unified Gas System of Ukraine” dated 4 June 2014