Ukraine’s energy sector and its energy utility companies are regulated by a National Commission (the NKREKU), which is a statutory body established by law in 2016. Unfortunately, the energy sector has historically been corrupt, but by creating this regulatory body Ukraine created a chance for a new impetus to achieve reform of the sector and establishing a level playing field with free and fair competition in the marketplace.
International experts and Western partners have long argued in favour of liberalising Ukraine’s energy market and deregulation of gas and coal prices. In 2016 a market pricing method for coal was introduced in accordance with Article 269 of the EU-Ukraine Association Agreement. The coal pricing formula is known as Rotterdam Plus, and this formula is used to set a wholesale market price, which is then used to calculate an estimated wholesale market price for electricity tariffs.
The Rotterdam Plus formula was originally introduced as a solution to the problems caused by the blockade of coal deliveries from Donbass as a result of disruption to supply caused by the ongoing war and the loss of control over mines located in the occupied territories. But opponents argue that the market situation has now changed and that the formula has outlived the usefulness of its original purpose.
The formula has continued to prove controversial, with allegations from its critics that DTEK the largest coal and mining company in Ukraine, is the formula’s main beneficiary. These complaints led to the opening of an investigation last year by Ukraine’s Anti-Corruption Agency (NABU) into alleged collusion between DTEK and the Regulator.
The issue is again drawing media interest in the run-up to next year’s Presidential elections in Ukraine. In The Energy Committee of the Verkhovna Rada last month, hearings were held to review the work of the first 100 days of work of a newly constituted team in the Regulator’s Office (NKREKU), with a view to determining whether the Regulator had become “more professional and independent”.
The hearings caused huge interest among all energy market participants, with participation by Yuri Nedashkovsky, President of Energoatom, Andrei Kobolev, CEO of Naftogaz, Yuri Gnatyuk, Chairman of Energorynok, Maksim Timchenko, CEO of DTEK, and others. The event was chaired by Alexander Dombrovsky the Head of the Committee on Fuel and Energy, Nuclear Policy and Nuclear Safety:
Opening the hearing Alexander Dombrovsky, Chairman of the Committee, emphasised that Ukraine is trying hard to reform and transform. “I am very pleased that Ukraine finally has the Law on the Independent Regulator, and today its new representatives can report on the first 100 days of their work,” he said.
Taking the floor, Olga Belkova (a Member of the Verkhovna Rada) reminded members of the Regulaor’s office about their professional duty and personal responsibility when making strategic decisions for the country. She said: “With regard to the formula “Rotterdam Plus”, the regulator must explain what is happening – it is your professional duty. The issue of the tariff for Energoatom NAEC remains unresolved. This issue has already moved from the economic to the political plane, and its lack of regulation will have serious consequences for the country.”
Commenting on this, the president of Energoatom, Yuriy Nedashkovsky, emphasised that the entire energy community of Ukraine, had looked forward to the appointment of a new Commission, but had unfortunately been disappointed by a lack of results “Unfortunately, after a hundred days it can be stated that the changes have dried up on this. The same stamps, and the rhetoric itself, the same corrupt “Rotterdam Plus”. The tariff paid to Energoatom under this formula for the electricity that we generate continues to be the lowest in the world. Why?”