Chapter 3
AREAS AND STEPS OF ENHANCING
THE ENERGY SECURITY
OF UKRAINE
On the basis of identification of two groups and problems of energy supply and of current threats to the energy security of Ukraine: both domestic and foreign – it is clear that certain measures are needed to neutralize these threats and to solve relevant problems. Similarly to the grouping of threats and problems, measures were identified inside and outside the country; implementation of these measures will, in the end, contribute to the energy security of Ukraine.
Domestic measures to enhance the energy security of Ukraine
Issues related to the reduction of energy losses during its production and consumption, as well as to the improvement of energy efficiency, are of the kind that seem unlikely to be solved in the short run. It will require considerable investments, updates of the legislative and regulatory basis, implementation of educational activities for public and changes in the culture of energy consumption.

In order to enhance the level of Ukraine's self-sufficiency in energy with the use of own energy resources, it is necessary to adopt and to implement a set of measures aimed at carrying out tasks and achieving goals determined in sectorial programs, in particular in:

  • "Program 20/20" on the increase of the resource base and natural gas production;
  • National Renewable Energy Action Plan through 2020;
  • National Energy Efficiency Action Plan through 2020;
  • National Target Economic Program for Development of Nuclear Industry Sector through 2020.
Most part of hydrocarbon reserves of Ukraine is located in difficult-to-access deposits, and, as a consequence, their cost-effective and environmentally safe exploitation is feasible only with the use of up-to-date technologies, which are mostly inaccessible in Ukraine.
Therefore, it is important to create in Ukraine conditions that would favor as much as possible the introduction of innovative technologies into the energy sector by means of liberalization of fiscal and regulatory policies. Practical implementation of necessary measures for strategic development of the energy sector shall start before 2020, on the basis of prepared sectorial action plans, in accordance with the Energy Strategy of Ukraine till 2035, which is to be adopted and approved before the end of 2017.
Enhancement of the level of Ukraine's
self-sufficiency in energy

