Energy Headlines

Excellencies,

Ladies and Gentlemen,

Distinguished guests,

It is a great pleasure for me to be here today to mark a very important year in EU-Ukraine energy relations.

A number of significant events have taken place this year:

First, on 1 February this year, Ukraine became a member of the Energy Community. This historic event certainly is a major step "towards a single energy market".

Membership in the Energy Community does not only mean the implementation of common rules for regulating our energy markets but also the sharing of experiences and solutions on how to make the energy markets function in an optimal way. Together we can work towards economically viable, competitive, transparent and sustainable energy markets that will be able to attract the necessary investments.

Membership to the Energy Community is moreover a dynamic commitment to follow the same path as the partner countries. Next week, in Chisinau, Ukraine will attend – for the first time as a full fledged member – a key meeting where the Ministerial Council will decide on a higher level of ambitions for the electricity and gas markets in the region.

Second, Ukraine is currently taking a number of important steps towards meeting its Energy Community obligations. The Ukrainian administration and the Ukrainian regulator are very busy with the development and adoption of both primary and secondary legislation. I am pleased that the cooperation with the Energy Community Secretariat is working very well and I am sure all efforts are made to meet the agreed deadlines.

Naturally, with the development of new legislation also comes the necessary market restructuring. We have heard today about the Government's plans for the restructuring of Naftogaz. The EU is looking forward to having the opportunity to assess this plan in more detail in view of Ukraine's Energy Community obligations. One important issue is of course how Naftogaz's legal and financial obligations will be taken over by the new entities established within the scope of their activities i.e. supply, transmission and distribution. Once again, transparency and cost reflective tariffs for all consumer groups are key for a successful reorganisation of the gas market.

Third, this year we have also made some very concrete progress on the Joint Declaration from the March 2009 Conference on the Modernisation of Ukraine's Gas Transit System. The Commission's support for the modernisation of the Ukrainian gas transit system is made crystal clear in the recently adopted Commission Communication Security of energy supply and international cooperation - "The EU Energy Policy: Engaging with partners beyond our borders". The Commission has there set a goal for the rehabilitation of the Ukrainian gas transmission network by 2020.

With the demand for imported natural gas in the EU expected to rise significantly, particularly as our indigenous production declines, there is no doubt about the continued importance of the Ukrainian Gas Transportation System for the EU and the wider European continent.

A well functioning, reliable, competitive and sustainable transit system in Ukraine is not only an indispensable prerequisite for the security of gas supply in Europe but also for economic development of Ukraine itself and wellbeing of its citizens.

The Ukrainian Gas Transportation System is the major backbone of the Russian gas deliveries to Europe and, combined with Ukraine's unique geographical position and its capabilities with regard to not only gas transit but also to storage and production, this Gas Transportation System can offer more flexibility in transporting gas than a single pipeline.

At the same time, it is in the best economic interests of Ukraine, the EU and of Russia that a balanced and mutually beneficial long term trilateral solution is found to underpin the future gas flows to Ukraine and the EU, and avoid the kind of disruptions that we have seen in the past. The possible renegotiation of the 2009 gas contracts should not put into question the continuity of gas transit to Europe and should respect Ukraine's obligations under the Energy Community Treaty.

In developing a long-term strategy to remain a reliable and competitive gas transit player, a key prerequisite for Ukraine is a modernised and reliable gas transportation infrastructure.

We have heard today about the results of a technical feasibility study and an environmental and social impact assessment for the modernization of the gas Transit System funded by the EU. These are important parts of the due diligence required by the International Financial Institutions for granting loans for the modernization of the gas transit system, starting with the priority first phase upgrade of the Urengoy-Pomary-Uzhgorod gas pipeline.

In order for the project to go ahead, it is now for Ukraine to implement the agreed gas sector reforms, in line with the March 2009 Joint Declaration and Ukraine's commitments in joining the Energy Community. These include basic principles derived from the EU energy laws and I would like to take this opportunity to recall that some of the principles already need to be in place by the end of 2011.

In order to help Ukraine in this task, the EU, together with the World Bank, is offering assistance to Ukraine to support the establishment of a Project Management Unit to oversee the modernisation of the gas transit system and, with World Bank staff, to advice on the corporatisation and financial transparency of Naftogaz. Our hope is that this will ensure the independence of the work while guaranteeing a high level of expertise.

With new developments in energy markets also comes of course important challenges.

Global energy markets are undergoing significant transformations. In this reality, Ukraine, an intense user of energy, must, just like the EU, pay attention to possibilities to diversify its energy sources and delivery routes.

Concerning energy sources, Ukraine has the advantage of having large indigenous natural resources. I am pleased that in the past year Ukraine has focused more attention on developing these resources to increase its own security of supply. Ukraine's potential for the exploration of both conventional and unconventional gas, could also be the key for Ukraine's future as a gas exporter and for the development of a modern supply and transit relation with the EU. Prerequisites are of course a good and attractive investment climate and a stable political situation governed by the rule of law and democracy.

The increased exploration and production of each energy source has its own challenges. Concerning unconventional gas, careful consideration will be need to address environmental concerns. With regard to the coal sector, the EU has funded a significant "Coal Sector Policy Support Programme" to assist Ukraine in its efforts to restructure its coal-mining industry in a socially responsible and cost-effective manner, to improve mine safety and to address a number of environmental issues related to the coal sector. This has resulted in a series of recommendations in a Master Plan which has been prepared together with leading Ukrainian experts and government officials.

Electricity privatisation is underway. It is important to ensure that this process is transparent and that the investments required to upgrade the power plants to meet the EU rules on emissions from large combustion plants are fully factored in.

When it comes to possible development of the Ukrainian nuclear sector, I am please that we have a well developed cooperation concerning nuclear safety – most recently with the cooperation concerning the stress test exercise initiated by the EU after the Fukushima disaster.

Last but not least, everybody knows that the future really lies in the development of renewable energy sources and a significant improvement of energy savings and energy efficiency. This is the area that I think will become more and more important in our energy cooperation. Significant possibilities exist for improving energy efficiency in both the EU and in Ukraine and we should capitalise on this opportunity. There is no time to loose.

Concerning new delivery routes, the EU is looking with interest at Ukrainian options such as deliveries of gas to Ukraine from other suppliers and through LNG as well as the transit of oil from Azerbaijan through Ukraine via the Odessa-Brody pipeline.

All of these are interesting developments that are opening up new possibilities for cooperation between the EU and Ukraine. I am looking forward to these new dimensions in our energy cooperation.

Thank you

Source: News from the Delegation of the European Union to Ukraine