Ukraine: Energy Law In Ukraine

Last Updated: 17 October 2017
Article by Vladimir Sayenko, Andrei Liakhov and Konstantin Gribov

Major regulatory developments

The Natural Gas Market Law

The adoption of the law "On the Natural Gas Market" in April 2015 started the harmonisation of the Ukrainian natural gas sector legislation, in line with the requirements of the Energy Community Treaty and the EU Third Energy Package. This new law, along with statutory instruments passed, simultaneously incorporats the principal rules of the EU's regulatory regime for the natural gas market into Ukrainian law.

The EU Energy Community approved these changes to the Ukrainian gas market regulatory regime by stating : "Ukraine managed to achieve an impressive record in transposing the Third Energy Package, thus becoming the first Contracting Party of the Energy Community with a significant developed regulatory framework of the natural gas market"1.

Many independent experts believe that the liberalisation of the Ukrainian gas market envisioned in this law provides new business opportunities in gas supply, transportation, storage, and production, as well as in the development of gas industry infrastructure.

The Regulator Law

In September 2016, the Ukrainian Parliament adopted the Law "On the National Commission for State Regulation of Energy and Public Utilities Sector" (the "Regulator Law").

In compliance with the Energy Community Treaty and the EU's Third Energy Package Ukraine's independent energy regulation agency is expected to become the institution responsible for ensuring successful implementation of energy sector reforms, overseeing market development and creating a healthy regulatory environment.

The EU welcomed the adoption of the new Regulator Law stating: "The EU Delegation welcomes the adoption of a new Law on Energy and Utilities Regulator and the adoption, on first reading, of a draft law on the Electricity market. These are very important steps towards reforming the energy market in Ukraine and facilitating growth of the entire economy. The laws will create better mechanisms to protect consumer rights and reduce risks of corruption through higher transparency and market oriented pricing. They will ultimately lead to lower energy prices through increased competition and wider choice available for producers, businesses and final consumers.2"


The Revised Ukrainian Tax Code came into force and effect from 1 January 2015. It introduced, inter alia, higher hydrocarbon extraction rent rates, together with a new rate of 70% for contractual joint venture producers of natural gas. This rate is still applicable today. Rent rates for gas extraction from 1 January 2016 fell from 55% to 29% in the case of gas extracted from shallow reservoirs (up to 5000 meters) and from 28% to 14% in the case of gas extracted from deep reservoirs (over 5000 meters below surface), The rent rates for hydrocarbon reserves are set out in the following table:

The rent rates for hydrocarbon reserves are calculated as a percentage of the overall cost of extracted hydrocarbons. From 1 January 2015, Urals Mediterranean and Urals Rotterdam quotations (established by international agencies) were introduced as the reference value for the determination of the quantum of hydrocarbon rent.

On 1 September 2016, Ukraine issued a letter of intent (the "Letter") to the International Monetary Fund ("IMF") which described the policies that Ukraine intends to implement in the context of its request for financial support from the IMF. According to the Letter, the Ukrainian Government considered the possibility of further amending petroleum taxation by the end of September 2016 with a view of establishing a flat royalty rate independent of the depth of the well, and introducing a CPT surcharge.

The Letter refers to the World Bank's model of resource rent tax, which is imposed only if the accumulated cash flow from the project is positive. However, to date, this change is not on a tax agenda in Ukraine.


The surcharge on the actual electricity and heat energy tariff, which had previously been collected at a rate of 3%, was replaced with an excise tax on wholesale supply of electricity at a rate of 3.2% (the tax base is the price of electricity sold, excluding VAT). Excise tax is payable by wholesale electricity traders and energy producers, which sell electricity through the wholesale energy market. The sale of electricity produced by a qualified cogeneration unit or using renewable sources is tax exempt.

National Energy Efficiency Action Plan until 2020

Despite the 2020 National Energy Efficiency Action Plan (which complies with EU Directive 2006/32/EC) having been adopted by the Cabinet of Ministers in late 2015, Ukrainian regulation of energy efficiency issues is still far from being close to the EU regulatory regimes.

