The newly formed Ministry of Energy and Environmental Protection operates under the premise that energy and the environment are deeply intertwined, and that the sustainable development of the Ukrainian energy sector must incorporate strategies to address global climate change. By pursuing multilateral agreements to bolster the energy sector regionally and by instituting major reforms to streamline and increase transparency in the sector, the ministry is rapidly working to attract investors.
As the recently appointed Minister of Energy and Environmental Protection, you bring a strong background leading energy regulation, renewables development and utilities management in Ukraine. What are your current targets for the ministry?
The Ministry of Energy and Environmental Protection is a product of the merger between the former Ministry of Energy and Industry and the Ministry of Environmental Protection. The merger embodies the mindset that we are promoting environmental and energy policies that are no longer in conflict with each other. That was the previous paradigm. It is a new mentality to address the challenges the world faces with climate change and sustainable development. We’re thinking about our energy mix in the context of environmental externalities and ecological effects. We’re creating new monitoring systems and new systems for managing ecological information. Our main purpose is to work towards goals of cleaner water, cleaner air, and less waste. We are integrating various registers across the government to help tackle corruption. Previously, every register was operating on their own system and the different systems were not integrated. It was very difficult for citizens and investors to navigate. The land register was a big topic, particularly in light of the land market reform. It will sit with our ministry and bring information on water, natural resources, air pollution, fishery, forestry, etc., all on one map. It will be electronic, open to the public, and user friendly. The aim is that everyone will understand exactly what they are getting when they examine a plot of land.
Can you tell us more about Ukraine’s land market reform and the Ministry of Energy and Environmental Protection’s role in the reforms?
We will bring transparency to access of the land, including electronic auctioneering. In many post-Soviet countries, the process of acquiring land as well as the assets of the land was hidden; this was part of the corruption. We will put an end to this, and also consolidate and reform the inspection process, including energy inspections and inspections for natural resources. Our themes across the board are consolidation, harmonization and transparency. We want investors to know exactly what the opportunity is from the moment they open the register. It also helps them ascertain areas for future development on individual plots and across the market.
The Ukrainian government has prioritized increasing the country’s ease of doing business markers as a way of signaling to investors and companies that the market is stable. Can you tell us more about your Ministry’s work to improve ease of doing business in the energy sector?
Along with the new frameworks I mentioned previously, we are creating new incentives to attract investment and increasing ease of doing business. The Prime Minister is introducing new legislation to continue to increase ease of doing business, and since the new government was formed my ministry has introduced seven points to increase our rankings, specifically related to connectivity to the utilities grid. We have introduced legislation that requires monopolies to provide open information on the grid and make prices transparent. We’ve eliminated price gouging by implementing a simple formula to calculate the price of your connection. All of these new measures are making a difference.
On September 19, Ukraine, Russia and the EU met in Brussels to discuss conditions for a 10-year gas contract supplying Russian gas through Ukraine’s territory from 2020. What is the significance these talks for regional relations and what does the outcome mean for the Ukrainian energy sector?
When the Nord Stream 2 pipeline is operational next year, it will bring an important energy supply to the European market. Ukraine wants to position itself as being able to securely transport large volumes of natural gas, so we need to attract investment for the maintenance and building of our infrastructure for moving it. We have made some inroads in implementing the necessary legislation to make the transmission system financially independent and operational. We have provided drafts to our Russian counterparts and are seeking independent certification as a gas transmission operator. This puts us in a strong position to sign a long-term contract with Russia. It is also important for our country and for our European partners because more supply creates more competition for the European market and lowers prices for consumers. It also creates overall security to the energy market, which is in all of our interest. Signing such a contract will bring regional stabilization to the gas market in winter, which is really important for decreasing prices.
Following a recent meeting you held with US Energy Secretary Rick Perry, the US energy chief said that, “enhancing interconnectors could mean that one day Ukraine can supply its neighbors with new domestic production.” Can you provide an overview of the trilateral MoU signed last month between the United States, Poland and Ukraine to develop enhanced energy interconnections?
The trilateral MOU is about diversification of supply, including gas and LNG. We are working with the technical teams right now, but we need significant investment in the LNG infrastructure so we can take the volume of LNG we’re talking about to the Ukrainian market. We’re assuming future consumption will be around 15-16 billion cu of natural gas. We’re bringing instruments including transparent auctioning, stimulation and stabilization of tax rates, and additional product sharing agreements, and registering international companies to take part in the auctioning process. We are doing everything we can to simplify the investment process and develop the internal market. There is great potential. The current level of extraction in Ukraine is 1.2 percent from our resources and the average level of developed country is four or five percent. We believe we’ll get there in the near future and we’re very excited for new companies to come and take part. We already have Canadian and US investors in our upstream markets.
World Bank President David Malpass has hailed the government’s decision to unbundle Naftogaz. What energy investment opportunities is this campaign, and privatization generally, creating for foreign investors?
Unbundling is a European practice related to how the gas market functions. The main idea of it is to unbundle gas transportation activities from extraction and trading. The realization of unbundling will allow us to have an independent gas transportation system operator and to attract investments in gas production and other activities in the gas market.
How do you see the energy and environmental elements of this new ministry working together on renewables? What will companies expect when developing renewables here?
Our first priority in terms of sustainable energy development is energy efficiency. The second priority is renewables, so it is very top of mind. Our next steps for the renewable market will be creating a transparent and competitive approach to providing access to the market. We will be auctioning off a 20-year power purchasing agreement. We can promise investors that if you have the best bid, you will get this agreement. We are also developing quotas for the upcoming years to bring full understanding of what will be the next stages of developing the renewables sector. We aim to have about 12 percent renewables in our energy mix next year.
At last year’s World Economic Forum Davos, Ukraine was declared “open for business because of the success of government reforms.” What do you hope Ukraine promotes at this year’s annual forum in Davos, especially regarding energy and climate change policy?
We have great communication with the World Bank and IMF. We are showing good results, and our counterparts in Europe are commenting that we are growing and evolving so quickly it is hard to keep up. We are doing our best to provide investment opportunities for everyone and we want to make sure that potential investors at Davos know this.
Do you have a final message on why US public and private sector players should now take notice of the investment potential offered by Ukraine?
Ukraine is changing very quickly. We are making all the decisions that were needed but not made for the country for the last 25 years. Don’t lose this opportunity. In the short time since the new government has formed, we’ve proven our commitment. In our ministry alone, we’ve made 20 major decisions to improve our ease of doing business. It’s important to realize that we are not just talking the talk; we are walking the walk.