This publication was prepared with the support of the European Union. The contents of this publication are the sole responsibility of NGO “DIXI GROUP”, as well as Civil Network “OPORA”, All-Ukrainian NGO “Energy Association of Ukraine”, Resource & Analysis Center “Society and Environment”, Association “European-Ukrainian Energy Agency”, and can under no circumstances be regarded as reflecting the position of the European Union. The project “Enhancing impact of civil society in monitoring and policy dialogue on energy and related sectors’ reforms in line with the Association Agreement implementation” aims at strengthening the role of civil society in advocating reforms in the energy and related sectors. The key objectives of the project are:

• monitoring of the implementation of the energy provisions of the Association Agreement, including relevant environmental and trade-related commitments;

• strengthening the civic experts’ and local actors’ capacity to track actual implementation of the reforms;

• facilitation of public dialog to lead in proper implementation of the European energy and environmental reforms;

• informing stakeholders and the Ukrainian society about the meaning and potential benefits of European reforms in energy and related sectors in order to empower them to keep the government accountable for pursuing these reforms.

www.enref.org

Executive Summary Experts in the gas sector point out that the Verkhovna Rada has so far failed to resolve the issues of staff rotation and budget of the regulator which is currently unable to exercise all its powers and functions. Instead, the government has focused its efforts on drafting laws and solving current problems: e.g., the financial issues of heat suppliers, problems with certain licenses of Ukrnafta, and financial plan for Naftogaz. Also, joint projects with the EU on the use of gas infrastructure have taken off.

In the electricity sector, the NEURC has adopted a number of resolutions, thereby completing the formation of a legal framework for the transition to RAB regulation in electricity transmission and distribution. The Verkhovna Rada has passed laws improving the mechanism of financial provision for radioactive waste management, and Energoatom received a license to construct and put into operation the CSNFSF. At the same time, due to the incurred debts and regular non-payments, the power exchange with the occupied regions of the Donetsk region has been suspended.

Experts note that energy efficiency reforms have drifted by inertia after an impetus given by the adoption of a package of laws regulating the Energy Efficiency Fund, commercial heat metering, and energy performance of buildings. At the same time, there is no systemic moves in such issues as optimization of subsidies, despite the first steps towards the verification of subsidy recipients and creation of a comprehensive register.

The growing emission of pollutants into the atmospheric air should prompt the government to take energetic action to reform this area, environmental experts point out. They also expect the President to sign the law on the protection of primary forests, which will have indirect influence on the conservation of wild birds and development of a legal framework for environmental impact assessment. On the other hand, the NEURC has begun to publish extended statistics on RES facilities, for which a feed-in tariff has been set.

Some unsatisfactory dynamics is observed in the oil and oil products sector. In particular, the deadline for completing the new version of the Subsoil Code was again postponed, and the implementation is delayed of the EU directives on the quality of petrol and diesel fuel and on discharge control of petroleum product tanks. Experts also point to the Ministry of Energy and Coal Industry, the Ministry of Ecology and Natural Resources, and the State Service for Geology and Mineral Resources reporting as passed many decisions that are yet to be completed.

As regards the business climate, the NEURC reform is reported to be lagging behind and nothing is done to address the legal violations related to publication of the regulator's resolutions. At the same time, the Ministry of Economy submitted for consideration a draft law on privatization, intended to boost investors' interest, and the AMCU continues to develop competition legislation (regarding requirements for obtaining permission for vertical concerted actions and imposing fines).

Most commonly used abbreviations:

AA – Association Agreement АТО – anti-terrorist operation CMU – Cabinet of Ministers of Ukraine CSNFSF – Centralized Spent Nuclear Fuel Storage Facility DHU – district heating utility DSO –distribution system operator EC – European Commission ENTSO-E – European Network of Transmission System Operators for Electricity FEC – fuel and energy complex GDS – gas distribution systems GTS – gas transportation system Naftogaz – National Joint-Stock Company Naftogaz of Ukraine

NEURC – National Energy and Public Utilities Regulatory Commission MGU – PJSC Mahistralni Gazoprovody Ukrayiny MMC – mining and metallurgical complex RES – renewable energy sources RW – radioactive waste SNRIU – State Nuclear Regulatory Inspectorate of Ukraine TPP – thermal power plant TSO – transmission system operator UESU – United Energy System of Ukraine UGS – underground gas storages VRU – Verkhovna Rada of Ukraine WEM – wholesale electricity market

Gas On the eve of the summer parliamentary vacations, MPs did not show any notable legislative enthusiasm for reforming the gas sector as no law was adopted in this area in July.

Despite the registered draft law addressing the issue of NEURC funding, no competition commission member has been elected to renovate the regulator's composition. This means the legally planned NEURC staff rotation is postponed, at least until autumn.

In July, the government focused all its reforming efforts on approving and submitting to the Verkhovna Rada draft laws critical for the reforms, paying the rest of its attention to current issues (such as resuming gas supplies from the fields of the tax debtor Ukrnafta PJSC, providing investment financing to heat suppliers, and approving the financial plan and performance indicators of the Naftogaz Supervisory Board for 2017).

Despite some progress in achieving operational transparency of the NEURC and the possibility to somehow influence its decisions, the regulator is still unable to exercise all its powers and functions that it has according to applicable legislation. This argument is found in an address for support by NEURC members to the Energy Community Secretariat.

The initiatives of cooperation between Ukraine and the European Union are gaining momentum in the field of joint use of Ukraine's gas infrastructure.

Directive 2009/73/EC concerning common rules for the internal market in natural gas and repealing Directive 2003/55/EC (Article 338, 341, Annex XXVII to the Association Agreement) in accordance with Article 278 of the Association Agreement In July, only one gas sector-related draft law was put on the agenda of the four days of the VRU’s final week of plenary sessions - that was draft law No. 3096-d1 on issues of gas production at the early production stages. However, the repeated first reading of this draft law, which was scheduled for July 132, has never happened due to the lack of time. At the same time, the VRU registered in July three draft laws approved and submitted by the government. One of them (No. 67163) is aimed at ensuring the implementation of the law "On the Natural Gas Market" insofar as it relates to the paid use of state-owned gas distributing systems (GDS). It addresses the issue of lifting the ban on the concession and lease of state-owned GDS as provided in the laws "On Pipeline Transport" and "On Public and Communal Property Lease." The amendments proposed by the Ministry of Economic Development and Trade and reflected in the draft law will make it possible for the government to determine the way of using state-owned GDS for commercial purposes on a contractual basis (without the right of alienation and sublease) and derive profits from this. It is envisaged that the relevant arrangements will be formalized as a standard agreement endorsed by the government. By issuing Resolution No. 954 instructing the Ministry of Energy and Coal Industry to enter into new GDS operation agreements with GDS operators, the Cabinet of Ministers has temporary regulated the current collision connected with the gratuitous use of state gas distribution networks by private sector entities using the right of so-called "economic management" in defiance of the law "On the Natural Gas Market." However, the final resolution of this issue requires legislative amendments5. Another draft law of the government (No. 66916) is amending the Budget Code to regulate the funding of the independent energy regulator, the NEURC. This document proposes a special fund to be created within the state budget, using for this purpose contributions from business entities subject to regulation. The rates of these contributions are to be determines and set by the regulator.

1 http://w1.c1.rada.gov.ua/pls/zweb2/webproc4_1?pf3511=61900 2 http://iportal.rada.gov.ua/meeting/awt/show/6563.html 3 http://w1.c1.rada.gov.ua/pls/zweb2/webproc4_1?id=&pf3511=62281 4 http://www.kmu.gov.ua/control/ru/cardnpd?docid=249774993 5 http://www.kmu.gov.ua/control/uk/publish/article?art_id=250131309&cat_id=244274160 6 http://w1.c1.rada.gov.ua/pls/zweb2/webproc4_1?id=&pf3511=62240

Gas The government's third draft law, No. 67787, submitted to the VRU and approved at the Cabinet of Ministers meeting of July 19 regulates the status of the newly created operator of Ukraine's GTS, Mahistralni Gazoprovody Ukrayiny PJSC (MGU PJSC) created as a result of the Naftogaz unbundling project. This document proposes that MGU PJSC be put on the list of state properties that are not subject to privatization. According to Deputy Minister of Energy and Coal Industry І. Prokopiv8, the new operator is not expected to start working any time before 1Q2018. Apart from the pending final award of the Stockholm arbitration in the case of Naftogaz vs. Gazprom, in order to make this possible, a special legal framework needs to be set up and is expected to be adopted by late autumn 2017. In particular, amendments to five draft laws developed in cooperation with the Energy Community need to be reviewed, as well as a draft state property management agreement. At its meeting, the Verkhovna Rada Committee on Fuel and Energy Complex considered draft law No. 63249 "On Amendments to the Law 'On the Natural Gas Market'" to the extent covering the introduction of gas metering in units of energy and recommended it for adoption in principle. The VRU registered the relevant resolution under No. 6324/П10. The fact that competition commission members were not selected in the final plenary week to renovate the regulator's membership means that the legally proclaimed NEURC membership rotation is postponed, at least until the autumn. The NEURC budgeting issue remains unresolved as well. The above facts mean that the reform of the energy regulator is significantly delayed. Moreover, after the previous discharge of its two members, the commission currently has already three vacant seats. According to the rotation plan, two more seats are expected to be vacated on November 26. If the delay in selecting new NEURC members continues until that date, the commission membership may narrow to 2 persons and the regulator may generally lose its legal competence. In addition to the draft laws submitted to the Verkhovna Rada, the government also approved and released in July an array of resolutions. Resolution No. 51911 was adopted to ensure uninterrupted gas supply to settlements with "island" gas supply systems (connected only to adjacent fields and not to any other gas networks)12. This resolution has amended the subsoil use licensing procedure (Resolution No. 61513). The amendments allow extending for one year the gas extraction licenses granted to the oil and gas companies in tax arrears that supply gas to household consumers of the settlements adjacent with the fields under their operation. Thus, the government has solved the problem of disconnection from gas supply of some villages in the Sumy region that receive gas from the fields operated by Ukrnafta PJSC. In addition, the list of grounds for refusing to grant or renew a license was shortened by clearing it of any grounds that may not be related to economic activities. The Cabinet of Ministers has also changed the formula for calculating the standard amount of transfer to suppliers from proceeds received by heat supply companies for the heat they produce and services of centralized heating and hot water supply they provide (Resolution No. 49214). In particular, the formula factors in the costs associated with financing the NEURC-approved investment programs. Utility companies will now have funding to install heat meters. The third resolution the government adopted in July for the gas sector (No. 52615) concerns the approval of the performance indicators of the Naftogaz Supervisory Board for 2017-2018. The said indicators include such strategically important ones as strategy implementation, development and implementation of a financial control system and a system of performance and procurement planning and improvement, selection of candidates for vacant management positions, etc. The implementation of the approved indicators is

7 http://w1.c1.rada.gov.ua/pls/zweb2/webproc4_1?id=&pf3511=62363 8 hhttp://mpe.kmu.gov.ua/minugol/control/uk/publish/article?art_id=245221794&cat_id=35109 9 http://w1.c1.rada.gov.ua/pls/zweb2/webproc4_1?pf3511=61554 10 http://w1.c1.rada.gov.ua/pls/zweb2/webproc4_1?id=&pf3511=62198 11 http://www.kmu.gov.ua/control/uk/cardnpd?docid=250152436 12 http://www.kmu.gov.ua/control/uk/publish/article?art_id=250110178&cat_id=244274160 13 http://zakon2.rada.gov.ua/laws/show/615-2011-%D0%BF 14 http://zakon2.rada.gov.ua/laws/show/492-2017-%D0%BF 15 http://www.kmu.gov.ua/control/uk/cardnpd?docid=250154124

Gas expected to further the corporate governance reform of Naftogaz of Ukraine NJSC and promote improvements in the performance of the company and its supervisory board. Parallel to this, the government approved the 2017 financial plant of National Joint-Stock Company Naftogaz of Ukraine, PJSC (Resolution No. 488-r16). The plan secures "financial stability of the energy holding company and does not threaten growth in gas prices for consumers," – the Cabinet of Ministers' information department explains17. At the same time, the same press release says that on the government's proposal, Naftogaz together with the Ministry of Economic Development and Trade, Ministry of Finance, and Ministry of Energy and Coal Industry will readjust the revenue side of the plan to align it with "the effective prices." The government's approval of the financial plan and continuation of the corporate governance reform (in particular, by adopting a list of expected performance indicators for the supervisory board) have become the conditions opening up the possibility for Nafogaz to take full advantage the EBRD's USD 300 million fund facility to purchase gas from European suppliers for Ukraine. According to the Naftogaz press service18, the EBRD Credit Committee approved in the first third of July only a USD 66 million tranche for the company. "The EBRD notes the incomplete implementation by the government of Ukraine of the plan of action for corporate governance reform and is ready to resume the lending in full as soon as the Cabinet of Ministers of Ukraine fulfills a few of its obligations to the bank by the end of July," the press release states. In the meantime, the court allowed in full the claim by Naftogaz against the Cabinet of Ministers, seeking determination of sources for covering the gas monopoly's losses from gas supplies to households, religious organizations, and district heating utilities (that is, to the consumer categories to which gas is supplied within the framework of special duties imposed on Naftogaz). This is stated in the July 19, 2017 resolution of the Circuit Administrative Court of Kyiv19. The court recognized as illegal the inaction of the government which had failed to determine sources for covering losses and the procedure for reimbursing Naftogas for them (as the law "On the Natural Gas Market" required). At the same time, according to Vice Prime Minister V. Kistion, the government will appeal against this decision and believes that the current level of Naftogaz's profits make the payment of any such reimbursement impossible. The overall progress of the gas and electricity markets reform was the topic of discussion at a working meeting between representatives of the Ministry of Energy and Coal Industry and of the Support Group for Ukraine at the European Commission20. The central subject of that discussion was the definition of short-term and medium-term prospects for implementing the provisions of the law "On the Natural Gas Market." In the meantime, the Ministry of Energy and Coal Industry published in July two new draft resolutions. The first draft resolution21 amends Resolution No. 18722 that approves Regulation on the Imposition of Special Duties on Subjects of the Natural Gas Market (based on the results of a July 06, 2017 meeting on the settlement of problematic issues in certain industries, held under the chairmanship of Vice Prime Minister of Ukraine V. Kistion). The document proposes that in accordance with Clause 13 of the Regulation, the summer season downward price trend occurring at gas hubs in Europe be taken into account when calculating gas prices at the CIF parity level, and for this purpose the calculation period be changed from 12 calendar months to "from April 1 through October 1, 2016 and from April 1 to July 1, 2017," also changing the price calculation deadline (setting "until August 1" instead of "until July 1"). As expected, the gas price for households thus calculated will not differ from the CIF parity price by more than 10 percent, and therefore, will not be changed upward. The second draft resolution23 proposes approval of the decommissioning procedure for Main pipelines for conveying oil, gas, and their products (developed in response to the need to decommission a number of

