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NKREKU – Draft Law 2966-d (Energy Regulator)

September 22, 2016

As part of the ratified obligations made by the Ukrainian State, within the Association Agreement with the EU is mentioned the Third Energy Package and Ukrainian adherence to it.

Quite rightly too for there is no way Ukraine would significantly overhaul its energy sector otherwise – energy is a significant font of corruption that continually spews (no differently to Government subsidies and VAT refunds/fraud/coercion).

It is true that Ukraine has made some real progress in reforming its energy sector – as difficult as each and every step (both forward and backward) has been.  Having now corrected an entirely retarded decision relating to Ukrtransgaz, a reader can nevertheless anticipate an all out assault by vested interests upon Naftogaz Ukraine and its subsidiaries almost immediately after any final Stockholm Court ruling is delivered regarding its claims against Gazprom.

Ukraine now faces the prickly issue of reforming its energy regulator into one that serves the interests of those other than vested interests.  Needless to say a process that has not, and remains, a far from smooth, influence-free, process.

Draft law №2966-d “On the National Commission in charge of regulation in the energy sector and utilities (NKREKU)” easily passed through its first reading within the Verkhovna Rada with 285 votes in favour on 12th April – unsurprisingly as it was authored by a dozen parliamentarians from across 5 parties (including those in opposition).

Nevertheless, despite its inclusive authorship, it has yet to receive its second and final reading and vote prior to being sent to the president for signature and eventually entering into law.

Amendments are being sought.  Meddling from the Bankova (Presidential Administration) occurs.

The draft Bill mandated a staggered replacement of the existing regulatory personnel, with limited departures every 6 months until all were replaced over a period of 18 months.  The fixed tenure appointments replacing them therefore also eventually departing in a staggered fashion some years hence too – which is perhaps wise if institutional memory is to be maintained in any meaningful way.

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As is always the case with Ukrainian politics, who decides, and who decides who decides, is a major issue in most appointments – and one that regularly slows down any process whilst decisions about decisions are decided.

The new regulatory personnel will be decided by a competition commission comprising of two presidential appointees, two parliamentary appointees from within the Verhovna Rada Coal and Energies Committee, and one appointee from the Cabinet of Ministers – when the law is eventually passed.

From this, apparently an independent regulator will emerge over the course of 2 years – allowing for the law to be passed, decisions about decisions to be decided, open competition, interviews, more competition appointment decisions, and eventually a full, staggered, personnel change.  There may yet appear an energy regulator that is an independent authority and arbiter (with a good deal of genuine independence) for the energy market that will defend the interests of consumers, and create fair conditions for suppliers and manufacturers.

Very good – so get on with it.

Indeed, Messrs Leszek Balcerowicz and Ivan Miklos who are part of the official advisory conclave regarding reform have rather tired of such nonsense and delays, stating “Further delay of the adoption of the bill as a whole can have a negative impact both on the state of the energy market in Ukraine, and the country’s international image as a reliable partner.  The independent regulator – A prerequisite for attracting foreign direct investment in the energy sector calls upon all political forces to immediately support the bill as amended, prepared by the Parliamentary Committee for a second reading.”

The passage of this draft law which pushes Ukraine further along its 3rd Energy Package obligations also releases more EU cash.

Perhaps the draft law will receive its final Verkhovna Rada vote this week.  Perhaps the President will sign it at some point.  Perhaps by Christmas the first new personnel will have been selected.  It will be 2018 however before the regulator has been completely overhauled as foreseen by the timetable within the draft law.

A reader may suspect that the necessary butchering of Naftogaz Ukraine as required by the 3rd Energy Package is not about the wait for a completely reformatted Regulator – and the guaranteed battle by vested interests over Nafogaz Ukraine and its subsidiaries prior to, and during Natogaz dismemberment will immediately follow the Arbitration Court in Stockholm making a ruling – that attack certainly won’t wait.  Thus how much more perverted and warped the market the Regulator will be asked to regulate once it is independent and fit for purpose remains to be seen.

In the meantime, as a reader will be accustomed by now, between attempts at amendments and politicking between the Verkhovna Rada Committee, Cabinet and Presidential Administration, Draft Law 2966-d remains exactly that – a draft law.

Nevertheless, if an independent regulator does eventually emerge, that can only be a positive outcome.

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