  • Reduction of rent rates for well operation.
  • Initiation of state programs aimed at encouraging geological surveying for exploration and confirmation of deposits of energy resources.
  • Audits of reserves and of level of depletion of the deposits of energy resources (both of those being exploited by private and state-owned mineral developers and of undeveloped reserves).
  • Deregulation of the mining industry in order to remove excessive administrative pressure.
  • Development and adoption of the National Target Program for Reforms and Development of the Coal Industry of Ukraine through 2020.
  • Implementation of all scheduled activities of the National Target Economic Program for Development of Nuclear Industry Sector through 2020 (opening of new deposits and increase of production of uranium concentrate up to 2480 t).
  • Development and adoption of National Target Programs for the period through to 2020 on studying the hydrocarbon resource base (Ministry of Ecology and Natural Resources of Ukraine, Ministry of Energy and Coal Industry of Ukraine, State Service for Energy and Mineral Resources, Cabinet of Ministers of Ukraine, Parliament of Ukraine, private and state-owned mining companies) and representation of the information in an open unified system.
  • Development and adoption of National Target Programs for the period through to 2020 for increase of mining of domestic hydrocarbons (Ministry of Ecology and Natural Resources of Ukraine, Ministry of Energy and Coal Industry of Ukraine, State Service for Energy and Mineral Wealth, Cabinet of Ministers of Ukraine, Parliament of Ukraine, private and state-owned mining companies).
  • Drawing up of the inventory of licenses issued for development and extraction of hydrocarbons in Ukraine.
  • Drawing up of the inventory of joint operation agreements and of product distribution agreements, in order to understand their usefulness and to fulfill relevant conditions of these contracts (Cabinet of Ministers of Ukraine, Ministry of Energy and Coal Industry of Ukraine, state-owned PJSC Ukrgazvydobuvannya, Parliament of Ukraine, non-governmental organizations).
  • Improve the taxation system for the extraction of hydrocarbons in Ukraine (revise rent payments and ease tax administration).
  • Adopt laws aimed at streamlining of taking on and implementing activities for extraction of hydrocarbons both for domestic and for foreign companies (Cabinet of Ministers of Ukraine, Parliament of Ukraine, Ministry of Energy and Coal Industry of Ukraine).
Technical upgrading of existing assets
and enhancement of their capacities
  • Take necessary measures in order to extend in time the current NPP units' lifetime beyond the design operating period.
  • Complete construction of Khmelnitsky NPP unit 3 until 2020, and begin construction of Khmelnitsky NPP unit 4.
  • Fulfill by 2020 full preparation for operation of VVER -1000 units at Ukrainian NPPs in daily load control mode.
  • Maintain the necessary level of withholdings for decommissioning of NPP units with expired service lifetime, in compliance with applicable legislation and best international practices.
  • Reconcile the Ukrainian nuclear legislation with the European legislation in compliance with the adopted plan of State Nuclear Regulatory Inspectorate of Ukraine on implementation of some EU legislative acts.
  • Postpone the discussion about construction of a nuclear fuel manufacturing facility to the period after 2020.
  • By 2018, complete the first construction phase of the Central Spent Nuclear Fuel Storage Facility and put it into operation.
  • Carry out necessary measures to upgrade capacities of the Ukraine's gas transportation system.
  • Modernize the existing oil refineries and increase their processing capacities.
  • Modernize the current electrical transmission systems.
Measures to enhance the energy efficiency
and to reduce the energy intensity
  • Provision of the full accounting on the use of energy resources and energy by consumers in order to exclude any possible abuses by consumers and service providers, and fostering of careful attitude towards energy consumption.
  • Creation of an efficient regulatory and legislative basis for regulation in the sphere of the energy efficiency enhancement in order to reduce the energy intensity of the national economy. These activities shall follow the EU Directives, which are binding for Ukraine within the framework of the Ukraine's commitments, in particular of Directives 2006/32/EU, 2010/31/EU, 2009/28/EU, 2010/30/EU.
  • Development of a mechanism of implementation of the energy efficiency enhancement measures in institutions and organizations financed from the state budget.
  • Modification of the system of consumer subsidizing in order to foster the energy-saving outlook and to enhance the efficiency of the policy of subsidizing low-income consumers. The consumer subsidizing policy shall encourage and be accompanied with the implementation of energy saving measures.
Liberalization of markets and enhancement
of its liberalization

  • Continue implementation of restructuring measures in the National Joint-Stock Company "Naftogaz of Ukraine" by way of unbundling natural gas transportation and storing (pumping in and withdrawal) activities.
  • Create prerequisites for the natural gas trading in exchange markets.
  • Formulate a policy of open access to the natural gas market.
  • Open access to geological information for mineral developers and potential investors by creating information infrastructure of the national geological information archives.
  • Develop a legislative and normative framework for regulation of the coal trading and for encouraging competitiveness at the relevant market, and to introduce coal exchange trading (electronic trading).
  • Create necessary regulatory conditions for the electricity market. Adopt the relevant law at the second reading.
Creation of the information support system
for assuring the energy security of Ukraine

  • Introduce a practice of development of national, sectorial and regional energy balances of Ukraine, in order to disclose true information on volumes and structure of power flows.
  • Introduce a national implementation program aimed at informing and educating the population in areas of energy saving and energy-efficient use of energy resources.
Improvement of the reliability of foreign supplies
of energy resources and decrease
of reliance on foreign suppliers

  • Develop a transparent and commercially efficient strategy for coal purchasing in the world market.
  • Ensure a wide diversification of ways and sources of supplies of primary resources, in particular, oil, natural gas, coal and nuclear fuel.
  • Create minimum reserves of crude oil and oil products for emergencies.
  • Carry out a pilot project "Energy bridge Ukraine - European Union" by 2020.
  • Achieve a 40% level of diversification of nuclear fuel at Ukrainian NPPs with the use of fuel elements manufactured by Westinghouse not later than by 2020, with further increase of this share up to 50%.
Establishing of the government's management
mechanism in the sphere of assuring
the energy security of Ukraine