16 http://www.kmu.gov.ua/control/uk/cardnpd?docid=250154322 17 http://www.kmu.gov.ua/control/uk/publish/article?art_id=250150376&cat_id=244274160 18 http://www.naftogaz.com/www/3/nakweb.nsf/0/866D9D09E43D3F11C225815900502080?OpenDocument&year=2017&month=07&nt=%D0%9D%D0%BE%D0%B2%D0%B8%D0%BD%D0%B8& 19 http://www.reyestr.court.gov.ua/Review/67846832 20 http://mpe.kmu.gov.ua/minugol/control/uk/publish/article;jsessionid=09143A14D2CDD3D9171318332DDFCAF6.app1?art_id=245223958&cat_id=35109 21 http://mpe.kmu.gov.ua/minugol/control/uk/publish/article?art_id=245222954&cat_id=35082 22 http://www.kmu.gov.ua/control/uk/cardnpd?docid=249865173 23 http://mpe.kmu.gov.ua/minugol/control/uk/publish/article?art_id=245220271&cat_id=35082

Gas inoperable facilities of Ukrtransgaz PJSC and Ukrtransnafta PJSC, given the absence of the necessary resolutions in the regulatory base of the Cabinet of Ministers). Apart from that, the Ministry of Energy and Coal Industry completed a state expertise appraisal of Naftogaz's investment projects24. Following the procedure defined in the Methodology for State Expert Appraisal of Investment Projects, the commission issued a negative opinion on the investment project "Renovation of the Equipment Fleet for Well Construction and Overhaul and Intensified Hydrocarbon Production" submitted by Naftogaz, and declined it. In July, just like in June, the NEURC considered and approved the issue of new format licenses to gas market operators for natural gas supply and distribution. In addition to the resolutions to issue licenses to 46 gas suppliers (including a company from the Naftogaz group - Gas Supply Company Naftogaz of Ukraine LLC 25), the NEURC approved in July the issue of a permit to supply natural gas on Ukraine's domestic market to already a second26 international trader – the company MET (represented by МЕТ Ukraine LLC; Resolution No. 89427). Also in July, the regulator approved four more gas distribution licenses. At the same time, two resolutions adopted by the NEURC (No. 96128 and No. 96229) concern fines imposed for breaching the natural gas supply license conditions, and concern the fines imposed for breaching natural gas supply license conditions, and it worth noting that the subject of Resolution No. 962 is NJSC Naftogaz of Ukraine. A significant share of the regulator's dissatisfaction with Naftogaz relates to its breaching of the contracting conditions. Apart from that, a scheduled audit report cites reporting violations in the company, as well as legal non-compliances. The NEURC bound Naftogaz to eliminate the found violations by the end of the year and fined the company (for UAH 51,000). The NEURC also passed a resolution amending the standard natural gas storage (injection, withdrawal) agreement (No. 919)30, making it possible for non-residents of Ukraine that use Ukraine's GTS and gas storage facilities to seek justice with international arbitration institutions to defend their interests and rights. On August 31, Naftogaz increased by 2.8-2.9 percent its gas prices for industrial and other consumers that are not subject to the Regulation on the Imposition of Special Duties, as compared with the prices in July 201731. According to the new price list32, the price for gas as a commodity (inclusive of VAT) is set from September 1, 2017 at the following levels: for monthly gas consumption of up to 50,000 cubic meters inclusive, non-regulated monthly consumption, and monthly consumption exceeding 50,000 cubic meters without prepayment - UAH 8,230.80 per thousand cubic meters; and for monthly consumption exceeding 50,000 cubic meters with a prepayment33 – UAH 7,420.80 per thousand cubic meters. Regulation (EU) No. 715/2009 on conditions for access to the natural gas transmission networks and repealing Regulation (EC) No. 1775/2005 (Articles 338, 341, Annex XXVII to the Association Agreement) in accordance with Art. 278 of the Association Agreement, trade-related issues (Articles 269-274 of the Association Agreement) As reported earlier, seeking to expand the opportunities for gas storage cooperation with European companies, Ukrtransgaz PJSC set up a "customs warehouse," using for this purpose ten gas storage facilities34. At the 19th Ukraine-EU summit in Kyiv, the Ukrainian side proposed to the EU an international consortium

24 http://mpe.kmu.gov.ua/minugol/control/uk/publish/article;jsessionid=09143A14D2CDD3D9171318332DDFCAF6.app1?art_id=245224566&cat_id=35109 25 See the list of license holders: http://www.nerc.gov.ua/data/filearch/litsenziini_reestry/perelik_gaz.pdf 26 The first one was the company Trafigura represented by Trafigura Ukraine LLC which obtained a license in June. 27 http://www.nerc.gov.ua/?id=26275 28 http://www.nerc.gov.ua/?id=26727 29 http://www.nerc.gov.ua/?id=26732 30 http://www.nerc.gov.ua/?id=26388 31 http://www.naftogaz.com/www/3/nakweb.nsf/0/50B30723C3E89128C2258164003A24A9?OpenDocument&year=2017&month=07&nt=%D0%9D%D0%BE%D0%B2%D0%B8%D0%BD%D0%B8& 32 http://www.naftogaz.com/files/Information/Naftogaz-gas-prices-August-ne-PSO-2017.pdf 33 Payments made within the calendar month preceding the month of gas supply. 34 http://utg.ua/utg/media/news/2017/06/ukrtransgaz-vidkruvae-sklad-dla-treideriv.html

Gas to be created on the basis of Ukraine’s GTS35. Speaking at a joint press conference with EU President D. Tusk and European Commission President J.-C. Juncker, President of Ukraine P. Poroshenko put forth an initiative backed by European partners to decide the destiny of Ukraine's GTS at an international forum that may be held in Brussels in early 201836. Also, Ukraine and the EU have launched a new joint project37 to work out the best reform model for Ukraine's gas storage facilities. The constituent meeting was held on July 12, 2017 at the EU Delegation office in Kyiv. The participants were representatives of Naftogaz, Ukrtransgaz, MGU, Ministry of Energy and Coal Industry, Ministry of Economic Development and Trade, the Energy Community Secretariat, and EU-selected international consultants. The project will be financed by the EU, and its implementation will be a duty of a consortium whose composition includes the French storage operator Storengy and international law firm CMS Cameron McKenna Nabarro Olswang. The project's mission is to forecast the demand for UGS services for the coming 20 years and to study the prospects for using Ukraine's gas storage facilities on the gas storage market. In order to promote a better understanding of the economic approaches to unbundling the gas transportation and storage functions of Naftogaz, the project team will analyze and formulate recommendations on identifying the gas storage facilities among those currently available which are critical for the effective operation of Ukraine's GTS, as in recent years, Ukraine's UGS have been used by only 50 percent of their capacity. Ukrtransgaz continues implementing the best European practices at the connection points with the EU member states, ensuring free and non-discriminatory access for all participants of Ukrainian and European natural gas markets to the main gas transmission pipelines. In particular, Ukrtransgaz PJSC and GAZ-SYSTEM S.A., Poland's GTS operator, made technical preparations and agreed to increase the transmission stream running to Ukraine from September 1, 201738. The changes in the total throughput capacity at the connection point Hermanowice agreed by the operators are expected to boost almost 1.5-fold the gas stream from Poland in autumn and winter when these capacities are used especially intensively. The annual technical throughput capacity of the Poland-Ukraine gas pipeline route will increase by 0.5 bcm, making it possible to import up to 2 bcm of gas a year from Poland. In addition, Ukrtransgaz PJSC and Romania's GTS operator SNTGN Transgaz SA are preparing an agreement on cooperation with regard to the connection point Mediesu Aurit - Tekovo39, which brings gas to consumers in Romania. The draft agreement envisages the implementation of a physical gas flow in the Ukraine-Romania direction and virtual in the Romania-Ukraine direction (at the moment, the physical gas flow Romania-Ukraine is impossible due to the lack of the minimum pressure necessary for gas reception). According to the Commission Regulation (EC) 2015/703, which introduces a network code of rules for interoperability and data exchange, the GTS operators of Ukraine and Romania invited comments from network users, acceptable from July 1 through September 1, on the provisions of the draft agreement on the rules of matching, natural gas allocation, and emergency communication40. The agreement will be adjusted upon the results of consultations. Directive 2004/67/EC concerning measures to safeguard security of natural gas supply (Articles 338, 341, Annex XXVII to the Association Agreement), functioning of an "Early Warning Mechanism" (Annex XXVI to the Association Agreement), reacting to an emergency situation (Articles 275-276, 309, and 314 of the AA) The July meeting between President of Poland A. Duda and US President D. Trump41 confirmed Poland's hopes for US LNG supplies. A. Duda has said that after the relevant negotiations, which are already underway, US and Polish companies plan to sign a long-term contract for gas supply from the US to the Polish LNG terminal in Świnoujście. The saturation of Poland's market with American gas will hopefully help Ukraine

35 https://www.5.ua/ekonomika/yelisieiev-ukraina-zaproponuvala-yes-alternatyvu-pivnichnoho-potoku2-150186.html 36 http://www.president.gov.ua/news/u-2018-roci-proponuyemo-provesti-mizhnarodnu-investicijnu-ko-42382 37 http://mpe.kmu.gov.ua/minugol/control/uk/publish/article?art_id=245223263&cat_id=35109 38 http://utg.ua/utg/media/news/2017/07/utg-and-gaz-system-increase-capacity-of-pl-ua-route.html 39 http://ua.interfax.com.ua/news/general/433190.html 40 http://utg.ua/utg/media/news/2017/06/consultations-utg-transgaz.html 41 http://www.thenews.pl/1/12/Artykul/315005,Polish-president-hopes-for-longterm-contract-on-US-LNG-deliveries

Gas diversify its gas imports, provided that the transboundary throughput capacity between Ukraine and Poland is expanded (including through the construction of an appropriate interconnector). Ukraine keeps increasing its UGS gas stocks. As of July 28, Ukrtransgaz had more than 13 bcm of gas in gas storages, up 25 percent from the same date in 201642. Since the beginning of the year, the Ukrainian GTS operator injected into gas storage facilities a total of 5.1 bcm of gas, which is 2.4 times more than the figure for the same period in 201643.

42 http://utg.ua/utg/media/news/2017/07/utg-made-13-bcm.html 43 Ibid.

Electricity and Nuclear Safety Three months after the suspension of electricity supply to the uncontrolled part of the Lugansk region, Ukrenergo NEC stopped the exchange of electricity flows with the uncontrolled areas of the Donetsk region. The suspension was approved by the Ministry of Energy and Coal Industry and undertaken in response to SE Energorynok request due to growing payment liabilities and non-payments for supplied electricity. At its July 27 meeting, the NEURC adopted a number of resolutions introducing incentive regulation in the electricity sector (transmission, distribution) and a single rate of 12.5 percent for both new and old assets. The decision to switch to RAB regulation will be made for each company individually after open hearings. The VRU has adopted and the President signed laws improving the financing mechanism of radioactive waste management. Energoatom NNEC has obtained a license to construct and launch the CSNFSF. The experts who examined nuclear and radiation safety of materials permitted power units No. 1 and 4 of the Zaporizhzhya NPP to use Westinghouse fuel. Directive 2009/72/EC of July 13, 2009 concerning common rules for the internal market of electricity and repealing Directive 2003/54/EC (Articles 269, Chapter 11, Section IV of the EU-Ukraine Association Agreement) On July 10, the VRU Committee on Fuel and Energy Complex and Committee on Foreign Affairs held a joint round table on the topic of "Key Role of Ukraine in Energy Security in Europe"44. At the event, which saw the participation of VRU Speaker A. Parubiy, MPs, heads of the embassies of the U.S. and France, representatives of the sectoral ministries and departments, research institutions and non-governmental organizations, the analytical material "Action Plan for Strengthening Ukraine's Energy Security to 2020" was presented.45 MP N. Katser-Buchkovska put forth an initiative to adopt a law of Ukraine on energy security. The entry into force of the Law "On the Electricity Market" created the need to remove from the VRU agenda a number of draft laws concerning the market of electric energy. For this reason, the VRU Committee on Fuel and Energy Complex passed a decision at its June 21 meeting (the minutes published on July 11) to address the Verkhovna Rada, recommending it to remove from its agenda the following draft laws as no longer relevant or whose implementation conflicts with the energy legislation: "On Amendments to Certain Laws of Ukraine Regarding the Use of Household Wastes as an Alternative Energy Source" (No. 2260а); "On Amendments to the Law of Ukraine ‘On Electricity’ Regarding the Duties of Energy Suppliers, Power Transmission Companies, and Energy Consumers" (No. 2944); "On Amendments to Certain Laws of Ukraine to Improve the Incentive Mechanism to Stimulate Electricity Production from Alternative Energy Sources (Technical)" (No. 3447); "On Amendments to Certain Laws of Ukraine (Regarding Improvement of the Procedure for Connecting to Power Grids)" (No. 4310-1); "On Amendments to the Law of Ukraine "On Electricity" (Regarding Demonopolization of the Procedure for Connecting to Power Grids)" (No. 4310-2); "On Amendments to the Law of Ukraine ‘On Electricity’ Regarding the Conditions for Suspending the Power Supply Provided to Households for Domestic Needs" (No. 5532); "On Recognition as Null and Void of the Law of Ukraine ‘On the Principles of Functioning of the Electricity Market in Ukraine ‘(No. 5625)"; and "On Amendments to the Law of Ukraine ‘On the Principles of Functioning of the Electricity Market of Ukraine’" (regarding its effective date) (№ 6177)46. TSO and DSO Regulation On July 6, the NEURC published draft amendments to the Terms and Rules of the Entrepreneurial Activity to Transmit Electricity by Main and Interstate Power Grids. The amendments concern the right of the TSO (Ukrenergo NEC) to contract to provide/receive emergency assistance with transmission system operators of neighboring states47. The TSO should also perform the balancing in order to provide/receive emergency

44 http://kompek.rada.gov.ua/news/Povidomlennja/73200.html 45 http://iser.org.ua/proekti/plan-zahodiv-zi-zmitsnennia-energetichnoyi-bezpeki-ukrayini-do-2020-r 46 http://kompek.rada.gov.ua/news/dijaln_komit/Zasidannya_Komitetu/Protokoly/ 47 http://www.nerc.gov.ua/?id=26269

Electricity and Nuclear Safety assistance from the TSOs of neighboring countries. Until a new full-fledged market is implemented, electricity purchases/sales for this purpose will be carried out on Ukraine's WEM. In pursuance of Article 48 of the Law "On the Electricity Market," the NEURC released on November 25 the draft resolution "On Approval of the Procedure for Preparing, Submitting, Approving, and Publishing a Compliance Program for the Distribution System Operator, Reporting Its Implementation Progress, and Approving an Authorized Compliance Officer"48. The Compliance Program is a DSO administrative and regulatory document that defines the internal programs, policies and procedures the operator uses to meet the requirements for the DSO's separation and independence on the new market. Electricity Distribution Regulation On July 17, the NEURC released the draft resolution "On Approval of the Procedure for Establishing Tariffs for Holders of Licenses to Supply and/or Distribute Electricity"49. At the moment, the procedural issues of tariff setting in this field are regulated by the effective resolution of the regulator, dated August 1, 2001, No. 801. In the opinion of the NEURC, the currently effective procedure does not comply with the legislation and needs to be amended in connection with the adoption of the Law "On the Electricity Market." The amendments concern the requirements for the tariff setting application format, list of necessary documents, procedure, consideration timeframes, and conditions for setting electricity distribution and supply tariffs. On July 25, the NEURC issued Resolution No. 932 approving the License Terms for Conducting Business Activities to Distribute Electricity50. The resolution improved the terminology and procedure and brought the latter into compliance with the requirements of Articles 6 and 7 of the Law "On Licensing Economic Activities" and Article 17 of the Law "the National Commission for State of Energy and Public Utilities Regulation." Incentive-Based Regulation On July 27, the NEURC adopted in an open meeting a number of resolutions concerning RAB regulation, specifically51: - "On the Introduction of Incentive-Based Regulation in the Field of Electricity Transmission by Main and Interstate Power Grids"; - "On Setting Long-Term Regulatory Parameters for the Purposes of Incentive-Based Regulation in the Field of Electricity Transmission by Main and Interstate Power Grids"; - "On Approval of the Procedure for Distributing Assets, Costs, and Incomes among the Activities Performed by the Holder of License to Transmit Electric Energy by Main and Interstate Power Grids"; - "On Approval of the Procedure for Determination of the Regulatory Base of Assets for the Holder of License to Transmit Electric Energy by Main and Interstate Power Grids"; - "On Approval of the Procedure for Setting the Tariff for the Service of Centralized Dispatch Control of the United Energy System of Ukraine"; - "On Approval of the Procedure for Setting the Tariff for the Holder of License for Electricity Transmission by Main and Interstate Power Grids, if Incentive-Based Regulation Is Introduced; - "On Approval of the Procedure for Determining the Necessary Income and Tariff for the Service of Centralized Dispatch Control of the United Energy System of Ukraine"; - "On Approval of the Procedure for Determining the Necessary Income and Electricity Transmission Tariff from the Activity of Electricity Transmission by Main and Interstate Power Grids, if Incentive-Based Regulation Is Introduced"; - "On Approval of the Regulation of the Procedure for Submission, Determination, and Approval of Standard and Projected Rates of Technological Losses of Electric Energy."

