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Supporting energy sector reform in Ukraine

 

The 2019-2021 project Supporting the Energy Sector Reform in Ukraine aimed to help the Ukrainian authorities implement reforms in the country’s energy sector and promote its efficiency for increasing its attractiveness, competitiveness and development. The project focused on competition, investment, responsible business conduct, anti-corruption and corporate governance of state-owned enterprises (SOEs) in the energy sector.

The Project Supporting the Energy Sector Reform in Ukraine was carried out in the context of the OECD-Ukraine Action Plan, and encompassed a mix of analytical and capacity-building activities to ensure relevance and support to Ukrainian institutions in reforming the energy sector. The project ran from January 2019 until December 2021. It was implemented with the financial support of the Government of Norway.

Issues addressed

Despite important reforms implemented by Ukraine, a great deal remains to be done to underpin and ensure an effective energy sector reform. Ukraine faces major challenges in improving energy efficiency. The energy sector represents 12.6% of the country’s GDP, yet issues regarding governance, pricing policy, bid-rigging, management and security of energy assets have continued to pose barriers to its development.

The OECD has been assisting Ukraine with advancing towards its energy goals domestically and fulfil commitments made to the EU by providing analysis, policy recommendations and capacity-building activities to enhance energy sector reform.

Tor Martin Møller

Mr. Andreas Schaal, Director of OECD Global Relations,
and Mr. Tor Martin Møller, Deputy Director, Section for Russia, Eurasia and Regional Cooperation, Norwegian Ministry of Foreign Affairs

 

 

IN DEPTH REVIEW OF UKRENERGO

Building on earlier Reviews conducted by the OECD on corporate governance reform in the aviation and hydrocarbons sectors in Ukraine, the OECD is carrying out an in-depth review of the state-owned energy company Ukrenergo. The company is responsible for operational and technological control of the Integrated Power System of Ukraine and electricity transmission to the regional distribution networks.

Since 2017, Ukrenergo has been undergoing major corporate governance reforms, with its first independent supervisory board appointed in October 2018. The company was corporatised on 29 July 2019 and transformed from a unitary enterprise into a private joint-stock company with 100% of the shares owned by the Ukrainian state through the Ministry of Finance. These actions aim to ensure Ukraine’s compliance and eventual integration with the European energy market. The final report will be released in June 2020 and be followed by a full country review in 2020-2021 to evaluate Ukraine’s position relative to the SOE Guidelines.

KEY MILESTONES IN 2021

  • SOE sector reform: In 2021, the OECD carried out an assessment of Ukraine’s position relative to the SOE Guidelines building on earlier Reviews conducted by the OECD on corporate governance reform in the aviation, the hydrocarbons and the electricity sector in Ukraine.
  • Competition in the energy sector: the OECD finalised the assessment of procurement practices of energy SOEs in Ukraine, looking at Ukrenergo as case study.  The work is benchmarked against the OECD Fighting Bid-Rigging Guidelines.  The report was launched during a virtual event in June, and a series of capacity-building seminars have been organised with Ukrainian stakeholders throughout the year.
  • Investment climate in the energy sector: the OECD is finalising the assessment of the investment climate against the OECD Policy Framework for Investment, focusing on the energy sector. A report summarising the findings and recommendations will be launched in December.  This work builds on previous Investment Policy Reviews of Ukraine.
  • Responsible Business Conduct in the energy sector: the OECD assessed the compliance of Ukraine’s energy companies to the OECD Responsible Business Conduct Guidelines.  A report summarising the findings and recommendations will be formally launched in December.  A series of capacity-building seminars have been organised throughout the year.  
  • Anti-corruption in the energy sector: the OECD is analysing the measures put in place to tackle corruption in the energy sector and provide recommendations to close corruption loopholes. The Anti-Corruption Review of Ukraine will be finalised at the autumn session of the OECD Istanbul Anti-Corruption Plan.  A report describing the types of corruption schemes in the energy sector will also be prepared and shared with the government for action. A series of capacity-building seminars to implement OECD recommendations have been taking place throughout the year.