  • Develop and get adopted the new methodology for evaluating threats to and status of the energy security, which would deal with current challenges to the reliability and security of power supply in Ukraine.
  • Create a regulatory document for assuring the energy security. It is necessary to provide coordination of all government bodies in order to solve the task of enhancement of the energy security, along with other tasks that have a direct influence on it. Such management system shall be regularized at the highest legislative level by means of adoption of the Law of Ukraine "On principles of the state policy in the sphere of assuring the energy security of Ukraine".
Reduction of the level of social tension
in connection with the energy sector activities

  • Implement a concept for establishing a social support system for coal industry workers and for population on territories with coal mining and coal conversion enterprises at the stage of liquidation (mothballing).
Enhancement of the level
of protection of critical infrastructure facilities

  • Strengthen the scientific-technical and educational cooperation in the sphere of counteraction to cyber-terrorism threats with IAEA and Interpol, in the framework of the Global Partnership Against the Spread of Weapons and Materials of Mass Destruction and in the framework of bilateral collaboration.
Create favorable conditions for attracting
investments in renewal and development
of the energy sector

  • Activate promotions of investments in the energy sector, especially by creating new and activating existing organizations in charge of such tasks.
  • Adopt an efficient state policy with regard to improving the investment appeal of the Ukrainian energy sector and involve foreign investors in the energy industries of Ukraine.
  • Appoint a responsible authority - within the system of existing ones – that would be in charge of work coordination, informing and support to activities of foreign investors, which already operate in or are planning to enter the Ukrainian energy market.
  • Ensure transparency of the mechanism of issuance of licenses for extraction of hydrocarbons.
  • Adopt laws aimed at ensuring transparency in mining and energy sectors.
  • Review current product distribution agreements to ensure that they fully comply with the applicable legislation; ensure maximum supervision over activities of inter-agency committees that organize execution and fulfillment of these agreements.
  • Improve the system of stimulation of the renewable energy sector development.
  • Revise the energy tariff formation system in a way which would envisage in parallel implementation of measures to enhance the energy efficiency.
  • Draw up the inventory and supervise activities of the state-owned property in the energy sector.
  • Solve the issue regarding the free-of-charge use of gas transmission networks by gas distribution companies.
Implementation of measures for assuring the energy security outside Ukraine
Experience of developed economies shows that the power supply reliability issues are more and more in focus of attention in the overall system of their foreign politics, and mechanisms of implementation of national interests in this sphere can be fixed and regularized at the legislative level. The legislative distribution of rights and obligations of the government authorities can lay the groundwork and become, to some extent, a guarantee of responsible and successful carrying out of the energy diplomacy policy.

The energy diplomacy is quite a broad notion that basically covers any activities outside the country in connection with promotion of interests in the sphere of energy. But this document considers the energy diplomacy only in the context of fulfillment of steps that will contribute to improvement and enhancement of the power supply reliability inside the country, and to neutralization of threats to the functioning of the energy sector at large, that is in order to enhance the energy security of the country.

Basic determinant of the necessity to activate the energy diplomacy policy in Ukraine is an imperative need to strengthen the Ukraine's energy independence (in particular, guaranteeing reliability of sources of energy resources supplies to Ukraine and securing them against disruptions) and the national security at large (in particular, by increasing the level of energy interdependence with neighboring countries, increasing the importance of the Ukrainian energy sector for other countries, and, respectively, expansion of these countries' list of interests to include the support to domestic and foreign-policy stability of Ukraine).

Drawbacks in development and implementation of the energy diplomacy policy, as well as in other efforts directed at strengthening the energy security (in particular in these with regard to domestic aspects of coordination of these activities), were largely due to noncoordination of views and nonsynchronous actions, - or even to a contradictory nature of decisions and activities of a large number of government organizations related, directly or indirectly, to the status of the energy security. In sum, this situation existed as a consequence of absence, - within the system of the Ukrainian government authorities, of a relevant center of responsibility (in fact, of a special government institution), which would have performed functions of coordination and implementation of the state policy of assuring the energy security.