48 http://www.nerc.gov.ua/?news=6278 49 http://www.nerc.gov.ua/?news=6228 50 http://www.nerc.gov.ua/index.php?id=26607 51 http://www.nerc.gov.ua/?news=6284

Electricity and Nuclear Safety The regulator believes that a single rate is acceptable for both new and old assets, set at the level of weighted average capital cost (WACC), corresponding to the NBU discount rate, and currently equaling 12.5 percent52. Regulation 714/2009/EC of July 13, 2009 on conditions for access to the network for cross-border exchanges in electricity and repealing Regulation No. 1228/2003(Articles 271, Chapter 11, Section IV of the EU-Ukraine Association Agreement) On July 4-5, Ukrenergo NEC held a workshop with the participation of ENTSO-E and Ukrainian experts. The main purpose of the workshop was to discuss the measures to implement the Agreement on the Conditions for the Future Unification of the Power Grids of Ukraine and Moldova with the Power Grid of Continental Europe (the Agreement), and issues of power grid management and development, dispatch control, and integration of the markets of Ukraine and Europe.53 The agreement became effective on July 7, as ENTSO-E officially reported54. Ukrenergo NEC believes it necessary to create a single coordination center at the Cabinet of Ministers level, and involve the CNSDU in the synchronization process as an matter of strategic importance for the nation's energy security55. According to the requirements of Energorynok SE and the Procedure for Measures Concerning Partial or Complete Cessation of Power Flow Differences at Metering Points approved by Order No. 440 of the Ministry of Energy and Coal Industry, dated June 10, 2015, Ukrenergo has stopped power flows to and from the temporarily uncontrolled areas of the Donetsk region. Power flows to the uncontrolled territory of the Lugansk region have been suspended since April 25, 2017. Energorynok SE substantiated the power flow cessation with the growing indebtedness and prolonged non-payment for supplied and consumed electricity on the uncontrolled territory. According to Ukrenergo NEC, the electricity needs of this territory are covered by the Starobeshivska TTP and Zuyivska TPP, other local producers, as well as supplies from the Russian Federation by lines that are not on the list of interstate lines.56. On July 31, Ukrenergo NEC wrote on its page of a social network site (Facebook) that it had reported to the Energy Community Secretariat on the ECS-1/12 and ECS-08/15 cases, pointing to a non-compliance with the relevant rules regarding auctions for access to the throughput capacity of interstate power grids57. Ukrenergo also reports that the whole free throughput capacity from the Burshtyn Island is distributed to each country on an individual basis (Hungary, Slovakia, and Romania), and an electronic auction has been in operation since this May. Due to this, the throughput capacity of the interstate power grids of Ukraine after the monthly auction for June 2017 has been distributed in the direction of import as well. The throughput capacity that have not been taken by market participants is provided to Ukrinterenergo SFAE. Full information on the auctions held on the new platform is available at: http://bit.ly/2wdbCnL. Article 338, Chapter 1, Section V of the Association Agreement Ukraine-IMF Cooperation Agreements At a July 17 meeting between Ukrenergo NEC representatives and representatives of the U.S. Embassy in Ukraine and the U.S. Department of Energy, the Ukrainian side presented a letter to the U.S. Ambassador

52 http://www.nerc.gov.ua/data/filearch/Materialy_zasidan/2017/lypen/27.07.2017/p18_27-07-2017.pdf 53 https://ua.energy/media/pres-tsentr/pres-relizy/u-kyyevi-tryvaye-pershyj-dvodennyj-vorkshop-ukrenergo-ta-entso-e/ 54 https://www.entsoe.eu/news-events/announcements/announcements-archive/Pages/News/entsoe-ce-agreement-conditions-future-grid-connections-with-ukraine-moldova.aspx 55 https://ua.energy/media/pres-tsentr/pres-relizy/ukrenergo-initsiyuye-stvorennya-koordynatsijnogo-tsentru-pry-kabineti-ministriv-dlya-pryskorennya-integratsiyi-oes-ukrayiny-entso-e/ 56 https://ua.energy/media/pres-tsentr/pres-relizy/z-26-lypnya-prypyneno-peretoky-elektroenergiyi-z-tymchasovo-nekontrolovanymy-rajonamy-donetskoyi-oblasti/ 57 https://www.facebook.com/npcukrenergo/photos/a.920829981311100.1073741828.920818217978943/1531073193620106/?type=3&theater

Electricity and Nuclear Safety and the USAID management with proposals regarding specific directions and projects for expanding technical cooperation with the U.S. under UESU development projects.58 On July 21, the Deputy Minister N. Boyko and the EIB representatives discussed the loan portfolio of this European bank in the public energy sector, in particular in electricity projects, and attraction of resources for new financial, technical, and consulting support projects. The Deputy Minister drew attention to the fact that currently modernization of the existing energy infrastructure and improvement of energy supply reliability and quality were among the top priority tasks that were begging for investments59. On July 26, N. Boyko and Scott Schrum, Acting Head of the U.S. Department of Energy Office in Ukraine, discussed possibilities for attracting investments and expanding cooperation in the energy sector, in particular, in implementing modern solutions for energy infrastructure safety60. In accordance with the bill "Countering America's Adversaries Through Sanctions" (H.R. 3364), the U.S. plans to allocate USD 30 million on the implementation of initiatives to support Ukraine's energy security61. Article 339, Chapter 1, Section V of the Association Agreement, Coal Market The preparation for the heating season is underway. According to a statement by Vice Prime Minister V. Kistion, 2-2.2 million tonnes of gas-grade coal and 1.8 million tonnes of anthracite should be accumulated in storehouses by mid-October62. As of July 6, the storehouses of TPPs and CHPPs already had 2.7 million tonnes of coal, which is twice as much as the coal stock as of the same date last year, specifically: Grade "A" - 786,000 tonnes and grade "G" coal – 1.868 million tonnes63. On July 23, a second vessel carrying 75,000 tonnes of anthracite coal arrived from South Africa for DTEK. This product will go to the Prydniprovska and Kryvorizhska TPPs64. The power units of these TPPs have been activated within the power grid in order to pass the summer high65. DTEK has already contracted 675,000 tonnes of coal from South Africa in 2017, including the option to increase, if necessary, the supply volume to 1 million tonnes66. On July 31, Tsentrenergo PJSC and the Pennsylvanian company XCoal signed an agreement to supply approximately 700,000 tonnes of anthracite coal to Ukraine from the U.S. by the end of 2017.67 According to the information released by the NEURC chairman D. Vovk, in the first half of 2017 the share of consumed domestically-produced coal of the gas group increased to 76.5 percent, whereas the overall coal consumption decreased to 9.6 million tonnes. For comparison, consumption of the gas-grade coal in 2013 was at 51.1 percent, while in total the country consumed 36.5 million tonnes68.

58 https://ua.energy/media/pres-tsentr/pres-relizy/ukrenergo-obgovorylo-napryamy-rozshyrennya-spivpratsi-z-amerykanskymy-partneramy/ 59 http://mpe.kmu.gov.ua/minugol/control/uk/publish/article?art_id=245224645&cat_id=35109 60 http://mpe.kmu.gov.ua/minugol/control/uk/publish/article?art_id=245225598&cat_id=35109 61 http://usa.mfa.gov.ua/ua/press-center/news/58783-palata-predstavnikiv-ssha-skhvalila-zakonoprojekt-shhodo-posilennya-sankcij-proti-rosiji 62 https://economics.unian.ua/energetics/2024909-zapasi-antratsitovogo-vugillya-na-tes-zrosli-odrazu-na-7.html 63 https://economics.unian.ua/energetics/2014484-zapasi-vugillya-dlya-opalyuvalnogo-sezonu-v-2-razi-perevischuyut-pokaznik-minulogo-roku-kistion.html 64 https://economics.unian.ua/energetics/2044804-v-ukrajinu-pribulo-druge-sudno-z-afrikanskim-vugillyam.html 65 https://economics.unian.ua/energetics/2034191-antratsitu-vistachae-pridniprovska-ta-krivorizka-tes-zapustili-svoji-energobloki.html 66 https://economics.unian.ua/energetics/2026799-do-oseni-na-ukrajinski-tes-moje-nadiyti-ponad-225-tisyach-tonn-afrikanskogo-vugillya.html 67 http://mpe.kmu.gov.ua/minugol/control/uk/publish/article?art_id=245226349&cat_id=35109 68 https://www.facebook.com/profile.php?id=100002114496889&fref=ts

Electricity and Nuclear Safety Article 342, Chapter 1, Section V of the Association Agreement, Cooperation in the Nuclear Sector. Council Directive No. 2014/87/Euratom, Council Directive No. 2013/59/Euratom, Council Directive No. 2006/117/Euratom On July 11, the VRU adopted the Law "On Amendments to Article 4 of the Law of Ukraine 'On Radioactive Waste Management' to Improve the Funding Mechanism of Radioactive Waste Management"69 and Law "On Amendments to the Budget Code of Ukraine to Improve the Funding Mechanism of Radioactive Waste Management,"70 which are aimed at renewing the management mechanisms of the State Radioactive Waste Management Fund71. On July 31, the President signed both documents72. On July 18-19, Energoatom NNEC held a meeting with Holtec International (USA), where the parties agreed on joint actions to enhance safety of the power units of Energoatom NNEC, improving, in particular, seismic safety of NPP power units to meet the modern IAEA standards and introduce the latest approaches to ensuring a satisfactory condition of reactor pressure vessels. In addition, the parties agreed co-operation under projects for the implementation of shelved storage of spent nuclear fuel and use of Holtec heat-exchange equipment at Ukrainian NPPs.73 Taking into account the positive experience of using Westinghouse nuclear fuel at power units No. 2 and No. 3 of the Yuzhno-Ukrainsk NPP and No. 5 of the Zaporizhzhya NPP, and the positive results of the expert examination of nuclear and radiation safety of materials, the SNRIU has permitted the use of Westinghouse fuel at power units No. 1 and 4 of the Zaporizhzhya NPP74. Ukraine also plans to further its cooperation with Westinghouse in diversification of nuclear fuel supplies to NPPs and modernization of NPP equipment to increase the capacity of power units75. According to a SNRIU report, a package of "road map" measures was completed in July with the support of IAEA experts to improve the system of detection of radioactive materials not covered by regulatory control.76 Article 342, Chapter 1, Section V of the Association Agreement, Cooperation in the Nuclear Sector. Cooperation aims at resolving problems caused by the Chornobyl accident and putting Chornobyl NPP out of operation On July 5-7, an Assembly of Contributors to the Chernobyl Shelter Fund and donors to the Nuclear Safety Account was held in London. The assembly approved a budget for financing the effort to develop the technical part of the project to dismantle unstable structures of the Shelter Object and agreed on an allocation to purchase the necessary equipment for the dismantling of unstable structures of the Shelter Object77. On July 6, Energoatom NNEC obtained a license to construct and launch the CSNFSF in the exclusion zone78. On July 21, the Commission for state expert review of investment projects in the fuel and energy complex issued a positive opinion upon the results of a state expert examination of the investment project "Construction of a Centralized Storage Facility for Spent Nuclear Fuel from PWR Type Reactors of Ukrainian Nuclear Power Plants"79.

