Energy Community Secretariat’s statement on distortions to the gas market legal framework in Ukraine
The Energy Community Secretariat recalls that the recently adopted Decrees of the Cabinet of Ministers No. 596 of 7 November and No. 647 of 26 November 2014 distort the part of the gas market already liberalized in Ukraine in favour of the state incumbent Naftogaz. These Decrees remove the possibility of private companies to buy and transport gas from any supplier other than Naftogaz in a manner that is disproportionate to any objective pursued. The Decrees violate Energy Community law and the Secretariat insists on their immediate removal.
Adoption of decrees that are clearly incompliant with the Energy Community Treaty and with the Association Agreement are harming the reputation that Ukraine gained as a reliable partner in case of gas transit. The Secretariat has repeatedly offered its full assistance in creating Treaty compliant legislation which would be in line with all basic principles of a gas market legal framework and at the same time take into account the emergency situation in Ukraine. The Secretariat prepared and submitted to the Ukrainian authorities a draft gas law which included – inter alia - provisions on safeguard measures. The law, in line with the Third Energy Package, should be adopted as soon as possible.
The Secretariat has full understanding of the political and financial troubles faced by the gas sector in Ukraine. We also share the concern for the security of supply of Ukraine’s citizens. That said, we do believe that any solution to the current problems should and can be adopted within the framework of Ukraine’s international obligations. In particular, any preferential treatment granted in favour of state-owned companies as well as public service obligations imposed on private companies must be: justified by clearly defined reasons of public security; proportionate to achieve the objectives pursued; temporary in nature; and not be discriminatory.
In the Secretariat’s understanding, the proposals made amount to an extension to non-state-owned entities of the public service obligations to supply gas at regulated prices to household customers and to contribute to gas storage. While the Secretariat is ready to discuss these and other proposals with representatives of Ukraine based upon concrete texts, it recalls the importance of granting the same treatment to all companies, public or private, also in terms of compensation for public services performed, and reminds Ukraine of its obligations towards investors stemming from private or international law.
In addition, the Secretariat underlines that the biggest problem of the gas sector consists of regulated energy prices, which are completely unsustainable and far from cost reflective for some customers. Establishing a new gas market model, even if implemented gradually, is urgently needed. The Secretariat offers its assistance in this endeavour.