Clearly, it means that the state policy in the sphere of assuring the energy security shall be formalized: principles of its implementation and the list of main interests and energy security threats shall be clearly formulated and articulated at the state level. They shall comply with the state development strategies and be consistent with the international commitments taken by Ukraine.

In order to ensure harmonization of the basic principles of the energy security policy with strategic "guide signs", and in order to guarantee the imperative nature of its fulfillment (which directly ensues from the vital importance of the energy security ensuring tasks and development of international cooperation in the field of energy supplies), this policy and relevant mechanisms of its implementation – on the model of some developed states - can be formalized in legislation, for instance, by having the Parliament adopt the Law "On principles of the state policy in the sphere of assuring the energy security of Ukraine".

Implementation of the energy diplomacy policy. In order to protect national energy interests outside the country, put into action competitive advantages of Ukrainian energy sector's companies abroad, contribute to the expansion of the Ukrainian energy product representation geography, create joint companies and associations and develop business contacts, Ukraine needs to intensify implementation of the energy diplomacy. This process should begin with setting up of systematic work of relevant national agencies, companies and other energy sector's participants. Ukraine needs full coordination between executive and legislative powers, relevant ministries, companies, experts and specialists in this area and society. To achieve this goal, it is necessary to create a relevant inter-agency body for coordination of the national policy with a view to protect and advocate Ukraine's energy interests abroad. In accordance with exemplary foreign experience, such body can be an Energy Security Office, headed by the director – special commissioner for the energy security. The Office, within its authorities and jointly with the Ministry of Foreign Affairs of Ukraine, will interact with the EU's bodies and agencies, embassies and delegations of foreign states and international organizations in Ukraine, Delegation of Ukraine in the EU, NATO's International Staff and NATO Headquarters, other NATO's bodies and agencies, embassies of NATO's member countries and partner countries in Ukraine, NATO's representative office in Ukraine, Mission of Ukraine to NATO, other Ukrainian diplomatic and consular institutions abroad. Besides this, in accordance with priorities of the national policy in the sphere of assuring the energy security, in consideration of the current status and perspectives of development of the foreign economic and foreign political relations of Ukraine in the sphere of energy, the Energy Security Office will identify optimal and efficient areas for intensification of bilateral and multilateral cooperation.

From the perspective of strengthening the Ukraine's position in the energy arena, there are two important areas of cooperation:

  1. Participation in the work of international organizations and formations: initiation of new contacts and intensification of work in the framework of current agreements and memberships in organizations.
  2. Setting up and intensification of direct bilateral and multilateral cooperation of Ukraine with other states in order to consolidate partnership international relations in the sphere of power supply.
In a current situation of modern acute challenges to the energy security, it is important that Ukraine sets up close cooperation with nearest neighbors in the European region, in particular with Visegrad 4 countries: Poland, Slovakia, Hungary and Czechia. Cooperation in this configuration will allow Ukraine to occupy a firm position in promoting the idea of creation of the regional natural gas market – East European gas hub. Besides, it will lead to intensification of the process of synchronization of the United Energy System of Ukraine with the EU's energy systems (ENTSO-E).

An important practical step aimed at strengthening the energy security of Ukraine is intensification of the Ukraine's work and role in international organizations and projects aimed at the international energy cooperation. This activity is aimed at establishing Ukraine as an important energy market player in the region and at formation of a system of mutually advantageous relations between Ukraine and partner countries in the sphere of energy security, as well as enhancement of the national security at large.

In order to strengthen own positions in the international energy field, Ukraine must take more active participation in the work of international organizations and efficiently use their tools for satisfying own needs. To carry out reforms and attract investments in the oil sector, Ukraine needs to intensify its cooperation with the OPEC Fund for International Development. EU integration commitments of Ukraine require intensification of efficient, practical and result-oriented collaboration with the European Energy Cooperation. In order to enhance the internal capability of resisting to modern cyber-threats and to secure as much as possible the critical infrastructure, it is crucial for Ukraine to join the energy security activities of the NATO's Center of Excellence and to intensify cooperation with them, which will allow to involve the Alliance's best experience in formation of the protection system within the energy security issues.