69 http://w1.c1.rada.gov.ua/pls/zweb2/webproc4_1?pf3511=61773 70 http://w1.c1.rada.gov.ua/pls/zweb2/webproc4_1?pf3511=61774 71 http://www.kmu.gov.ua/control/uk/publish/printable_article?art_id=250128392 72 http://www.president.gov.ua/news/prezident-pidpisav-zakon-shodo-udoskonalennya-mehanizmu-fina-42626 73 http://www.energoatom.kiev.ua/ua/press/nngc/47163-energoatom_ta_holtec_international_rozshiryuyut_spvrobtnitctvo_z_pitan_pdvischennya_bezpeki_ta_efektivnost_v_atomnyi_galuz/ 74 http://www.snrc.gov.ua/nuclear/uk/publish/article/369005 75 http://mpe.kmu.gov.ua/minugol/control/uk/publish/article?art_id=245224597&cat_id=35109 76 http://www.snrc.gov.ua/nuclear/uk/publish/article/369370 77 http://dazv.gov.ua/novini-ta-media/vsi-novyny/v-londoni-projshla-asambleya-vkladnikiv-chornobilskogo-fondu-ukrittya-ta-donoriv-rakhunku-yadernoji-bezpeki.html 78 http://dazv.gov.ua/novini-ta-media/vsi-novyny/dp-naek-energoatom-otrimalo-vid-derzhatomregulyuvannya-litsenziyu-na-budivnitstvo-ta-vvedennya-v-ekspluatatsiyu-tssvyap.html 79 http://mpe.kmu.gov.ua/minugol/control/uk/publish/article?art_id=245224566&cat_id=35109

Energy Efficiency and Social Issues In July, energy efficiency reforms progressed by inertia: the President signed all three laws of the "energy-efficient package" in June, even despite some unexpected opposition on the part of MPs and the Ministry of Economic Development and Trade over the law on commercial heat and water supply metering. Having formally met the most critical requirements of foreign donors, the government does not show any significant political will to meaningfully further the reform in the sector, even in such an urgent issue (due to the approaching heating season) as optimization of subsidies. Although the government this month made a first step towards verification of subsidy recipients, initiating the creation of a comprehensive register of subsidy grantees, the issue of state aid monetization remains for the Cabinet of Ministers to be a matter of one-time acts and manual management. However, a well thought-out system of subsidy monetization will have the greatest effect on energy consumption dramatically reducing it, and consequently on the amount of allocations for this type of state support, which, according to the latest estimates, will reach at least a UAH 70 billion mark by the end of the year. Directive 2012/27/EC on energy efficiency Energy Audits and Energy Management Systems (Article 8) In July, the State Agency on Energy Efficiency and Energy Saving with the support of the Friedrich Ebert Foundation continued to provide a series of regional seminars and training sessions for local authorities.80 Just like in June, the information and awareness-raising campaign was devoted to issues of energy service and energy management in the budget sector. During the month, such events were held in several regional centers, involving some 500 people. The importance of energy audits is growing in the context of the ongoing decentralization reform in Ukraine. For example, the head of the Vinnytsia Regional State Administration has ordered at least 50 of the 126 municipal utilities to go through this procedure in order to obtain financing under the new rules81. Unfortunately, such examples remain to be isolated and originating from progressive professional thinking of a few leaders, not an established system, for even the imperfect Plan of Measures to Implement Energy Management at Budgetary Institutions adopted by the Cabinet of Ministers on April 26, 2017 has not been made public yet. Metering (Article 9) After the Verkhovna Rada adopted the Law "On Commercial Metering of Thermal Energy and Water Supply" on June 22 and despite the strong support for the project on the part of civil society and the expert community82, some MPs kept opposing strongly the adoption of this law, claiming in support of their standpoints that its provisions were inconsistent with the needs of consumers and actually violating consumer rights. Independent MP Yu. Levchenko registered a draft VRU resolution reversing the decision on adoption of this law. On the last session day, July 13, the MP alleged a non-compliance with the Rules of the Verkhovna Rada in the voting, since some MP votes were counted without being cast personally. In addition, the research and technical council of the Ministry of Economic Development and Trade spoke against the enactment of this law for some unconvincing reasons83. Nonetheless, only 50 MPs supported Levchenko's proposal, and as the VRU Rules required, the law was forwarded on July 28 to the President for signature84. The law is expected to come into force in early August, the next day after its publication.

80 http://saee.gov.ua/uk/news/1841 81 https://www.ukrinform.ua/rubric-other_news/2276325-na-vinniccini-obekti-komunalnoi-vlasnosti-projdut-cerez-energoaudit.html 82 https://www.facebook.com/zhytlo.in.ua/photos/a.561465287308634.1073741828.560972500691246/1329500080505147/?type=3&theater 83 http://ua.interfax.com.ua/news/general/438311.html 84 http://www.president.gov.ua/news/prezident-pidpisav-zakon-pro-komercijnij-oblik-teplovoyi-ene-42606

Energy Efficiency and Social Issues The version of the draft law intended for the first reading provided for the installation of meters and set a specific deadline for that (October 1, 2018). The adopted law also provides that the operator of external utility networks is obligated to install commercial metering units in the buildings which as of the day of this law's entry into force were connected to external utility networks and had not been equipped with such units (or if such metering units went out of service as of the effective date of this law): - within a year − for heat meters; - within one year for hot and potable water meters in non-residential buildings and two years for such

meters in residential buildings. The law also binds the NEURC to have three months after the date of its publication to revise the tariff setting procedure for the services of heat, hot water, centralized water supply for natural monopoly entities and entities operating on adjacent markets, specifically in so far as it relates to removing from the structure of tariffs the costs of installation, maintenance, and replacement of commercial and distribution heat and water metering. To ensure the proper implementation of the law, the Cabinet of Ministers issued Resolution No. 217 approving the Procedure for Distributing Funds Credited to Special-Purpose Accounts for Settlements with the Natural Gas Supplier with Special Obligations85. Given an extremely serious indebtedness situation, the government decided to protect the monies of DHU enterprises in the system of settlements with NJSC Naftogaz of Ukraine with regard to the installation of building heat meters. According to sectoral Vice Prime Minister G. Zubko commenting on the adoption of the relevant CMU resolution, previously the special accounts of DHUs were debited in favor of Naftogaz, leaving for the companies a financial resource sufficient only to pay wages and taxes. However, by approving the settlement mechanism proposed by the Ministry of Regional Development, the Cabinet of Ministers allows heat supply organizations to have amounts in their accounts sufficient for full-fledged investment programs. For this purpose, the formula for calculating the limits of normal transfer to the current account of heat supply and heat-generating organizations is planned to be changed by including in it the allocations to finance investment programs in the structure of the tariff effective in the settlement month. In other words, the standard amount of transfer to the account of a natural gas supplier with special duties has been reduced by the amount of its spending on an investment program. This will protect the funds on the accounts of heat supply/heat-generating organizations, allocated for the implementation of investment programs, including the installation of building meters for consumers that still do not have them. Energy Service Market (Article 18) In cooperation with local authorities, the State Agency on Energy Efficiency and Energy Saving has formed a national database of potential ESCO targets.86 At present, it counts more than 7,000 budgetary institutions that require thermo-modernization and may be especially interesting for ESCOs as investment objects. Such systematic work to create proper conditions for investments is soon expected to accelerate significantly the pace of ESCO contracting, turning this niche into a large-scale industry. Apart from this, the State Agency on Energy Efficiency and Energy Saving with the support of the Friedrich Ebert Foundation continued in July an information campaign on energy audits and potential of the ESCO mechanism for the state administrations of the Kharkiv87, Dnipropetrovsk88, Rivne89, and Zaporizhzhya90 regions. As previously, the main purpose of those events was to spread the word promoting the benefits of ESCO-contracts in the public sector, which is completely in line with the government functions as seen by the relevant articles of the Directive.

85 http://www.minregion.gov.ua/press/news/gennadiy-zubko-komunalni-pidpriyemstva-matimut-koshti-dlya-vstanovlennya-lichilnikiv/ 86 http://saee.gov.ua/uk/content/energoservis_1 87 http://saee.gov.ua/uk/news/1871 88 http://saee.gov.ua/uk/news/1886 89 http://saee.gov.ua/uk/news/1904 90 http://saee.gov.ua/uk/news/1897

Energy Efficiency and Social Issues Energy Efficiency National Fund, Financing and Technical Support (Article 20) On July 20, the President signed the long-awaited laws "On the Energy Efficiency Fund" and "On Energy Performance of Buildings" 91. According to the relevant working group, the Ministry of Regional Development is developing a number of bylaws that are necessary for this law. In view of the potential significant funding from international financial organizations and donor aid from European countries, the relevant working groups include foreign experts with appropriate qualifications. However, none of these projects is currently published on the official web site of the Ministry for public discussion, comments and suggestions. According to the text of the law, a three-month time is given to ensure the formation of the Energy Efficiency Fund, the deadline is September 8, 2017. In fact, as practice shows, a three-month time is needed for the government to adopt only a separate regulatory act that covers the development, public discussion, approval by all concerned executive bodies, putting a draft decision for consideration at a Cabinet of Ministers meeting and successful voting. Given that the relevant drafts were not made public as of late July, the Fund should not be expected to be created within three months of the date of adoption of the law. According to a realistic forecast, the Fund may yield its first product no earlier than in 2Q2018. It is expected that special attention during the development of by-laws and internal regulatory documents of the Fund will be paid to the transparency and accountability of the managers of this institution in their management of financial resources at their disposal. In particular, the duties of the Fund include publication of analytical information and financial statements, and support for the projects financed from the Fund will be provided by the financial office in addition to the special technical office. At the moment, the menu of financial products to be offered by the Fund remains unclear, as its definition depends on the Supervisory Board and both boards of directorates (financial and technical) that need to be elected and appointed. In practice, the menu of products of the Fund will depend on how soon the funding needed for its operation will be allocated from the State Budget and from international donors92. At the same time, the "warm loans" program breaks all records, which, after a long period of agreeing draft amendments to it, has finally received the long-awaited funding to implement energy efficiency measures in the housing sector93. Against the backdrop of the loans issued to condominium associations in June and totaling UAH 18.5 million - an absolute record for the entire duration of the program and an amount five times greater than that drawn for the same period in the previous year, condominium associations drawn an impressive amount of almost UAH 20 million94 for only the first two weeks of July95. This result is due to yet another record - the largest individual loan worth UAH 10 million drawn by a condominium association for comprehensive modernization of the entire multistory building96. These indicators prove the unrelenting popularity of this state program and the desire of residents to reduce energy consumption through energy modernization measures. In addition, the Cabinet of Ministers adopted on July 20 amendments to the "warm loans" program, changing item 5 of the procedure for using allocations from the state budget for measures of energy efficiency and saving97. The changes clarify the effective provision on mandatory accounting of thermal energy. The introduction of mandatory commercial accounting of thermal energy after thermo-modernization of apartment buildings is an urgent and necessary step to improve the program. Another important new provision is qualification of the condominiums associations, whose buildings are not connected to centralized heating systems, for the program. This option was not unavailable to them previously. Also, the state aid figures and the maximum loan share subject to compensation have somewhat changed. Similar changes have been carried out by the manager of a similar financing program, IQ Energy, - the European Bank for Reconstruction and Development98. 91https://www.facebook.com/petroporoshenko/videos/1062712680529790/?hc_ref=ARSuKBycEeyp6_YBxAyla4mQ8xL5aOA8-Fx2ORgN9zjPUPQ9PG8rbaubZGyV0eBtanw&pnref=story 92 https://voxconnector.org/fond-energoefektivnosti-zakon-pro-stvorennya-prijnyato-teper-potribni-koshti/ 93 http://www.kmu.gov.ua/control/uk/publish/article?art_id=250131252&cat_id=244276429 94 http://saee.gov.ua/uk/news/1868 95 http://saee.gov.ua/uk/news/1891 96 http://saee.gov.ua/uk/news/1879 97 http://www.kmu.gov.ua/control/uk/cardnpd?docid=249295592 98 http://www.iqenergy.org.ua/news/iq-energy-grants-size-increases-to-35

Energy Efficiency and Social Issues Directive 2010/31/EU on the energy efficiency of buildings The President P. Poroshenko signed the Law "On Energy Performance of Buildings" in a ceremony together with the Law "On the Energy Efficiency Fund."99 In commenting on the signing, the President stressed that the document introduced a mechanism of personal responsibility for and encouragement of initiatives to improve energy performance of buildings. As with the other laws in the energy efficiency package, once the law comes into force, intensive work should start to develop all the by-laws it requires. Although the law is already in force, it will be put into effect 12 months later, that is, on July 23, 2018, as prescribed by Clause 1 of the Transitional Provisions. Some provisions of the law will come into force an almost another year later, on July 1, 2019 , in particular, those concerning mandatory placement of energy audit certificates of public buildings, as well as those related to the provision of state financial support in combination with the obtainment of such a certificate100. Obviously, this approach is intended to reconcile the starting dates of full functioning of the system of financing energy efficiency measures and launch of the system of energy certification of buildings. However, such a long transitional period may, on the contrary, create an unjustified delay if, as a result of concerted efforts by the government and foreign partners, the Energy Efficiency Fund starts functioning before mid-2018, which is highly likely. However, given the announced intentions of MPs to return to the question of energy performance of buildings in two years in order to fully implement all provisions of Directive 2010/31/EC, specifically those raising the need to spread mandatory certification to the existing housing stock in the case of alienation or long-term lease, it is expected that adjusted will also be the times and dates of entry into force of such specific provisions of the current version of the law. Social Issues As regards social support for consumers, the government was almost completely focused in July on the tactical resolution of the problem of deficient funding to cover housing and communal relieves and subsidies. In the last two months, the situation reached a critical level, which, in particular, resulted in suspended operation of some municipal hot water supply facilities, including in the capital city. On July 13, the Verkhovna Rada adopted by a majority of 226 votes draft law No. 6600 amending the State Budget for 2017 and increasing by UAH 14.1 billion the state budget subvention to local budgets for utility relieves and housing subsidies for residents101. The relevant resolution states that this increase will be financed for the account of the general budget surplus. Although the government can be congratulated on the successful overcoming of the acute phase of the problem, it is sad to state that the subsidization issue has again been settled through increased allocations from the budget, rather than improvement in the housing subsidy entitlement and payment procedures, that is, their monetization at the level of consumers, as sectoral expert organizations constantly demand. In response to a sustained public campaign102, the Prime Minister V. Groysman expressed the government's intention to finalize by autumn the preparations for monetization of subsidies for housing and utility services provided to residents103. However, as follows from the comments of this official, made at Cabinet of Ministers meeting, the government will still limit itself to a one-off move in covering the actual saving by residents for a particular period. Despite some positive effect from such moves, without a systematic approach there will be no sustainable effect on consumer behavior in terms of reduced consumption and investment in energy saving.

99 https://www.facebook.com/petroporoshenko/videos/1062712680529790/?hc_ref=ARSuKBycEeyp6_YBxAyla4mQ8xL5aOA8-Fx2ORgN9zjPUPQ9PG8rbaubZGyV0eBtanw&pnref=story 100 http://zakon3.rada.gov.ua/laws/show/2118-19/print1501171330168556 101 http://w1.c1.rada.gov.ua/pls/zweb2/webproc4_1?pf3511=62067 102 http://zhytlo.in.ua/ua/novini/socalnij_zahist1/gromadskst_vimaga_ogolositi_plan_monetizac_subsidj.html 103 https://www.epravda.com.ua/news/2017/07/19/627240/

Energy Efficiency and Social Issues One of the positive steps forward was the Cabinet of Ministers' decision to create a central register that would contain all information about subsidy grantees. At the same time, the verification of subsidies has already started at the level of local authorities. "Today, it is necessary to verify the subsidies and identify those who really need state support. When the government was deciding on the market cost of gas, it introduced an instrument for protection of citizens. At present, a lot of households, nearly seven million, receive subsidies. By the end of 2017, the budget will spend UAH 70 billion on subsidies. It is unreasonable for us as a state that wants to be energy independent to spend so much on subsidies and not invest in energy efficiency," the Vice Prime Minister G. Zubko said104. Currently, the Ministry of Regional Development intends to collect as much information as possible about citizens entitled to subsidies, and then conduct subsidy verification and make individual decisions to optimize the budget spending. According to the press service of the Cabinet of Ministers, 70 percent of the people entitled to utility bill subsidies had received as of July 5 the aid for the new period, including the summer period for which subsidy amounts had also been calculated for them105. At the same time, the Cabinet of Ministers notes that since local self-government bodies do not have registers reflecting registered family members, the subsidy granting process is lagging behind in some regions. In particular, the Kirovograd, Poltava, and Mykolaiv regions have processed almost 90 percent of subsidy cases, whereas the Chernivtsi, Kyiv, and Odesa regions should accelerate the subsidy granting process and inform households of the subsidy amount. As previously, the proper management of apartment buildings with condominium associations created becomes seriously complicated in the cases when housing subsidies are not compensated for in a timely manner.

