Ukraine: Law on Energy Regulator Finally Adopted

On 22 September 2016, the Parliament of Ukraine adopted Draft Law No 2966-d “On the National Commission for State Regulation of Energy and Public Utilities Sector” which was registered on 10 December 2015 (the “Law”). The Law becomes effective once signed by the President of Ukraine and published in the official media.

The document has travelled a decade-long path, having first being presented as a draft back in the 2000s to finally being approved by parliament as a piece of legislation. In keeping with the Ukraine’s commitments to liberalisation of the natural gas market (in compliance with the Energy Community Treaty and 3rd Energy Package of the European Union) the Ukraine’s independent energy regulation agency is expected to become the institution responsible for ensuring the successful implementation of energy sector reforms, overseeing market development and creating a healthy regulatory environment.

The final text of the law has not been officially published yet, but according to the most recent draft, it provides for the following:

1. The National Commission for State Regulation of the Energy and Public Utilities Sector (the “Regulator”) shall become the independent public authority for state regulation, monitoring and control of the energy and public utilities sectors;

2. The Regulator’s functions shall include:

- issuing resolutions, orders and regulatory acts;
- issuing the licensing conditions and granting licences for the performance of activities in the electricity and gas market (including the licences for natural gas supply), as well as in the public utilities sector;
- establishing tariffs; and
- supervising, monitoring and controlling the behaviour of market players;

3. The Regulator shall be composed of seven commissioners (including the Chairman), who shall be appointed for six years, and the commissioners are not allowed to occupy the positions for a period of more than two terms;

4. A rotation scheme provides for the appointment of a maximum of two new commissioners during each calendar year, except when more than two commissioners of the Regulator were earlier dismissed from their positions during the mentioned period;

5. Any appointment shall be made based on the results of an open competition, which is announced and held by the Selection Committee in line with detailed procedures and rules established by the Law;

6. The Selection Committee shall consist of 5 persons:

- 2 persons to be appointed by the President,
- 2 persons to be appointed by the Parliament (one person recommended by the Committee on Housing and Public Utilities and one person recommended by the Committee on the Fuel and Energy Sector), and
- 1 person to be appointed by the Government (according to the recommendation of the Ministry of Energy).

7. The Regulator’s Chairman shall be elected by the Regulator’s members by secret voting and the Chairman shall be re-elected every two years after the date of approval of the newly assembled Regulator;

8. Prior to July 1, the Chairman shall submit to the Parliament's Committee on Budget Policy a draft of the Regulator’s budget for the next year;

9. Financing the Regulator’s activities shall be at the expense of regulation fees, and such fees will be the sole source of financing;

10. The rate of the regulation fees shall be established by the Regulator annually by dividing the estimated amount of financing required for the next year by the licensees’ net income from the regulated types of activities for the previous year, however the rate may not exceed 0.1% of the payer’s quarterly income which is generated from the licensed operations. The relevant provisions shall become effective from 1 January 2017;

11. For this purpose, prior to 1 December 2016 the Regulator shall establish and publish the Registry of Licensees Engaged in Performance of the Activities in the Energy and Public Utilities Sectors;

12. The commissioners of the currently assembled Regulator shall be rotated according to a name list which shall be approved by the President of the Ukraine in line with the following:

- 3 members will be dismissed within 6 months of the Law becoming effective;
- 2 members – within 12 months; and
- 2 members – within 18 months.

13. Within 6 months of the effective date of the Law, the Regulator and the government shall be required to amend the existing regulatory acts and to adopt the necessary secondary legislation in compliance with the Law.

14. In addition, prior to 1 July 2017 the Regulator shall also be required to prepare the Draft Law on the Energy Ombudsman (currently, the Law does not provide for any applicable definitions, procedures, functions and/or authorities in respect of such ombudsman).

Ultimately, adoption of the Law and its further successful implementation is expected to ensure the proper independence of the Regulator. The financial independence of the Regulator, the commissioners’ rotation procedure and the transparency of the Regulator’s decisions, is designed to shield it from any political interference.

LAW: the Draft Law No 2966-d “On the National Commission for State Regulation of Energy and Public Utilities” registered on 10 December 2015 and adopted on 22 September 2016