Special attention should be paid to the work of domestic companies in joint energy projects of other countries. This cooperation will indirectly contribute to gaining new experience and knowledge, and may encourage development of energy technologies in Ukraine, application of new solutions in mining and processing of energy resources, investments in the energy sector of Ukraine. Profits from these activities may be partially used for development of new energy projects in Ukraine. The Energy Security Office can identify, - in a qualified manner and based on the perfect understanding of the domestic energy potential - the list of priority countries for cooperation, in accordance with national interests of Ukraine.

Using its especially advantageous geopolitical location, Ukraine needs to expand the range of foreign energy relations. In addition to the active policy of cooperation with EU and Northern American countries, expansion of the relations geography in south-east direction should also be considered.

African countries are potentially interesting and so far weakly covered with the Ukrainian energy business. Level of cooperation with these countries is very low, taking into account the minimal number of visits of Ukrainian high officials and weakly developed contractual and legal basis. Potentially, Ukraine could occupy promising sales markets for national technologies and energy resources, thus enlisting the African region support in other strategic foreign-policy issues.

Considerable demand for energy commodities, equipment and technologies for construction of power industry facilities and for exploration and mining of natural resources of South and South-East Asia's countries provides new opportunities for setting up sectorial cooperation between Ukraine and countries of this region. Besides this, Ukraine must create necessary conditions for foreign investments, which will allow not only to apply and develop new innovative technologies but also to increase the sector financing for its further modernization. Strategically important for Ukraine is the intensification of cooperation with China, Japan and North Korea, especially in nuclear and renewable sectors. Considering the role of nuclear power engineering in Ukraine, bringing bilateral relations in the mentioned directions to a strategic level shall become a priority in the Ukraine's energy policy.

It is a good perspective for Ukraine to have a closer cooperation with Middle East countries, considering important volumes of product markets, presence of considerable reserves of energy resources and opportunity to participate in promising energy infrastructure development projects in the region's countries. Intensification of collaboration with the Persian Gulf countries may strengthen the Ukraine's position in the oil and gas transport sector, by increasing the transport of energy resources from Orient to Europe. In addition, cooperation with Oriental countries in the nuclear power engineering – in order to share experience and implement joint nuclear projects - is also of strategic nature.

Potentially perspective directions for the energy diplomacy expansion include South and Central America's countries. This cooperation is complicated by geographic remoteness of the region, but this will not influence on the intensification of the scientific-practical cooperation.

Foreign measures aimed at enhancing the energy security
  • Adoption of the Law of Ukraine "On principles of the state policy in the sphere of assuring the energy security of Ukraine", which would identify the list of main national energy interests and priorities for further development, would formalize in legislation the mechanism of energy security in Ukraine.
  • Development of measures to improve the practicality and efficiency of the further use of the Ukrainian gas transportation system in order to maintain the Ukraine's status as a key transiter of Russian natural gas to European countries.
  • Accelerated development and implementation of an information campaign for European partners about possibilities and advantages of the use of the Ukrainian gas transportation system (and about potential risks that will take place as a result of refusal to use it), status of reforms in the natural gas sector; development of proposals and negotiations about intensification of the cooperation.
  • Active domestic policy with regard to improvement of the investment climate in Ukraine in order to attract foreign investors in the energy sector; strengthening of the role of inter-agency coordination to achieve this goal.
  • Acceleration of introduction in Ukraine of European energy security practices and fulfillment of commitments in the framework of European energy community.
  • Search for potential investment projects in regional energy markets (in Near East, Africa, Latin America, Asia and others) that Ukrainian companies could be involved in.
  • Activization of work in the framework of relevant international energy organizations.
  • Intensification of the inter-agency cooperation with regard to improvement of the energy diplomacy practices and assuring of the energy security.
  • Development of an efficient strategy and national position with regard to counteraction to domestic and foreign threats to the energy security of Ukraine, including construction of gas pipelines Nord Stream – 2 and Turkish Stream.
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