104 http://www.minregion.gov.ua/press/news/uryad-rozpochav-verifikatsiyu-subsidiy-zubko/ 105 http://www.kmu.gov.ua/control/uk/publish/article?art_id=250110613&cat_id=244276429

Environment and Renewable Energy Sources As regards environmental protection, the Association Agreement was especially notably implemented in July 2017 in the field of water resources and waste. The concerns over growing emissions of pollutants into the air, as the 2016 statistical data show, should have at last prompted the government to take action to reform this area. However, no progress is actually noticed in implementing the Directive 2008/50/EC. Unfortunately, the Law "On Amendments to Certain Legislative Acts of Ukraine on Conservation of the Primeval Forests under the Framework Convention on the Protection and Sustainable Development of the Carpathians" adopted by the Verkhovna Rada in May 2017 is still waiting for the President to sign it. This law is important in view of the need to protect virgin forests and will have an indirect positive effect on the conservation of wild birds. The law makes logging of virgin forests impossible and will pave the way for the introduction of administrative responsibility for the destruction of and damage to virgin forests. The NEURC has begun to publish detailed statistics on the RES facilities for which the feed-in tariff has been introduced, and this information will be updated on a monthly basis. Statistics released for the first six months of the current year have already revealed many interesting trends and facts. Directive 2011/92/EU on the assessment of the effects of certain public and private projects on the environment (codification) (Article 363 of the AA) On July 27, 2017, a meeting of the Working Group on the implementation of Directive 2011/92/EC took place at the Aarhus Center under the Ministry of Ecology and Natural Resources of Ukraine. The meeting considered a plan for organizing the preparation of draft acts necessary for the implementation of the Law of Ukraine "On Environmental Impact Assessment" and discussed proposals regarding the development of by-laws. Now intensive work is needed to develop and adopt the necessary by-laws to ensure the practical implementation of the environmental impact assessment model proposed by this law. Directive 2003/4/EC on public access to environmental information (Article 363 of the AA) The Ministry of Ecology and Natural Resources of Ukraine has launched a new official portal and opened access to 12 datasets, including: - list of opinions on transboundary transportation of wastes; - list of notifications regarding transboundary transportation of hazardous waste; - list of permits for the import and use of unregistered pesticides and agrochemicals for state tests and

research purposes; - list of permits for the special use of wild animals and other objects of the animal world; - list of ecological network territories and objects; - calculated felling rates; - shooting quota for other game animals of the state hunting fund in the hunting season; - list of permits for works (except for construction on water fund land); - list of permits for the import and export of species of wild fauna and flora, certificates for traveling

exhibitions, re-export and introduction of these species from the sea; - limits for the use of non-industrial species; and - limits and special use of natural resources within the territories and sites of national importance of the

natural reserve fund 106. Directive 2008/50/EC on Ambient Air Quality and Cleaner Air for Europe (Article 363 of the AA), Directive 2010/75/EU on Industrial Emissions (Integrated Pollution Prevention and Control) (Article 363 of the AA) The issue of growing emissions of hazardous substances into the air became an agenda topic for the Minister of Ecology and Natural Resources in July 2017. In early July, a new rating "TOP-100 of major polluting companies" was released. The new list of top hundreds major industrial polluters is now divided into three categories which include discharges, emissions, and waste generation. The rating includes 33 enterprises that

106 https://menr.gov.ua/news/31557.html

Environment and Renewable Energy Sources cause the greatest harm to water bodies and air, and 34 enterprises that generate the largest amount of industrial waste. In particular, according to the Minister O. Semerak, "Ukraine has committed to implement a National Emission Reduction Plan. It is a signal for international financial institutions and potential investors contemplating investments in the energy sector of Ukraine. In addition, the document will bind enterprises to gradually reduce gross emissions of pollutants from all combustion plants, which are found at each enterprise in our rating."107 However, the National Emission Reduction Plan for Large Combustion Plants, despite the promises, has not yet been approved. Instead, the Ministry of Ecology and Natural Resources of Ukraine issued in July a draft order "On Approval of the Principles for the Development of a Plan for Reducing Pollutant Emissions from Enterprises of the Mining and Metallurgical Complex." The explanatory note to the project states, among other things, that it is intended to improve legislative regulation in the field of atmospheric air protection: "Increased air pollution is observed in almost every city where there are MMC enterprises that may periodically exceed the hygienic standards for the content of pollutants in the air in populated areas. These enterprises are required by law to have the best available technologies (BAT) implemented... Due to the fact that the BAT implementation takes considerable time and requires sound financial resources, it makes sense to develop an emission reduction plan for MMC enterprises... taking into account the requirements of the legislation of the European Union."108 It remains unclear how this initiative aligns with the earlier announced development of the National Plan of Action to reduce emissions of MMC enterprises. Directive 2009/147/EC on the Conservation of Wild Birds (Article 4.2) (Article 363 of the AA) The Law "On Amendments to Certain Legislative Acts of Ukraine on Conservation of the Primeval Forests under the Framework Convention on the Protection and Sustainable Development of the Carpathians" adopted by the Verkhovna Rada in May 2017109 is still waiting for the President to sign it. This law is extremely important in view of the need to protect virgin forests in Ukraine and will have an indirect positive effect on the conservation of wild birds in Ukraine. The law makes cutting virgin forests impossible and will pave the way for the introduction of administrative responsibility for the destruction of and damage to virgin forests. The public has already petitioned the President, asking him to sign this law as soon as possible.110 On July 25, a joint order of the Ministry of Ecology and Natural Resources and the Ministry of Agrarian Policy and Food was published, introducing new poaching fines. As the Minister of Ecology and Natural Resources O. Semerak specified, the average amount of fines increased fourfold for killing and harming all types of animals, including certain species of birds111.

Directive 2009/28/EC on the promotion of the use of energy from renewable sources and amending and subsequently repealing Directives 2001/77/EC and 2003/30/EC (Article 338 of the AA) On July 31, a draft resolution112 on adopting in principle the updated draft law "On Amendments to Certain Laws of Ukraine Encouraging the Use of Household Wastes as an Alternative Energy Source" was registered in the Verkhovna Rada. This draft provides for the introduction of a green tariff for electricity produced from garbage and increases the responsibility of packaging producers for packaging disposal. According to the draft law, the feed-in tariff will be applied exclusively to the electricity generated from pre-sorted household waste. Such waste should be free from hazardous components, as well as recyclable materials (plastic, glass, paper, metal). The Verkhovna Rada Committee on FEC, Nuclear Policy and Nuclear Safety created a working group under the descriptive name "New Approaches to the Promotion of Renewable Energy Production" to identify

107 https://menr.gov.ua/news/31547.html 108 https://menr.gov.ua/projects/99/ 109 http://w1.c1.rada.gov.ua/pls/radan_gs09/ns_golos?g_id=12509 110 https://petition.president.gov.ua/petition/37906 111 https://menr.gov.ua/news/31605.html 112 http://w1.c1.rada.gov.ua/pls/zweb2/webproc4_1?pf3511=62380

Environment and Renewable Energy Sources priorities and improve decision-making in the renewable energy sector, which group included representatives of the World Bank, USAID, companies, government bodies, and non-governmental organizations (in particular, DiXi Group). The coming meetings of the working group are planned to discuss the latest global renewable energy technologies that can be used in Ukraine to accelerate the implementation of "green" projects, as well as technologies for saving energy produced from renewable sources. Meanwhile, in an effort to meet the requirements of the National Renewable Energy Action Plan until 2020 and in response to a large number of petitions from legal entities, individuals, and public authorities, the NEURC began publishing statistical data regarding the energy facilities for which a feed-in tariff had been set113. The statistics will be updated on a monthly basis, but analysis of the currently available statistic data proves a few quite interesting facts. First, as of June 1 2017, 203 business entities had a license to produce electricity at the feed-in tariff. However, as turned out, one fifth of the facilities (38 out of 203) had not produced electricity at all. Their total capacity equals 153 MW, or almost one-eighth of the overall capacity of the operating "green" generation facilities (1,209 MW as of June 1, 2017114). It should be noted that these calculations do not include the facilities operating in the ATO zone (in particular, the three large wind power plants with a total capacity of 80 MW - Novoazovska, Krasnodonska, and Lutuhynska). In addition, 79 new RES facilities had been set up in Ukraine in the period from January to June, with a total capacity of 182.7 MW. The total investment in these projects exceeded EUR 210 million115. Incidentally, 132 MW of the capacity is accounted for by solar power plants and in the said period, 67 solar power generating facilities were built. In addition, according to the statistics released by the NEURC, the total capacity of the solar power plants installed on roofs reached 6.625 MW as of the beginning of June. And although these capacities are comparatively not so large, it is worth noting that 2,016 MW of them (that is, almost 33 percent of the total number of roof-based solar power plants set up for all years to date) have been installed this year. One of the reasons for this is a high feed-in tariff for solar power generation, which makes the construction of solar power plants more and more popular with residents and investors alike. In particular, in the words of Peter O'Brien, director and wind power project manager of EuroCape in Ukraine, the coming years will be seeing a revival of renewable energy in Ukraine and growing business interest in this branch. This is especially true of solar power, since this energy sector has the highest feed-in tariff. According to experts, Ukrainian and foreign developers are set to implement more than 70 new "green" projects in Ukraine by the end of this year, with a total installed capacity exceeding 430 MW. Apart from that, intending to accelerate the implementation of RES projects, the government instructed Ukrenergo, the Ministry of Ecology and Natural Resources, and the Ministry of Energy and Coal Industry to develop an infrastructure setup project 116for solar power plants to be built in the Chornobyl NPP exclusion zone. More details and visualized statistics are available on the RES map117 prepared by DiXi Group experts based on NEURC statistics.

113 http://ua-energy.org/uk/posts/rehuliator-pochav-opryliudniuvaty-statystyku-pro-obiekty-vde-iakym-stavnovleno-zelenyi-taryf 114 https://goo.gl/3tu5Cn 115 https://www.ibcentre.org/blogger 116 http://www.kmu.gov.ua/control/publish/article?art_id=250116240 117 https://www.google.com/maps/d/u/1/viewer?mid=1XpUHYI597UcL3fLyH0dZMRM9bTY&ll=49.2830704536652%2C49.48290221875004&z=6

Oil The intensity of the government's efforts to implement Ukraine's international commitments in the oil sector has subsided again. The deadline for completing the Subsoil Code has been postponed once again. This is the third month in a row as the draft Energy Strategy of Ukraine until 2035 has been corrected internally, prepared by an international expert group, agreed with European Commission representatives, approved by the Steering Committee and the sectoral committee of the Verkhovna Rada of Ukraine. The implementation of Directive 98/70/EC regarding the quality of petrol and diesel fuel and Directive 94/63/EC on the control of emissions from oil product tanks is delayed. The achieved results are increasingly failing to meet the officially announced plans. More frequent are now announcements of adopted executive decisions that are actually still in preparation. The Ministry of Energy and Coal Industry, the Ministry of Ecology and Natural Resources, and the State Service for Geology and Mineral Resources report a number of tasks in the oil sector as completed, although the draft documents they prepared have actually been returned for revision. Directive 2009/119/EC Imposing an Obligation on Member States to Maintain Minimum Stocks of Crude Oil and/or Petroleum Products (Article 338 of the Association Agreement) As of early August 2017, the updated implementation plan for Directive 2009/119/EC was not approved, developed by the State Reserve Agency to replace the currently effective one118, and the implementation deadlines for most of the tasks set therein expired in 2015-2016. The document119 proposes to the Cabinet of Ministers to assign the State Reserve Agency the responsibility for "organizing the work to implement the action plan," releasing the Ministry of Energy and Coal Industry of this responsibility, and to reschedule: – the adoption of the regulatory act of the Cabinet of Ministers regarding the model of minimum security

stocks of oil and petroleum products from December 2015 to December 2017; – the adoption of the Law "On Minimum Security Stocks of Oil and Petroleum Products" from December

2016 to December 2017; and – the implementation of all the organizational measures set in the action plan for a period following the

enactment of the law "On Minimum Security Stocks of Oil and Petroleum Products." According to Clauses 4 and 5, Section 1.2 of the Directive implementation plan120, the Ministry of Energy and Coal Industry has undertaken to construct additional storage tanks to keep the minimum stocks of crude oil and/or petroleum products. As part of this work, "two oil tanks are planned to be constructed in 2016, with a capacity of 50,000 tonnes each."121 However, according to the Certificate of Scheduled Audit of Ukrtransnafta PJSC's compliance with license terms for conducting business activities to transport oil by Main pipelines122, only 55 percent of the planned amount has been invested in the construction of PBC-50000 tank No. 2 and 3 of the Brody depot, while the project completion deadline is 2017. At the same time, the said Certificate contains no information about the plans announced in December 2015123 to construct a vertical steel tank with a floating roof and a storage capacity 50,000 cubic meters of oil in 21 months in the village of Smilne, Brody raion, Lviv region124. Instead, it specifies that, as of December 31, 2016, the useful capacity of 11 tank farms of Ukrtransnafta PJSC (79 tanks) totaled 545,000 cubic meters, twice less the specification, which is 1,083,000 cubic meters (discounting 24 decommissioned tanks, including for repair or expert inspection purposes). Yet, as few as four tanks were actually repaired in 2016125.