Privatisation in the energy sector

Privatisation of Centerenergo and several regional electricity supplying companies (oblenergos)

The Government plans to sell off 78.3% of its shares in energy production company Centerenergo, which operates three thermal power stations with a total production capacity of 7660MW, in the first quarter of 2017. The Head of the State Property Fund of Ukraine (the "SPFU"), Mr. Igor Bilous, confirmed that the SPFU may consider the separate sale of each of the three individual thermal power stations.

Six oblenergos (regional electricity supply companies) are in the process of being privatised. Their privatisation should be complete in 2017.


Draft Electricity Market Law

Another important process of the Ukrainian legislation reform to comply with the Third Energy Package is the draft law "On the Electricity Market of Ukraine" (the "Draft Law"). This Draft Law was adopted on 13 April 2017 by the Ukrainian Parliament and was expected to have been signed by the President and officially published (as of 12 May 2017 it is not happened yet). The EU experts believe that new law will facilitate the development of the electricity market in Ukraine in line with best European and global practices, open the doors for strategic investors, and provide the long-awaited starting point for the implementation of the reforms.3

This new law (if and when it is passed) will introduce a new model of the electricity market, which should replace the current "single-buyer market model", on 1 July 2019.

The main points considered in the new market model are:

  1. the contracts market;
  2. the day-ahead market;
  3. the balancing market;
  4. the ancillary services market; and
  5. the retail market.

The contracts market should function based on forward sales of contracts between market participants (producers, traders, distributors and end customers). Such trading is expected to take place over-the-counter.

The day-ahead market is a wholesale electricity market, where blocks of electricity are offered for next day delivery. It is centrally managed by a market operator acting as central counterparty for the purchase and sale transactions entered into in this market. Sales contracts resulting from the day-ahead market are between market participants and the market operator.

In the balancing market, the system operator is expected to carry out the purchase and sale of electricity by selecting offers from qualified market participants for the purposes of balancing the volumes of production, import, consumption and export of electricity, as well as managing any network outages and constraints.

In the ancillary services market, the system operator is expected to enter into contracts with market participants for the purchase of the relevant electricity ancillary services (such as frequency and active power regulation, voltage and reactive power regulation, active power redundancy, system redundancy, prevention of emergencies, start-up after a blackout, etc).

In the retail market, consumers purchase electricity from suppliers (either independent or guaranteed). Qualified customers can purchase electricity at their discretion from independent suppliers or guaranteed suppliers (at contractual prices), while non-qualified customers can only purchase electricity from guaranteed suppliers (at the prices regulated by the NERC).

The oil & gas sector

Trunk Gas Pipelines of Ukraine

In November 2016, a new entity responsible for gas transportation was created by the Cabinet of Ministers of Ukraine: Trunk Gas Pipelines of Ukraine (Magystralni Gasoprovody Ukrainy). Naftogas Ukraine will transfer all assets related to gas transportation to the new entity within 30 days of the decisions of the Arbitration Institute of the Stockholm Chamber of Commerce on the cases involving Naftogas and Gasprom coming into force (the final arbitral awards are expected to be delivered in first half of 2017). It is expected that the new entity, which will manage all underground gas storage facilities, will be established in 2017.

Ukraine opens gas market

Public joint-stock company Ukrtransgaz has signed contracts on cooperation with TrailStone Energy LLC and DufEnergy Trading SA, based on which these companies will transport natural gas and store it in Ukrainian underground storage facilities.

It is been reported that TrailStone, DufEnergy and Engie (previously GDF Suez SA), which signed similar contracts with Ukrtransgaz in October, until recently sold gas to Ukrainian traders on the Ukrainian border.

Ukrtansgaz President Ihor Prokopiv has stated "we are actively working on attracting European traders to work on the Ukrainian gas market. We are waiting for pilot supplies in December."

The execution of these contracts should permit European companies to supply gas to Ukraine then directly sell it to Ukrainian traders and consumers.

