June 3, 2020 (11:36)

Gas distribution tariff in Ukraine risks unauthorized offtakes

The Energy Community an international organisation which brings together the European Union and its neighbours to create an integrated pan-European energy market warning about critical situation with tariffs for gas distribution in Ukraine.

“A pending decision by the national energy regulator of Ukraine, NEURC, may withdraw an earlier decision to increase the gas distribution tariffs in Ukraine. Without distribution tariffs set at an adequate level, unauthorised offtakes of natural gas will persist, impairing the financial stability of the new transmission system operator and putting gas sector reforms at risk.

Were such a decision to be adopted, it would also threaten the financial viability of the distribution system network operators and undermine market-oriented gas market reforms, including the creation of a gas exchange”.

At current tariffs for gas distribution, the level of wages in gas companies is by one third lower than that of industry in general, and it lags behind the average wage in the energy sector by 50%. Wage costs constitute only 30,2% of tariff revenues.

The new tariff model is needed to complete the process of separating the distribution service from the sale of gas itself as a commodity. The relevant steps are envisaged by the Law of Ukraine “On the Natural Gas Market” and are a part of the Third Energy Package of the European Commission, which Ukraine has committed to comply with in the framework of the implementation of the EU-Ukraine Association Agreement.

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