 Key publications and resources on energy reform in ukraine

Typology of Corruption Crimes in the Energy Sector in Ukraine (forthcoming)

The OECD report on typologies of corruption crimes in the energy sector in Ukraine will be presented to the law enforcement community of Ukraine. The report identifies the main corruption schemes in the energy sector, focusing on high-level corruption and groups them into typologies to ease detection and investigation of such crimes. It also identifies common challenges that law enforcement encounters. The report is supplemented by recommendations for law enforcement community in Ukraine, in particular, it is geared towards the specialised anti-corruption agencies

Energy IPR of Ukraine

OECD Energy Investment Policy Review of Ukraine (2021)

This Review assesses Ukraine’s investment climate vis-à-vis the country’s energy sector reforms and discusses challenges and opportunities in this context. Capitalising on the OECD Policy Framework for Investment and other relevant instruments and guidance, the Review takes a broad approach to investment climate challenges facing Ukraine’s energy sector. It covers investment trends, the current policy and regulatory framework, the legal and institutional framework for investment protection, investment promotion and facilitation, public governance, energy infrastructure and policies relating to promoting and enabling responsible business conduct. The analysis and recommendations in the Review can help policy makers strengthen the enabling conditions for investment in Ukraine’s energy sector

 

 

 Anti-Corruption Review of the Energy Sector in Ukraine (2021)

The preliminary draft report Anti-Corruption Review of the Energy Sector in Ukraine will serve as a useful instrument for policymakers, energy sector government and non-government stakeholders, anti-corruption bodies, ownership entities, SOEs and law enforcement bodies in identifying trends, good practices, and common problems in the energy sector. The Report provides an overview of corruption risks in the energy sector, anti-corruption measures implemented by the government and the investigation and prosecution of corruption in the energy sector.

This Report is a part of the anti-corruption work under the OECD Project "Supporting Energy Sector Reform in Ukraine" and is implemented in the context of the OECD-Ukraine Memorandum of Understanding. It is made possible thanks to the financial support of the Government of Norway.

Responsable Business Conduct due dilligente practices in Ukraine's Energy sector

Promoting Responsible Business Conduct in Ukraine’s Energy Sector (2021)
Належні перевірки у практиці відповідального ведення бізнесу в енергетичному секторі України

Promoting and enabling responsible business conduct (RBC) helps attract and retain quality investments, and ensures that business activities contribute to broader value creation and sustainable development. RBC centres around the expectation that all businesses – regardless of their status, size, ownership structure or sector – avoid and address negative impacts of their activities on the society and the environment by integrating environmental and social issues within core business operations, supply chains and business relationships.

A key element of RBC is risk-based due diligence, a process through which businesses can identify, prevent and mitigate actual and potential adverse impacts, and account for how they are addressed. RBC due diligence practices should be applicable not only to company operations but also throughout supply chains and business relationships.

The energy sector is associated with important RBC-related challenges, including environmental, social and governance risks. This study provides a baseline understanding of RBC due diligence practices in Ukraine’s energy companies. Based on surveys conducted with some of the main energy practitioners in Ukraine and on supplementary research, it outlines key RBC risks that companies in Ukraine’s energy sector face and efforts through which these risks are identified, addressed and mitigated. The study also outlines practice gaps and provides considerations for companies to take into account when improving due diligence practices in aligning with OECD RBC instruments and standards. 

Publication from DAF

 

Fighting Bid Rigging in Public Procurement in the Energy Sector in Ukraine (2021)

Боротьба зі змовою на торгах в енергетичному секторі в Україні

Public procurement plays a strategic role in a country’s economy, and the quality of services that the government provides to its citizens. OECD countries spend on average 12% of their GDP in the procurement of goods, services and works.

Due to the size of the involved financial flows, public procurement is exposed to risks of collusion among suppliers as well as fraud and corruption. In Ukraine, bid rigging is an administrative offence and has long been an enforcement priority for the Ukrainian Competition Authority, AMCU. Against this background, and in the context of the OECD project Supporting the Energy Sector Reform in Ukraine, with the financial support of the Government of Norway, the OECD assessed the procurement practices of Ukrenergo, the Ukrainian energy state-owned enterprise and national-grid operator, against the Recommendation on Fighting Bid Rigging in Public Procurement.  

This review evaluates corporate governance framework of the Ukrainian state-owned enterprise sector relative to the OECD Guidelines on Corporate Governance of State-Owned Enterprises (the “SOE Guidelines”).

OECD Review of the Corporate Governance of State-Owned Enterprises in Ukraine (2021)

This review evaluates corporate governance framework of the Ukrainian state-owned enterprise sector relative to the OECD Guidelines on Corporate Governance of State-Owned Enterprises. It was requested by Ukraine’s Ministry for the Development of Economy, Trade and Agriculture under the authority of the Prime Minister of Ukraine. The review received financial support from the Norwegian Ministry of Foreign Affairs. The work was implemented in the context of the Memorandum of Understanding for Strengthening Co-operation between the OECD and the Government of Ukraine

 

State-Owned Enterprise Reform in the Electricity Sector in Ukraine (2020)
Реформа підприємств державної форми власності у секторі електроенергетики України (2020)

While important progress has been made in recent years – both at the company and state level – most corporate governance reforms remain nascent and fragile. To realise long-term and sustainable impact, reforms should be anchored in more robust legislative and policy frameworks, which would also help to avoid ad hoc changes subject to undue political interference. Furthermore, in order to be truly effective, these reforms need to be combined with improvements in the design and functioning of the newly launched electricity market. To address these challenges, this OECD Review identifies a set of 19 detailed recommendations that draw on the OECD SOE Guidelines as a point of departure and serve as a roadmap for reform going forward.

Monitoring of the Energy Strategy of Ukraine 2035

Monitoring the Energy Strategy of Ukraine 2035 (2020)
МОНІТОРИНГ РЕАЛІЗАЦІЇ ЕНЕРГЕТИЧНОЇ СТРАТЕГІЇ УКРАЇНИ НА ПЕРІОД ДО 2035 р (2020)

In 2017, the government adopted the Energy Strategy of Ukraine until 2035 (ESU 2035) as part of its efforts to promote a more systematic and holistic approach to energy sector reform.  In December 2019, a presidential decree tasked the Cabinet of Ministers with revising the current strategy. By providing an assessment and recommendations on the implementation framework of the ESU 2035, this OECD report aims to provide a benchmark to support this work, while assessing the progress that has been made towards energy strategy goals.

 

 Snapshot of Ukraine’s Energy Sector: Institutions, Governance and Policy Framework (2019)  

Snapshot of Ukraine’s Energy Sector: Institutions, Governance and Policy Framework (2019) 
Огляд енергетичного сектору України:інституції, управління та політичні засади (2019)

This report provides an overview of Ukraine’s energy sector. It presents the structure of the sector, identifying the main state and corporate actors, and clarifying roles and responsibilities, as well as reporting mechanisms. It also elucidates the relationships among actors, including government bodies, regulators, state-owned enterprises and other stakeholders. It looks at the mechanisms in place for licencing and for monitoring the energy strategy.

Eurasia-cover-SOE Reform in the Hydrocarbons Sector in Ukraine-2019

State-Owned Enterprise Reform in the Hydrocarbons Sector in Ukraine (2019)
Реформування підприємств державної форми власності в секторі вуглеводнів в Україні (2019)

This publication is the first important output of the energy sector reform project. It provides a review of SOE Reform in the Hydrocarbons sector in Ukraine, looking at the Corporate Governance of Naftogaz as a case study, and puts forward 16 detailed recommendations in line with the OECD Guidelines on Corporate Governance of SOEs (2015).

 

 Enhancing Competitiveness in Ukraine through a Sustainable Framework for Energy Service Companies (ESCOs)

Enhancing Competitiveness in Ukraine through a Sustainable Framework for Energy Service Companies (ESCOs) (2019) 
Підвищення конкурентоспроможності в Україні шляхом створення сталого законодавчого підґрунтя для роботи енергосервісних компаній (2019)

This report assesses the progress made by Ukraine in the implementation of the 2015 OECD recommendations for developing a sustainable energy savings market with ESCOs in Ukraine. 
 

  Access the International Energy Agency's online Ukraine Energy Service Companies profile 

 

OECD standards & benchmarking

Some of the activities are benchmarked against specific OECD standards, namely:

Working with OECD committees & working parties

Project findings will be presented to OECD committees and working parties for peer review discussion and monitoring of results. Participating committees and working parties include:

This work could potentially lead to the invitation of Ukraine to align, and eventually adhere, to some OECD instruments and bodies as appropriate. 

Contact us

For more information about the work on Ukraine, please contact:
Ms. Gabriela Miranda, Country Manager for Ukraine
[email protected]

 EUR logo Norway

 

 

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