Exploration and exploitation of gas reserves and resources

Although several PSA agreements were signed in 2013 with well-known international oil and gas companies, most of them pulled out of Ukraine in 2014/15 citing various, primarily economic, reasons for the move. Despite this setback, the Ukrainian Government still believes that Ukraine has substantial hydrocarbon exploration and development potential, which will be completed once economic and political conditions change.

In particular, in 2016 the Dutch based company Yuzgas B.V. (whose founder is Emerstone Energy, part of Emerstone Capital Partners) tried to enter into the PSA concerning the Yuzivka field, which has a total area about 8000 square kilometers (located in Donetsk and Kharkiv regions) and was the subject of Shell's 2013 PSA.

Yuzgaz B.V. won a tender in July 2016, but in November the Cabinet of Ministers did not approve the investment program of Yuzgaz B.V., and decided not to permit this company to participate in the PSA for the Yuzivska field.

LNG terminal projects

Since 2012 there have been several attempts to raise finance and prepare project feasibility studies for LNG terminal construction projects. However, politics and the oil price crash prevented any of these plans from materialising. The Ukrainian Government remains committed to the idea of constructing an LNG terminal on its Black Sea coast as part of its energy security strategy, but it has no resources it can commit to this project at present. The realisation of any such project is further complicated by the lack of assured source of gas.

Renewable energy

Solar Projects in the Chernobyl area

Mr. Shu Hua, the Chairman of GCL System Integration Technology ("GCL-SI") (a subsidiary of the GCL Group), said in a press release that his company, in cooperation with China National Complete Engineering Corp ("CCEC"), plans to build a solar power plant with over 1GW of solar power generation capacity in the exclusion zone around Chernobyl nuclear power station. Some experts put an estimated value of required investment at some US$1 billion (approx. €920 million). These Chinese companies have commenced the investigation into the site and available infrastructure.

Nuclear energy

Ukraine diversifies sources of nuclear fuel supply

Ukraine has recently conducted partially successful tests of non-Russian nuclear fuel: the results of the tests show that further work with Westinghouse and other international nuclear fuel suppliers is required to modify the Westinghouse products to fit Ukrainian reactors. In August 2016, Energoatom signed an agreement with British-German-Dutch Company URENCO to ensure the supply of enriched uranium, which will be used by Westinghouse for the production of the nuclear fuel for Ukrainian nuclear stations. The Ukrainian Government signed an agreement with the Government of Australia in order to secure this supply.

In addition, the Ukrainian Government is seeking investors for the development of its uranium reserves and resources, which were previously exploited in Soviet times. The IAEA estimates that Ukrainian uranium resources total 235,000 tons, which represents 1.7% of the world's uranium reserves. This is more than enough to supply all existing Ukrainian reactors for all of their operational life.

The EU and Ukraine intensify energy partnership

A new memorandum of Understanding on a strategic energy partnership between the EU and Ukraine was signed in November 2016. The Memorandum of Understanding replaces the Memorandum that was signed back in 2005 between the EU and Ukraine on energy cooperation, and aims to invigorate energy cooperation between the EU and Ukraine.

Cooperation will broaden in all areas, including energy efficiency and renewable energy, as well as creating more certainty for investors. The European Commission Vice-President for the Energy Union Maroa `efčovič said that "It is now time to expand our energy cooperation and attract more investment in all other areas of energy, including renewables and energy efficiency".

The Memorandum of Understanding foresees enhanced collaboration on a number of energy related issues, including energy security, full market integration, energy efficiency, the decarbonisation of the economy, and research. The Memorandum of Understanding covers an initial period of 10 years and will be implemented through annual priority work plans.


1 Energy Community Country Brief Spotlight on Ukraine. Issue 3, 9 March 2016


The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

Similar Articles
Relevancy Powered by MondaqAI
Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Related Topics
Similar Articles
Relevancy Powered by MondaqAI
Related Articles
Up-coming Events Search
Font Size:
Mondaq on Twitter
Mondaq Free Registration
Gain access to Mondaq global archive of over 375,000 articles covering 200 countries with a personalised News Alert and automatic login on this device.
Mondaq News Alert (some suggested topics and region)
Select Topics
Registration (please scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of

To Use you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions