Ukraine integrating into European GTS: Progress on track?

Author : Mykola Voytiv

As noted in Energy Community CESEC Monitoring Report, Ukraine fails to fulfill only two action plans out of four
15:10, 1 March 2017

Read the original text at

Two years ago, Ukraine has received a chance to become part of the European gas transportation system.

In February 2015, the European Commission launched the Central and South Eastern Europe Gas Connectivity Initiative (CESEC). This initiative was signed by the EU directly and individually by Austria, Bulgaria, Croatia, Greece, Hungary, Italy, Romania, Slovakia, Slovenia, establishing a High Level Working Group.

Subsequently, 10 July 2015, during the second meeting of High Level Working Group, the Members of the Energy Community (EC): Ukraine, Moldova, Serbia, FYR Macedonia, Albania, Bosnia and Herzegovina joined the initiative of signed a Memorandum of Understanding.

Related: Gas pressure on entering the Ukraine’s gas transportation system drops to record low, - Naftogaz

The memorandum predicted the willingness of signatories to implement the Initiative, namely:

  • Choose key projects, which would be economically viable for South and Central and Eastern European regions.
  • Identify and addressing specific challenges for the planned projects.
  • Financial aspects, including the role of the European Investment Bank (EIB) and the European Bank for Reconstruction and Development (EBRD).
  • Address the challenges of integration market.

Energy Community Secretariat, along with the European Union Agency for the Cooperation of Energy Regulators, were invited to monitor in detail the use of the Action Plan. EU Secretariat in turn strongly supports member states in the implementation of the Action Plan.

Related: "Naftogaz" considers statement of "Gazprom" on the risks of gas transit to Europe as preparation of new gas crisis by Russia

In September 2016, during the next meeting of the Working Group in Budapest, the Action Plan was finalized (called CESEC Action Plan 2.0). The Group updated list of specific actions for the EU member states and countries participating in the EU and plans for regional work. Namely, it was decided to improve operation of regional gas markets through the mechanism of improving trading conditions and access to the market and to optimize gas transmission tariffs for cross-border pipelines.

February 7, 2017 the EC Secretariat published the fifth monitoring report on the state of implementation of the Action Plan of the EU member countries with the appropriate indication of the status of implementation.

The analysis followed four key benchmarks.

Ensuring transparent and non-discriminatory access of the third parties

The principle of "third party access" (TPA) successfully operates in the EU countries and within the member countries of the EU at the level of legislative implementation. What about Ukraine?

It should set capacity allocation mechanisms rules and congestion management, which will commence direct access and reverse any third party.

Related: Ukraine increases Russian gas transit by 22.3% in 2016

As noted in the Report, the Code of Ukraine’s gas transportation system (GTS Code), which entered into force in November 2015, has already provided all the mechanisms. However, for its full implementation, regulation mechanisms still must be improved.

Set the balancing market mechanisms.

Different balancing modes of the GTS Code could distort the market. Disproportionate financial guarantees required for the exercise of balancing services may result in barriers to market participants.

For this appropriate amendments to the GTS Code for financial guarantees should be developed. In turn, the GTS operator received counseling, how to develop and implement a daily balancing regime.

"The amount of financial security of customer transport services on the services balance system should be at least 20% of natural gas, which is to be transported in a given month based on the alleged planned volumes of natural gas transportation and the estimated value of the base price of gas," as said in the GTS Code. At the same time, "the amount of financial security of the customer … should not be less than the monthly cost of natural gas transportation services, determined on the basis of capacity allocation and tariffs for transportation."

Related: Voice for all: Two sides of Donbas trade blockade

These costs prevent companies from market gas trading, particularly those working with small volumes. This, consequently, affects its non-competitiveness and closeness.

Develop a transparent and non-discriminatory rules for charging, which would not harm cross-border cooperation. The methodology of tariff points on cross-border transportation of input / output came into force since January 2016, but the rate for internal input / output has been calculated based on the old methodology (it did not take into account European standards).

The status on this criterion is "no progress": much of the developments exist, however, there is no subsequent implementation.

Ensuring the free flow of gas and competitive conditions

Ukraine’s progress is more than obvious. What should have been done and what has been done?

The current capacity in both directions, including backhaul (virtual reverse), should be optimized.

Ukraine is in the active phase of cooperation with Poland, Hungary, Slovakia, and Romania. Reversible (reverse and obverse) modes are set at appropriate points  of the interconnectors. Next steps and final agreement also depend on the decisions of the relevant EU member states.

Its status is "progress on track".

Related: Energy Minister names alternatives to Donbas anthracite

The transparency of publication requirements under Regulation (EC) 715/2009 (Directive of the European Parliament and of the Council) on the information platform transparency ENTSOG (European Network of Transmission System Operators for Gas) should be ensured.

"Ukrtransgaz" fulfills all the requirements, regularly publishing all information about the volumes on all cross-border points. Also posting information on the amount of gas in storage at the information platform Gas Storage Infrastructure.

Its status is "accomplished" (done).

Appropriate measures for infrastructure

And in this area, the progress is less obvious.

The agreement on the interconnectors should be approved.

"Ukrtransgaz" has already signed agreements on interconnectors with Poland, Slovakia, and Hungary. It also holds negotiations on the agreement on all points of the interconnectors with Slovakia, Poland, Romania, and Moldova.

According to CESEC Action Plan 2.0, the deadline for signing all agreements on interconnectors is January 1, 2018.

Its status is "progress on track".

The interstate mechanism of cost sharing in accordance with Regulation (EU) 347/2013 should be ensured.

Related: Ukrainian gas transportation to be connected to Romanian GTS

The implementation of the relevant Directive in the Ukrainian legislation was scheduled for 1 January 2017. Since there is no information on the status of developments, its status is "no progress".

A coordinated mechanism of integrated systems of EU Member States and EU member countries should be provided.

Implementing of Regulation (EU) 703/2015 "On the rules of interoperability and information sharing" was discussed by the EU member states and neighboring countries of the EU in 2016.

Next steps for the implementation of this document depend on the respective PHLG Procedural Act.

Its status is "pending".

Unbundling GTS operator

GTS operator should be delineated and confirmed in accordance with the requirements of the Third EU Energy Package.

In July 2016, the Cabinet of Ministers of Ukraine approved the restructuring plan of "Naftogaz", which was added after creating Ukraine's new GTS operator - "Trunk pipelines Ukraine."

Related: Russian gas transit through Ukraine went up by 60%

The Working Group on reform of "Naftogaz", headed by the respective Deputy Prime Minister (Volodymyr Kistion), is working on acceleration of separation.

Its status is "progress on track".

* * * * *

As noted in the report, Ukraine fails to fulfill only two action plans out of four.

Certainly, even a partial move in this direction is a success. Such documents actually help, because external monitoring always encourages further improvement.

Ukraine has enough professionals, experts and managers who are involved in the processes of integration and transparency of Ukrainian gas transportation system and energy market.

Related: Groysman, Sefcovic agree to work on increasing Ukraine’s gas transit potential

Система Orphus

If you find an error, highlight the desired text and press Ctrl + Enter, to tell about it

see more