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Kinstellar Energy & Natural Resources Digest: Ukraine. June 2019 in Review

July 2019 – Kinstellar Energy & Natural Resources Digest Ukraine, June in Review

ELECTRICITY: New energy market in Ukraine is launched as scheduled

The new energy market began operation on 1 July 2019, despite previous discussions concerning the proposed delay in the launch of the new energy market by three to twelve months.

As part of reforms under the new energy market, during June 2019 two newly established entities, the Guaranteed Buyer and the Market Operator, received their licences and started their activities. The government and Ukraine’s National Energy and Utilities Regulatory Commission (the “Regulator”) adopted and amended the acts of secondary legislation relating to the new energy market, including the Rules of the Intraday and Day-Ahead Market and the Market Rules, as well as changes to the Transmission System Code.

At the request of Ukraine’s transmission system operator, the Regulator agreed to grant a 10-day release from the obligation to provide a financial warranty for parties responsible for balancing, effective from 1 July to 10 July 2019 (both dates inclusive). This decision was adopted because of the lack of statistical data to be used for the calculation of the volume of the requested financial warranty.

OIL AND GAS: New fields to be sold via e-auction on 16 September 2019

On 18 June 2019, Ukraine’s State Service of Geology and Mineral Resources (the “Derzhgeonadra”) announced plans to hold the Fourth International Licensing Round of e-auctions for the exploration and production rights to three onshore hydrocarbon fields.

The auctions will be held on 16 September 2019 using the public e-procurement system ProZorro. The winner of each auction will be awarded a 20-year Exploration, Pilot Production and Production Licence (an E&P Licence).

Applications to participate and supporting documents can be submitted by 6 pm EET 15 September 2019. To participate, applicants must pay a guarantee fee (20% of the starting price indicated in the list below) and purchase auction documentation (capped at UAH 72,250, VAT inclusive, which is approximately USD 2,700). The auction winner also pays for the geological data.

The areas for which the licences will be sold include:

Tatalivska Block:

  • auction number – UA-PS-2019-06-18-000050-2
  • starting price – UAH 26,153,290 (approximately USD 1 million), VAT excl.
  • price for geological data – UAH 1,891,145.15 (approximately USD 72,000), VAT incl.

Pryazovska Block:

    • auction number – UA-PS-2019-06-18-000049-2
    • starting price – UAH 22,659,630 (approximately USD 870,000), VAT excl.
    • price for geological data – UAH 605 054,78 (approximately USD 23,000), VAT incl.

    Yavorivska Block:

    • auction number – UA-PS-2019-06-18-000043-2
    • starting price – UAH 6,502,640 (approximately USD 250,000), VAT excl.
    • price for geological data – UAH 263,084.99 (approximately USD 10,000), VAT incl.

    The last oil and gas e-auction in Ukraine took place on 18 June 2019, where the licences of seven out of nine fields went to JSC Ukrgazvydobuvannia.

    In June 2019, the selection of candidates eligible to enter into production sharing agreements (“PSA”) for nine oil and gas fields came to an end. On 1 July 2019, the list of recommended winners to be approved by the government were made available on the website of the Ministry of Energy and Coal Mining of Ukraine. The government must make decisions on selecting the winner of the PSA competitions within three months from the deadline for submitting the applications for participation in the PSA competition, i.e., by 28 August 2019.

    REGULATOR: Constitutional Court of Ukraine finds constitutional violations in the independent status of the Regulator

    On 13 June 2019, the Constitutional Court of Ukraine (the “Court”) delivered a ruling that declared that several provisions of the Law on Ukraine “On Ukraine’s National Energy and Utilities Regulatory Commission” (the “Law on the Regulator”) are in violation of the Constitution of Ukraine. The provisions in question pertain to the appointment of the members of Ukraine’s National Energy and Utilities Regulatory Commission (the “Regulator“) and its status as an independent regulator. The ruling states that on 31 December 2019 the relevant clauses will become invalid.

    According to the Court, the functions of the Regulator are of an executive nature. Consequently, as long as the government is the highest body of executive power according to the Constitution, the Regulator must be subordinated to the government and its independent status is not constitutional. Alternatively, the Constitution may set out its independent status.

    By reaching this conclusion, the Court relied on local laws and its previous practice. However, the Court did not review Ukraine’s obligations under the EU-Ukraine Association Agreement. Ukraine is obliged to ensure the provisions of the EU’s Third Energy Package, including those requiring the establishment of an independent regulator for the energy sector.

    For further information please contact Olena Kuchynska, Partner, at

    e-mail

    .