118 http://zakon0.rada.gov.ua/laws/show/346-2015-%D1%80 119 http://civic.kmu.gov.ua/consult_mvc_kmu/uploads/attach-3346-490347147.pdf 120 http://www.kmu.gov.ua/document/248091904/Dir_2009_119.pdf 121 http://www.ukrtransnafta.com/ru/press_center/company_news?id=191 122 http://www.nerc.gov.ua/data/filearch/Catalog8/naftogas/2017/Akt-Ukrtransnafta_19.06.2017-95.pdf 123 http://www.ukrtransnafta.com/ua/press_center/company_news?id=166 124 http://mpe.kmu.gov.ua/minugol/doccatalog/document?id=245131366 125 http://www.nerc.gov.ua/data/filearch/Catalog8/naftogas/2017/Akt-Ukrtransnafta_19.06.2017-95.pdf

Oil Directive 98/70/ЄC Regarding the Quality of Petrol and Diesel Fuel and Amending and Supplementing Directive 93/12/EЕС Supplemented by Directives 2000/71/EC, 2003/17/EC, and 2009/30/EC, and Regulation (EC) 1882/2003 (Annex ХХХ, Articles 360-363, 365, and 366 of the AA) According to the Directive 98/70/EC implementation plan (Articles 7 and 8, Clause 1.3), the Ministry of Energy and Coal Industry has undertaken to report from December 2015 on the operation of the petroleum products quality and safety monitoring system in Ukraine126. However, no document was released as of early August 2017. Only the draft resolution of the Cabinet of Ministers "On Amendments to Cabinet of Ministers Resolutions No. 573 dated June 1, 2011 and No. 927 of August 1, 2013" was published127. It provides that compliance control authorities must report twice a year to the Ministry of Energy and Coal Industry on the activity to check conformity of fuels with the Technical Regulation requirements. Although the said draft resolution was declined by Decision No. 604 of the State Regulatory Service, dated December 29, 2016, as developed without adherence to the key principles of state regulatory policy128, it is not under revision now because it is removed from the checklist. The national standardization program for 2017129, as amended on July 25, 2017, provides for the adoption of 32 standards by the end of 2017 to implement Directive 98/70/EC. Three of them were approved as of early August 2017, nine are in the editing phase, 15 returned for revision, and five in the initial development phase130. On the whole, of the 36 national standards for motor fuels and testing methods, which are needed to enable the application of the Technical Regulation Regarding the Requirements for Motor, Diesel, Marine, and Boiler Fuels131, only twelve have actually been approved. The Ministry of Energy and Coal Industry is obligated to develop by January 1, 2018 the Technical Regulation Regarding the Requirements for Aviation and Jet Fuel in compliance with the requirements of Directive 98/70/EC (Clause 32 of the 2017 Plan to Develop Technical Regulations132). However, the implementation of this and the above-mentioned tasks in full is unlikely due to a lack of funding. Directive 94/63/EC on the Control of Volatile Organic Compound Emissions from Storages of Petroleum Products and Their Transportation from Oil Terminals to Service Stations, as Amended by Regulation (EC) 1882/2003 (Annex ХХХ, Articles 360-363, 365, and 366 of the AA): In November 2016, the tasks set in Clauses 1.1.1, 1.1.2, and 1.2.1 of the Directive 94/63/EC implementation plan became overdue133. Despite this, as of early August 2017, the Cabinet of Ministers had failed to adopt the resolution "On Approving the Technical Regulation of the Requirements for Storage, Transportation, and Transshipment of Fuel, Equipment and Service Stations," and the Ministry of Ecology and Natural Resources failed to approve the recommendations for controlling operation of filling stations and to take inventory of oil tank farms. On July 6, 2017, the State Regulatory Service issued Decision No. 301, for the second time declining the State Fiscal Service's request for approval of the draft resolution of the Cabinet of Ministers "On Approval of the Procedure for Keeping the Unified State Register of Meters to Track the Volume of Produced and Sold Fuel and of Tank Fuel Level Gages, and Transferring Their Readings by Electronic Means of Communication,"134 since the document had been developed in disregard of the key principles of state regulatory policy.135

126 http://www.kmu.gov.ua/document/248091869/Dir_98_70.pdf 127 http://mpe.kmu.gov.ua/minugol/control/uk/publish/article?art_id=245160232&cat_id=167475 128 http://www.drs.gov.ua/wp-content/uploads/2016/11/7994-29-12-2016.pdf 129 http://uas.org.ua/wp-content/uploads/2017/04/Program_2017_nakaz_N64_2017-04-03.xlsx 130 http://uas.org.ua/ua/messages/dodatok-1-do-programi-robit-z-natsionalnoyi-standartizatsiyi-na-2017-rik/ 131 http://zakon.rada.gov.ua/go/927-2013-п 132 http://www.me.gov.ua/Documents/Download?id=d8571d0b-53a6-4ade-88c1-75579be0cb39 133 http://www.kmu.gov.ua/document/248091862/Dir_94_63.pdf 134 http://www.drs.gov.ua/wp-content/uploads/2017/06/5770-06.06.2017.pdf 135 http://www.drs.gov.ua/wp-content/uploads/2017/06/5245_06-07-2017.pdf

Oil Directive 94/22/EC on the Conditions for Granting and Using Authorizations for the Prospecting, Exploration and Production of Hydrocarbons (Annex XXVII, Articles 279, 280, and 341 of the AA) According to the Implementation Plan for Directive 94/22/EC, a new version of the Subsoil Code of Ukraine should have been adopted by the end of 2016136. As is known, amendments to the document are being developed by a working group under the Ministry of Ecology and Natural Resources of Ukraine137, which held its scheduled meeting on July 18, 2017138. The Cabinet of Ministers said that the draft of the updated Subsoil Code of Ukraine was "under review by concerned authorities" as of July 20, 2017,139 since its submission to the Verkhovna Rada had been postponed to the 4Q2017 (Objective I, Task 202140). Nevertheless, on July 4, 2017, acting Head of the State Service for Geology and Mineral Resources O. Kyryliuk expressed hope that "the amended Code will be considered by the Verkhovna Rada in early 2018."141 On July 4, 2017, the Cabinet of Ministers of Ukraine issued Resolution No. 519 "On Amendments to the Procedure for Granting Special Permits for Subsoil Use."142 According to the document: - the subsoil user's failure to fulfill the operational program on the sites already conceded to it or any

detected breaches of the subsoil use rules thereon cease to be regarded as grounds for the refusal to grant, reissue, extend the validity term, or make changes to the subsoil permit;

- a reason for the refusal to extend the validity term of the subsoil use permit is now the customer's royalties (rent payments) arrears.

At the same time, the Procedure amended by Resolution No. 519143 contains no reference to the Resolution "On Amendments to the Procedures Approved by Resolutions No. 594 and 615 of the Cabinet of Ministers of Ukraine, Dated May 30, 2011," which allegedly was officially announced on June 22, 2017 as adopted144. Thus, it remained unclear as of early August 2017: – whether it has been made possible for producers of final products suitable for their intended use to

conduct geological exploration and pilot development without the lengthy auction procedure;145 – whether subsoil users seeking to extend their special permits for subsoil use are bound to provide an

expert opinion regarding the impact of their activities on the environment (after the enactment of the Law "On Environmental Impact Assessment" on December 18, 2017146).

– whether the obligation to purchase state geological information is abolished; – whether surcharges for increased reserves are abolished; – whether the obtainment of permission from the State Fiscal Service for the special permit is abolished; – whether the requirement for the consent of law enforcement agencies for the special permit is abolished;

and – whether the amount of the fee for extending the special permit, which equals 20 percent of the current

cost of the granted permit, is balanced. In this connection, there is concern about executive authorities at all levels reporting the adoption of executive decisions that remain under development for a long time thereafter. In particular, the State Service for Geology and Mineral Resources officially announced the approval of the Rules for the Development of Oil and Gas Fields on January 12, 2017147, while the work on the relevant order of the Ministry of Ecology and Natural Resources of Ukraine148 was actually completed only on June 30.

136 http://www.kmu.gov.ua/document/248102926/Dir_94_22.pdf 137 https://menr.gov.ua/content/sklad-robochoi-grupi.html 138 https://menr.gov.ua/news/31593.html 139 http://www.drs.gov.ua/deregulation/plan-deregulyatsiyi-2016-2017-rr/ 140 http://www.kmu.gov.ua/document/249935381/R0275.doc 141 http://www.geo.gov.ua/novyna/kodeks-ukrayiny-pro-nadra-potrebuye-negaynyh-zmin 142 http://zakon3.rada.gov.ua/laws/show/519-2017-%D0%BF/paran2#n2 143 http://zakon3.rada.gov.ua/laws/show/615-2011-%D0%BF 144 http://www.kmu.gov.ua/control/uk/publish/article?art_id=250089618&cat_id=244276429 145 http://zakon0.rada.gov.ua/laws/show/594-2011-%D0%BF 146 http://zakon2.rada.gov.ua/laws/show/2059-19 147 http://geo.gov.ua/novyna/derzhgeonadra-rozrobyla-novi-pravyla-rozrobky-naftovyh-i-gazovyh-rodovyshch 148 http://zakon2.rada.gov.ua/laws/show/z0692-17

Oil The state of preparation of draft government resolutions on amendments to the Regulation of the Procedure for Disposal of Geological Information149 (Objective I, Task 206150), Methodology for Determining the Value of the Mineral Reserves and Resources of a Field or Subsoil Block Granted for Use151, Methodology for Determining the Initial Auction Price for a Special Permit for Subsoil Use152 (Objective І, Tasks 203 and 204153). Harmonization of the present methodologies with applicable legislative norms and the requirements of the UN Framework Classification of 2009 will: – simplify commercial, feasibility, and geological study, as well as taxation operations, in particular at the

time of implementation of production-sharing agreements; – introduce a differentiated assessment approach depending on the intended purpose of the works

(exploration or production), reliability degree of the geological material (resources or reserves), and type of deposits in terms of extraction complexity (traditional or non-traditional methods).

There were also plans to develop a draft act of the Cabinet of Ministers, amending the Regulation of the Mining Allotment Granting Procedure154 in the section related to cancellation of mining allotments for the oil and gas industry (the implementation deadline – 1Q2017155). However, the Ministry of Social Policy, which is responsible for the fulfillment of this task, delays its implementation. On July 12, 2017, the roundtable "Ukraine and the Resource Governance Index: What Solutions Does the Extractive Industry Need?"156 learned the news that Ukraine was in the 44-th place in the RGI 2017 rating, with a score of 49 out of 100 points. The bottom of the rating corresponds to countries where natural resource management features both positive and negative processes and the prospects for local communities to obtain any significant benefits from extraction of minerals is unlikely157. Nonetheless, according to experts, Ukraine is gradually improving its indicators, in particular, thanks to the adopted amendments and supplements to the procedures for granting special permits for subsoil use and relevant auctions, as well as the established obligation of subsoil users to publicly disclose the information about their final beneficiaries158. Article 276 of the AA regarding the prevention of failures in oil and petroleum products transit and transportation On July 11, 2017, the State Regulatory Service of Ukraine issued Decision No. 306159 approving the draft resolution of the Cabinet of Ministers of Ukraine "On Approval of the Procedure for the Decommissioning of Main Pipelines for Oil, Gas and Their Products" developed by the Ministry of Energy and Coal Industry160. This document, if adopted, will regulate the issue of decommissioning of Main oil and petroleum products pipelines and their parts that are state property in the event of expiration of their service life, their repair, reconstruction, or emergency condition, construction of bypass pipelines, etc. The government's adoption of a relevant decision will allow, in particular, decommissioning 523 km of oil pipelines and eight tanks, which are on the balance sheet of Ukrtransnafta PJSC, including 414 km of the Lysychansk - Tikhoretsk pipeline with an intermediate pumping station Luganska (located on the territory not controlled by the government of Ukraine) and 109 km of the Brody - State Border pipeline (not in operation).

149 http://zakon0.rada.gov.ua/laws/show/423-95-%D0%BF 150 http://www.kmu.gov.ua/document/249935381/R0275.doc 151 http://zakon3.rada.gov.ua/laws/show/1117-2004-%D0%BF 152 http://zakon0.rada.gov.ua/laws/show/1374-2004-%D0%BF 153 http://www.kmu.gov.ua/document/249935381/R0275.doc 154 http://zakon2.rada.gov.ua/laws/show/59-95-%D0%BF 155 http://zakon2.rada.gov.ua/laws/show/1079-2016-%D1%80/paran146#n146 156 http://kompek.rada.gov.ua/news/main_news/73207.html 157 http://resourcegovernanceindex.org/system/documents/documents/000/000/046/original/2017_Resource_Governance_ Index.pdf?1498599435 158 http://dixigroup.org/storage/files/2017-07-15/rgi_ukr_web-1.pdf 159 http://www.drs.gov.ua/wp-content/uploads/2017/07/5414_11_07_17.pdf 160 http://195.78.68.67/minugol/doccatalog/document?id=245220304

Oil Article 280 of the AA regarding transparency in licensing hydrocarbon prospecting, exploration, or production The Ministry of Ecology and Natural Resources continues to delay drafting a Cabinet of Ministers resolution "On Amendments to Cabinet of Ministers Resolution No. 423 dated June 13, 1995" that simplifies digital access to secondary geological information in real time (the task deadline is 1Q2017161). With this in mind, independent experts signed an open address to the President, Prime Minister, and VRU Speaker162, emphasizing therein the need: - for the Verkhovna Rada to pass as soon as possible the draft laws "On Amendments to Certain Legislative

Acts of Ukraine Regarding Simplification of Certain Aspects of the Oil and Gas Industry" (No. 3096-d) and "On Ensuring Transparency in Extractive Industries" (No. 6229);

- to introduce simplified digital access to secondary geological information in real time (by amending Resolution No. 423 of the Cabinet of Ministers "On Approval of the Regulation on Disposal of Geological Information," dated June 13, 1995); and

- to carry out relevant work with members of regional councils in order to unblock the granting of permissions for hydrocarbon prospecting and development.

Article 338 of the AA regarding continuation and intensification of the cooperation in the energy field In pursuance of item "a" of Article 338 regarding the implementation of energy strategies and policies, development/elaboration of the appropriate forecasts and scenarios for Ukraine, the approval process on the provisions of the Energy Strategy of Ukraine until 2035 is still underway, although it was planned to be completed by June 15 163 and the final text to be approved in 2Q2017 (Objective I, Task 163164). On July 19, 2017, the Deputy Minister of Energy and Coal Industry N. Boyko stated, "The consideration of the comments of concerned central executive authorities on the Energy Strategy of Ukraine until 2035 is in the final stage."165 However, concerning is the fact that the text prepared by an international expert group, agreed with representatives of the European Commission, and approved by the Steering Committee and the Verkhovna Rada Committee on FEC, Nuclear Policy and Nuclear Safety has been amended internally for the third month in a row. In pursuance of item "c" of Article 338 regarding modernization and strengthening of the existing energy infrastructure, at the 25th meeting of the Intergovernmental Ukraine-Belarus Mixed Commission on Trade and Economic Cooperation, the parties on July 18, 2017, "agreed to continue looking for ways to consistently deepen the mutually beneficial partnership of the oil and gas sectors of both national energy complexes, in particular, to complete holistic technical assessment of the existing opportunities to supply crude oil, using the available infrastructure."166

161 http://zakon2.rada.gov.ua/laws/show/1079-2016-%D1%80/paran146#n146 162 https://issuu.com/810136/docs/___________________________________ 163 http://mpe.kmu.gov.ua/minugol/control/uk/publish/article;jsessionid=2A2F23D0CEAA2122A496E1F433515D67.app1?art_id= 245213057&cat_id=35109 164 http://www.kmu.gov.ua/document/249935381/R0275.doc 165 http://www.kmu.gov.ua/control/uk/publish/article?art_id=250152651 166 http://mpe.kmu.gov.ua/minugol/control/uk/publish/article?art_id=245223786&cat_id=35109

Business Climate The implementation of the NEURC Law in so far as it relates to the membership rotation is delayed at least until the fall, since MPs will be on vacations until September 5 and the competition commission for selecting new members for the regulator is to be created subject to the responsibility of the Verkhovna Rada, the Presidential Administration, and the Cabinet of Ministers. This threatens to paralyze the work of the NEURC, since the next two NEURC members are to be discharged on November 26 and the commission will have only two members on staff, which is not enough to pass decisions. The situation is better with the implementation of the Law in the part relating to the regulator's budgeting for 2018. The VRU Budget Committee has considered the draft budget and provided comments for its improvement; a draft law on amendments to the Budget Code has been introduced in the Parliament. Other provisions of the Law also seem problematic to implement, particularly those regarding publication of resolutions. In particular, the Uryadovyi Kurier newspaper has published only half of the resolutions, which have long been adopted, and the rest remain unpublished, meaning not entered into effect. With regards to this and some other issues, the NEURC leadership addressed the Energy Community Secretariat, asking it to evaluate the regulator's performance and provide its expert opinion. The Ministry of Economic Development and Trade has submitted for consideration a draft law on privatization. It is expected to increase the investor interest in state-owned properties subject to privatization. More attention has been paid to the protection of investors and the process of selling their shares detailed. From now on all conflicts will be settled through international arbitration. The Antimonopoly Committee of Ukraine continues to develop and adopt legislation in accordance with the plan for transposition of European legislation: with regard to the requirements for companies to obtain permission for vertically concerted actions and for fines for violating competition law in the part related to concerted actions. Article 277 on the Regulator (provisions of Directives 2009/72/EC and 2009/73/EC regarding the regulatory authority) The VRU Budget Committee considered the draft NEURC budget for the coming 2018 year and returned the draft to the regulator for revision. The Committee decided that the budget should be corrected in its remuneration part, specifically the payroll spending needs to be reduced and the reasons behind the new spending figure given to the Committee167. The draft law No. 6691 "On Amendments to the Budget Code of Ukraine Regarding the Need to Ensure the Functioning of the NEURC" has been registered168. The changes it introduces concern the regulator's budgeting, specifically the "regulation charges" to be paid by the companies under the NEURC's regulation. As of July 5, there were 35 NEURC resolutions queued for publication in the Uryadovyi Kurier newspaper.169 Since then, 16 resolutions have been published by now, including:

- Resolution No. 498 “On Amendments to the Procedure for Financing Services of Connecting Electrical Installations to Power Grids”170 adopted back on April 11, 2017;

- Resolution No. 866 "On Approval of the Procedure for Public Discussions on Draft NEURC Decisions."171

Also, the regulator took into account the negative reaction from business and the public to the resolution "On Approval of the Specific Cost of Non-Standard Connection of Electrical Installations to Power Grids in 2017" and therefore, it invited in advance proposals (setting the submission deadline on September 1) regarding the drafting of the NEURC resolution "On Approval of the Methodology for Pricing the Connection to the Transmission and Distribution System"172.

167 http://budget.rada.gov.ua/news/Diyalnist_Komit/Oper_inf_rishen_Komitetu/75236.html 168 http://w1.c1.rada.gov.ua/pls/zweb2/webproc4_1?pf3511=62240 169 http://www.nerc.gov.ua/?news=6171 170 http://www.nerc.gov.ua/index.php?news=6204 171 http://www.nerc.gov.ua/index.php?news=6260 172 The NEURC Letter No. 7429/17.1.3/7-17, dated July 07, 2017

Business Climate On July 11, the NEURC leadership sent a letter to the Energy Community Secretariat, listing problems in the way of the exhaustive and timely implementation of the Law "On the NEURC"173. The letter argues that there is yet no effective way to protect consumer rights, in particular through checks based on their complaints; the right to determine the necessary expenditures for the coming year is not ultimately secured; and untimely publication of decisions in the Uryadovyi Kurier newspaper means delaying their entry into effect and, as a result, negatively affects the operation of energy markets. In addition, the regulator draws attention to the absence of NEURC staff rotation, as there is still no Competition Commission created to select candidates. In view of so many problems, the NEURC leadership also requested that the Energy Community Secretariat conduct an audit and issue its expert opinion. The EnC Secretariat agreed to an audit174, but it is yet unknown how long it will take and when the results will be known. Articles 255-256 regarding anticompetitive actions and mergers The draft law No. 6723 amending certain economic competition laws of Ukraine has been registered175. The document addresses the issue of double regulation of concerted actions and approximation of the legislation to EU requirements. It also provides for the development of a procedure for controlling economic concentrations, increased maximum fine, and development of a procedure for forced collection of fines. In particular, the document provides for a 50 percent reduction in the fine, if it is paid voluntary within one month of the moment of its imposition by the AMCU. In pursuance of the requirements of Article 256, the AMCU published a draft order binding subjects of vertically concerted actions and subjects of concerted economic actions to obtain prior AMCU permission for dismissals176. Proposals will be accepted until August 26. The AMCU held a roundtable devoted to concentrations with the participation of asset management companies (AMCs)177. The roundtable has established that there are currently a number of critical issues regarding the number and content of the documents to be submitted to assess a concentration, and therefore, a decision has been made to create a uniform approach to evaluating the relations between AMCs and investment institutions. Articles 263-267 on state aid to business entities The draft CMU resolution on returning an unlawful state aid inadmissible for competition has been adopted178. The main objective of this resolution is to regulate the implementation of the AMCU's decisions regarding the return of a state aid whose granting has distorted market competition. Article 379 regarding creation of favorable business conditions The NEURC has begun publishing on its website new data concerning license holders producing electricity from renewable energy sources179. The dataset contains the following information: the company's name, location of its power generation facility, the latter's nameplate capacity, date of setting the feed-in tariff, date of commissioning, and electricity output since the beginning of the year.

173 https://www.slideshare.net/NKREKP/ss-77782130 174 https://energy-community.org/news/Energy-Community-News/2017/07/20.html 175 http://w1.c1.rada.gov.ua/pls/zweb2/webproc4_1?pf3511=62290 176 http://www.amc.gov.ua/amku/control/main/uk/publish/article/136649 177 http://www.amc.gov.ua/amku/control/main/uk/publish/article/136390 178 http://zakon2.rada.gov.ua/laws/show/468-2017-%D0%BF 179 http://www.nerc.gov.ua/?news=6258

Business Climate Article 93 regarding access to energy markets The government has approved a draft privatization law180. It provides for market pricing and introduces a new division into large and small privatization objects. The large objects (60) are those that are most attractive to the investor. For large privatization objects, an investment advisor will be invited for the selling period, whose duty will be to study the demand for the object, communicate with potential investors, and offer the initial price. While investment advisers will be invited for large objects, small objects will be sold through online auctions, for example, through ProZorro. It should be noted that this draft law increases the investor protection level due to the possibility to have resort to international arbitration and a large number of bidders invited. Articles 27-49 regarding access of commodities to markets The Ministry of Economic Development and Trade has published a draft law on the "single window" principle to be implemented at Ukraine's customs control points, which simplifies the customs formalities, allowing information to be provided in electronic form, rather than on paper, and abolishing the relevant deprecated provisions. The draft law also simplifies the procedure for confirming the Ukrainian origin of goods.181

180http://www.me.gov.ua/News/Detail?lang=uk-UA&id=f206d34e-8b98-4baf-a984-25d559f20bc1&title=UriadUkhvalivNoviiProektZakonuProPrivatizatsiiu 181 http://www.me.gov.ua/Documents/Detail?lang=uk-UA&id=19f72dc2-a574-42c3-9647-c2a1ed992d72&title=ProektZakonuUkrainiproVnesenniaZminDoMitnogoKodeksuUkrainiTaDeiakikhZakonodavchikhAktivUkrainiSchodoZaprovadzhenniadinogoViknaNaKordoni

Methodology The Project is being implemented by five partners and two invited permanent experts. The Project is being implemented by the following five partners: NGO “DIXI GROUP”, Resource & Analysis Center “Society and Environment”, Civil Network “OPORA”, Association “European-Ukrainian Energy Agency”, and All-Ukrainian NGO “Energy Association of Ukraine”. Among the project permanent members are L. Unigovskyi, General Director of Naftogazbudinformatyka LLC, and G. Riabtsev, Social Program Director of Psycheа Scientific and Technical Centre.

For the purpose of monitoring the implementation of the Association Agreement, the project participants have been divided into six working groups. These are, in particular, Gas group: L. Unigovskyi and R. Nitsovych (DiXi Group); Electricity group: S. Golikova (Energy Association of Ukraine) and O. Shumilo; Energy Efficiency and Social Issues group: T. Boyko (OPORA) and D. Nazarenko (DiXi Group); Environment and Renewable Energy Sources group: N. Andrusevych (Society and Environment) and N. Yermakova (DiXi Group); Business Climate and Investments group: V. Beliakova (European-Ukrainian Energy Agency) and A. Bilous (DiXi Group), Oil group: G. Riabtsev (Psychea) and T. Tkachuk (DiXi Group).

The Project participants identified the monitoring framework for each working group based on the results of their analysis of the Association Agreement. This framework is described in Annex 1.

The main source of information for monitoring purposes is official information provided by public authorities. These include, in particular, adopted regulatory and legal acts, statements by top officials, information about meetings and events with the participation of representatives of public authorities. Also, monitoring could be based on messages by key energy market players, their decisions and initiatives. Other sources of information can include published articles, interviews, news, as well as results of bilateral meetings between experts and energy market players.

The subject of monitoring is transposition and, if appropriate, implementation of Directives. The groups and experts monitor, first of all, transposition of acquis into the Ukrainian legislation and compliance therewith. If appropriate, but only as an option, the quality of implementation of acquis and the effect of their implementation on the market and/or consumers can be subject to monitoring.

Methodology ANNEX 1.

List of Articles of the Association Agreement and Acquis Subject to Monitoring The group Electricity and Nuclear Security conducts monitoring and assessment of issues relating to electricity, nuclear energy, coal and elimination of consequences of the Chornobyl accident. Acquis concerned:

Article 269, Chapter 11, Title IV, Directive 2009/72/EC (market-related provisions) Article 270, Chapter 11, Title IV, Regulation (EC) 714/2009 Article 271, Chapter 11, Title IV, Regulation (EC) 714/2009

Article 273, Chapter 11, Title IV, Regulation (EC) 714/2009, Directive 2009/72/EC Article 274, Chapter 11, Title IV, Regulation (EC) 714/2009, Directive 2009/72/EC

Article 305, Chapter 14, Title IV, Directive 2009/72/EC, Directive 2005/89/EC Article 338, Chapter 1, Title V

Article 338, Chapter 1, Title V, Cooperation Agreements with IFIs Article 339, Chapter 1, Title V, coal market

Article 342, Chapter 1, Title V, cooperation in the nuclear safety sector, Council Directive 2014/87/Euratom, Council Directive 2013/59/Euratom, Council Directive 2006/117/Euratom

Article 342, Chapter 1, Title V, cooperation in the nuclear safety sector The group Gas conducts monitoring and assessment of issues relating to gas, in particular, the implementation of the following acquis:

Articles 338, 341, Directive 2009/73/EC (market-related provisions) Articles 338, 341, Regulation (EC) 715/2009

Articles 338, 341, Directive 2004/67/EC + Annex XXVI (Early Warning Mechanism), Articles 275 (Unauthorised taking of energy goods), 276 (Interruption), 309 and 314 (resolution of disputes) of the

Association Agreement Chapter 11 Trade-related energy, in particular Articles 269 (Domestic regulated prices), 270 (Prohibition of

dual pricing), 271 (Customs duties and quantitative restrictions), 272 (Transit) and 273–274 (Transport, cooperation on infrastructure)

Annex XXVII to Chapter 1 Energy cooperation, including nuclear issues — Directive 94/22/EC + Articles 279–280 (Access to and exercise of the activities of prospecting, exploring for and producing hydrocarbons, and

licensing conditions) The group Energy Efficiency and Social Issues conducts monitoring and assessment of the implementation of the following acquis:

Directive 2010/30/EU Directive 2010/31/EU Directive 2006/32/EU Directive 2012/27/EU

Directive 2009/72/EC (social issues) Articles 338, 341 of the Association Agreement

Directive 2009/73/EC (social issues) Articles 338, 341 of the Association Agreement

Methodology The group Environment and Renewable Energy Sources conducts monitoring and assessment of the implementation of the following acquis:

Article 363, Directive 2011/92/EU Article 363, Directive 2001/42/EC Article 363, Directive 2003/42/EC Article 363, Directive 2003/35/EC

Directives 85/337/EEC and 96/61/EC Article 363, Directive 2008/50/EC Article 363, Directive 1999/32/EC

Article 363, Directive 94/63/EC Article 363, Directive 2009/147/EC Article 363, Directive 2010/75/EU Article 338, Directive 2009/28/EC

The group Oil conducts monitoring and assessment of the implementation of the following acquis:

Directive 2009/119/EC Directive 94/22/EC Directive 98/70/EC

Articles 274, Chapter 11 of the Association Agreement (Trade-related energy) Articles 275, Chapter 11 of the Association Agreement (Trade-related energy) Articles 276, Chapter 11 of the Association Agreement (Trade-related energy) Articles 279, Chapter 11 of the Association Agreement (Trade-related energy) Articles 280, Chapter 11 of the Association Agreement (Trade-related energy)

Article 337 of the Association Agreement Article 338 of the Association Agreement Article 339 of the Association Agreement

The group Business Climate conducts monitoring and assessment of the implementation of the following acquis:

Article 27, Chapter 11 (Title IV TRADE AND TRADE-RELATED MATTERS) of the Association Agreement Article 28, Chapter 11 (Title IV TRADE AND TRADE-RELATED MATTERS) of the Association Agreement Article 29, Chapter 11 (Title IV TRADE AND TRADE-RELATED MATTERS) of the Association Agreement

Article 88, Chapter 6 (Title IV TRADE AND TRADE-RELATED MATTERS) of the Association Agreement Article 93, Chapter 6 (Title IV TRADE AND TRADE-RELATED MATTERS) of the Association Agreement

Articles 97-102, Chapter 6 (Title IV TRADE AND TRADE-RELATED MATTERS) of the Association Agreement Article 104, Chapter 6 (Title IV TRADE AND TRADE-RELATED MATTERS) of the Association Agreement Article 105, Chapter 6 (Title IV TRADE AND TRADE-RELATED MATTERS) of the Association Agreement Article 107, Chapter 6 (Title IV TRADE AND TRADE-RELATED MATTERS) of the Association Agreement

Articles 144-147, Chapter 7 (Title IV TRADE AND TRADE-RELATED MATTERS) of the Association Agreement Chapter 8 (Title IV TRADE AND TRADE-RELATED MATTERS) of the Association Agreement and the Directive

2014/25/EU Article 255, Chapter 10 (Title IV TRADE AND TRADE-RELATED MATTERS) of the Association Agreement Article 256, Chapter 10 (Title IV TRADE AND TRADE-RELATED MATTERS) of the Association Agreement Article 258, Chapter 10 (Title IV TRADE AND TRADE-RELATED MATTERS) of the Association Agreement

Methodology Article 263, Chapter 10 (Title IV TRADE AND TRADE-RELATED MATTERS) of the Association Agreement Article 267, Chapter 10 (Title IV TRADE AND TRADE-RELATED MATTERS) of the Association Agreement

Article 277, Chapter 11 (Title IV TRADE AND TRADE-RELATED MATTERS) of the Association Agreement and Directives 2003/54/EC and 2003/55/EC (as regards the regulatory authority)

Articles 355-359, Chapter 5, (Title V ECONOMIC AND SECTOR COOPERATION) of the Association Agreement and Directive 2008/92/EC

Article 379, Chapter 10 (Title V ECONOMIC AND SECTOR COOPERATION) of the Association Agreement

Glossary ANNEX 2.

Glossary (Short Description) of EU Acquis Subject to Implementation Monitoring

Gas Directive 2009/73/EC concerning common rules for the internal market in natural gas and repealing Directive 2003/55/EC This Directive establishes common rules for the transmission, distribution, supply and storage of natural gas. The rules established by this Directive apply to natural gas, liquefied natural gas (LNG), biogas and gas from biomass. They aim to achieve a competitive, secure and environmentally sustainable market. This Directive provides for compulsory functional unbinding (supply) of transmission system operators (TSO) in vertically integrated undertakings. EU Member States must ensure that all customers are entitled to freely choose natural gas supplier and can easily change supplier within three weeks. At the same time, Member States may impose on suppliers selling gas to household customers obligations which may relate to security, including security of supply, regularity, quality and price of supplies, and environmental protection, including energy efficiency. Regulation (EU) No. 715/2009 on conditions for access to the natural gas transmission networks and repealing Regulation (EC) No. 1775/2005 This Regulation sets common rules for access to gas transmission systems, LNG terminals and storage facilities taking into account the special characteristics of national and regional markets. The document establishes the procedures of certification of transmission system operators, as well as development, elaboration and implementation of network codes (with the participation of the European Network of Transmission System Operators — ENTSO — for Gas). The key objective of this Regulation is to ensure that all market participants have free and non-discriminatory access to relevant infrastructure and capacities. Directive 2004/67/EC concerning measures to safeguard security of natural gas supply This Directive establishes a common framework within which Member States must define general, transparent and non-discriminatory security of supply policies compatible with the requirements of a competitive market, and clarify the roles and responsibilities of market players (including in case of emergency). The government must specify minimum security of supply standards to be complied with by the market players, prepare and update national emergency measures, identify “vulnerable” customers and ensure adequate security for them, establish cooperation with the European Commission and other stakeholders.

Electricity and Nuclear Security Council Directive 2014/87/Euratom of 8 July 2014 amending Directive 2009/71/Euratom establishing a Community framework for the nuclear safety of nuclear installations The Directive establishes a European framework for maintaining and promoting consistent improvement of nuclear safety and its regulation. It sets an ambitious safety goal across the EU in order to prevent accidents and avoid radioactive waste from nuclear installations. The directive applies to any nuclear installation subject to licensing. Council Directive 2013/59/Euratom laying down basic safety standards for protection against the dangers arising from exposure to ionising radiation The Directive establishes basic safety standards to protect the health of employees, the general public, patients and others from the dangers of exposure to ionising radiation. The Directive applies to any planned, existing or emergency situation which involves a risk to ionising radiation. In particular, it applies to: the manufacture, production, processing, handling, disposal, use, storage, holding, transport, import to and export from the EU of radioactive material; the manufacture and operation of electrical equipment emitting ionising radiation; human activities withnatural radiation sources that could lead to a significant increase in the exposure of employees or the public, such as the exposure of space crew to cosmic radiation; domestic

Glossary exposure to radon gas in indoor air and external exposure to gamma radiation from building materials; managing emergency exposure situations that require measures to protect the public and workers. Directive 2009/72/EC concerning common rules for the internal market in electricity and repealing Directive 2003/54/EC This Directive establishes common rules for the generation, transmission, distribution and supply of electricity. It also lays down universal service obligations and the rights of electricity consumers and clarifies competition requirements. Open internal market enables all consumers freely to choose their suppliers and all suppliers freely to deliver to their customers (free movement of goods, the freedom of establishment and the freedom to provide services). At the same time, this Directive sets stricter requirements to unbundling of transmission system operators (TSO) in vertically integrated undertakings. It also contains consumer rights provisions, reinforces and clarifies the functions and powers of regulatory authorities. Regulation (EC) No. 714/2009 on conditions for access to the network for cross-border exchanges in electricity and repealing Regulation (EC) No. 1228/2003 This Regulation establishes the rules for cross-border exchanges of electricity with the view to enhancing competition and achieving harmonization within the internal market in electricity. Comparing to the previous Regulation No. 1228/2003, this Regulation contains additional provisions on certification of transmission system operators (TSO), introduction of network codes and publication of information by system operators. It also clarifies that the European Network of Transmission System Operators for Electricity (the ENTSO for Electricity) is responsible for the management of electricity transmission networks to allow trading and supplying electricity across borders within the EU. Directive 2005/89/EC concerning measures to safeguard security of electricity supply and infrastructure investment This Directive establishes measures aimed at safeguarding security of electricity supply so as to ensure the proper functioning of the internal market for electricity, an appropriate level of interconnection between Member States, an adequate level of generation capacity and an adequate balance between supply and demand. It establishes a framework within which Member States are to define general transparent and non-discriminatory policies on security of electricity supply compatible with the requirements of a competitive market for electricity. They must define and publish roles and responsibilities of competent authorities and all relevant market actors. In implementing these measures, Member States are supposed to guarantee continuity of electricity supplies, explore possibilities for cross-border cooperation in relation to security of electricity supply, reduce the long-term effects of the growth of electricity demand, ensure diversity in electricity generation, encourage energy efficiency and the adoption of new technologies, ensure regular renewal of networks. Council Directive 2006/117/Euratom on the supervision and control of shipments of radioactive waste and spent fuel This Directive authorizes transboundary shipments of spent fuel between Member States for processing, requires prior authorization for transboundary shipments of radioactive waste and spent fuel where such fuel is moved from, through the territory of or to a Member State. This Directive also requires return of radioactive waste to its country of origin.

Energy Efficiency and Social Issues Directive 2010/30/EU on the indication by labelling and standard product information of the consumption of energy and other resources by energy-related products This Directive regulates labelling of energy-related products and provision of information to consumers relating to their consumption of electric energy. It applies to products which have a direct or indirect impact on the consumption of energy and on other resources during use. Suppliers placing products on the market must ensure that such products are labelled with the information about their consumption of energy and other resources. Suppliers must also produce technical documentation to include: a general description of

Glossary the product; the results of design calculations carried out; test reports; the references allowing identification of similar models. The technical documentation must be available for inspection purposes for a period ending five years. Suppliers must provide the labels and product-related information free of charge to dealers, and the latter must display labels properly, in a visible and legible manner. Directive 2010/31/EU on the energy performance of buildings This Directive promotes the improvement of the energy performance of buildings within the Union, taking into account outdoor climatic and local conditions. It lays down minimum requirements, common general framework for a methodology and covers energy used for heating, hot water, cooling, ventilation and lighting. National authorities must establish reasonable minimum requirements to energy efficiency to be reviewed every five years. They also establish a system of certification of the energy efficiency. Such certificates provide information to prospective buyers or tenants on the energy performance of buildings, and advice on enhancing it. Directive 2012/27/EU on energy efficiency, amending Directives 2009/125/EC and 2010/30/EU and repealing Directives 2004/8/EC and 2006/32/EC This Directive establishes a common framework of measures for the promotion of energy efficiency within the Union in order to ensure the achievement of the Union’s 2020 20% headline target on energy efficiency. Such measures include: • annual 1.5% energy savings resulting from implementing energy efficiency measures by distribution

network operators and suppliers; • enhancing energy performance of heating systems, installation of double-glazed windows and roof

insulation; • purchase of buildings, products and services with high energy-efficiency performance by public bodies; • annual energy modernization of at least 3% of the total floor area of buildings owned and occupied by

public bodies; • expanding rights and possibilities of consumers in the area of energy management which includes easy

and free access to the metering data on the actual consumption; • national incentives for small and medium-sized enterprises to conduct energy audit that should be

mandatory for all large enterprises; • monitoring of the energy performance of new energy generating capacities.

Environment and Renewable Energy Sources Directive 2011/92/EU on the assessment of the effects of certain public and private projects on the environment (codification) This Directive introduces an important instrument of the environmental policy — environmental impact assessment. Member States must ensure, first of all, that projects likely to have significant effects on the environment (by virtue, inter alia, of their nature, size or location) are made subject to a requirement for development consent and an assessment with regard to their effects. This Directive contains two lists of projects subject to environmental impact assessment (from nuclear power stations, gas pipelines, etc., to large pig farms). An important element is stricter publicity requirements, including to the public participation in the environmental impact assessment. Directive 2001/42/EC on the assessment of the effects of certain plans and programmes on the environment This Directive introduces an important instrument of environmental policy — strategic environmental assessment. An environmental assessment must be carried out of certain plans and programmes during their preparation. Such assessment includes preparation of the environmental report (that must contain detail information on the likely significant environmental effects and reasonable alternatives) and consultations with the relevant authorities and the public. Where a transboundary effect is possible, an assessment and consultations in a transboundary context must be carried out.

Glossary Directive 2003/4/EC on public access to environmental information and repealing Council Directive 90/313/EEC This Directive implements the provisions of the Aarhus Conventions relating to public access to environmental information. It aims to guarantee public access to environmental information owned by public authorities — both upon request and through active dissemination thereof. Environmental information must be made available to an applicant within one month after the receipt by the public authority of the applicant’s request. A request for environmental information may be refused if the request is manifestly unreasonable, or formulated in too general a manner, concerns an unfinished document or internal communications. Directive 2003/35/EC providing for public participation in respect of the drawing up of certain plans and programmes relating to the environment and amending with regard to public participation and access to justice Council Directives 85/337/EEC and 96/61/EC This Directive addresses the implementation of the Aarhus Convention in respect of public participation and access to justice. It sets the requirements to the introduction of mechanisms of informing the public, holding consultations with the public and taking account of comments and proposals of the public in decision-making. Member States must ensure that the public is given early and effective opportunities to participate in the preparation and modification or review of the plans or programmes required to be drawn up under the provisions listed in Annex I of the Directive. Directive 2008/50/EC on ambient air quality and cleaner air for Europe This Directive establishes ambient air quality and ambient air quality management standards. For this purpose, it establishes upper and lower assessment thresholds, target and threshold values, sets objectives for the reduction of the effect of particulate matters, defines and classifies zones and agglomerations, introduces the systems of informing the public and ambient air quality assessment with respect to various pollutants. Where, in a given zone or agglomeration, there is a risk that the levels of pollutants will exceed the alert thresholds, short-term action plans must be drawn up. Directive 1999/32/ЕС relating to a reduction in the sulphur content of certain liquid fuels and amending Directive 93/12/EEC, as amended by the Regulation (EC) No. 1882/2003 and Directive 2005/33/EC The purpose of this Directive is to reduce the emissions of sulphur dioxide resulting from the combustion of certain types of liquid fuels and thereby to reduce the harmful effects of such emissions on man and the environment. It sets the maximum sulphur content in heavy fuel oil, gas oil and marine gas oils. It also specifies methods of sampling and analysis of sulphur content in fuel to check compliance with the requirements. Directive 2009/147/EC on the conservation of wild birds (Article 4.2) This Directive relates to the conservation of all species of naturally occurring birds in the wild state in the European territory of the Member States. The mechanism of conservation of wild birds provides for the protection of their habitats; protection and use of birds; prevention of harm that can be caused by invasive species; research and reporting. According to Article 4.2, special protection areas need to be established based on ornitological criteria. Special measures also need to be taken to protect migratory species naturally occurring in the territory of a particular state, especially in wetlands. Directive 2010/75/EU on industrial emissions (integrated pollution prevention and control) This Directive lays down rules on integrated prevention and control of pollution arising from industrial activities. It requires using the integrated approach to activities referred to in Annex I thereto. All installations covered by this Directive must prevent or reduce pollution due to using best available techniques, efficient energy use, prevention and control of emissions. Transparency of the integrated approach is ensured by the public participation. Directive 2009/28/EC on the promotion of the use of energy from renewable sources and amending and subsequently repealing Directives 2001/77/EC and 2003/30/EC

Glossary This Directive provides for setting mandatory national targets for the overall share of energy from renewable sources in the overall energy balance to take account of statistics and potential of each particular country. These targets include the achievement of a 20% share of energy from renewable sources in overall Energy Community energy consumption by 2020 and a 10% target to be achieved for the share of RES in the transport sector. This Directive, among other, establishes rules for joint green energy projects between Member States and third countries and access to the grid-system of electricity produced from renewable energy sources.

Oil Directive 2009/119/EC imposing an obligation on Member States to maintain minimum stocks of crude oil and/or petroleum products This Directive lays down rules aimed at ensuring a high level of security of oil supply in the Community through reliable and transparent mechanisms based on solidarity amongst Member States. It provides for the adoption of such laws, regulations or administrative provisions as may be appropriate in order to ensure that the total oil stocks maintained at all times within the Community for their benefit correspond, at the very least, to 90 days of average daily net imports or 61 days of average daily inland consumption, whichever of the two quantities is greater. Directive 98/70/EC relating to the quality of petrol and diesel fuels The EU introduced rules prohibiting leaded petrol and limiting the permitted sulphur content in diesel fuel with the view to improving air quality and reducing greenhouse gas emissions. This Directive sets technical specifications applicable to petrol, diesel fuels and biofuels used in vehicles, as well as to gas oils used in non-road mobile machinery. Apart from the prohibition of marketing leaded petrol, Member States must conduct assessment of national consumption of fuel, adopt laws and identify the authorized body (bodies) to introduce the fuel quality monitoring system. Directive 94/63/EC on the control of volatile organic compound (VOC) emissions resulting from the storage of petrol and its distribution from terminals to service stations, as amended by Regulation No. 1882/2003 182 This Directive provides for the registration of all terminals used for storage, loading and unloading of oil products, installation of technical means allowing reduction of VOC emissions from mobile containers with oil products, bringing all stationary tanks, rail, marine and motor vehicle tanks and loading installations in compliance with the established requirements. Directive 94/22/EC on the conditions for granting and using authorizations for the prospection, exploration and production of hydrocarbons This Directive establishes common rules to ensure the non-discriminatory access to and pursuit of activities relating to the prospection, exploration and production of hydrocarbons. These objective and transparent rules reinforce integration of the internal energy market, encourage greater competition and improve security of supply. The document provides for the implementation of measures to ensure: • equal access to all organizations possessing necessary resources for prospecting, exploring for and

producing hydrocarbons; • granting authorizations on the basis of objective, published criteria; • communication of all necessary information to all organizations participating in the established

procedures.

Business Climate Directive 2014/25/EU on procurement by entities operating in the water, energy, transport and postal services sectors and repealing Directive 2004/17/EC This Directive aims to ensure market openness, as well as fair procurements, in particular in the energy sector: extraction (production), transmission and distribution of gas, heat, electricity.

182 The official translation has a lot of mistakes resulting from inaccurate translation

Glossary Directive 2009/72/EC concerning common rules for the internal market in electricity and repealing Directive 2003/54/EC This Directive provides for the implementation of laws on the electricity market which defines electricity as an energy-related product to be purchased/sold/produced/transmitted/stored. These operations may be carried out by all licensed companies on equal competitive conditions. The state also ensures non-discriminatory access to the existing infrastructure, creates favourable conditions for electricity producers to invest in new forms of energy (wind, solar, etc.). Directive 2009/73/EC concerning common rules for the internal market in natural gas and repealing Directive 2003/55/EC This Directive provides for the implementation of laws on the gas market which defines gas as an energy-related product to be purchased/sold/produced/transmitted/stored. These operations may be carried out by all licensed companies on equal competitive conditions. The state also ensures that companies have non-discriminatory access to distribution networks, gas storage facilities and cross-border gas pipelines. Directive 2008/92/EС concerning a Community procedure to improve the transparency of gas and electricity prices charged to industrial end-users Pursuant to that Directive, open, generally accessible mechanisms of providing information on the prices of energy resources for customers must be introduced. A particular methodology of collection of respective information about gas and electricity prices is to be drawn up and the respective mechanism to that effect is to be introduced.