EBRD remains committed to providing support to the introduction of the new energy market, and will help the market players look beyond the horizon – Marina Petrov

Interview with Deputy Director of the European Bank for Reconstruction and Development (EBRD) in Ukraine.

2017 and the first half of 2018 became a period of active reforms in the Ukrainian energy sector. However, there are fears that a decision-making process in this segment will be even more complicated when the election campaign starts. Don’t you have a feeling that the brakes were put on the implementation of new laws introducing the new energy market?

No, I do not have such a feeling. It is during the first year of the reform of the energy segment when the most active law-making efforts were made. Today, very few new energy bills are submitted to the Parliament; instead, the old ones are being finalized. Probably, this is why there is an impression that the reforms have been halted. Of course, this is not the case. Just a week ago, the Verkhovna Rada adopted the Law on the Disclosure of Information in Extractive Industries. Apparently, the process has not stopped. Surely, it is quite reasonable to expect that the number of adopted bills will go down considering that the election campaign has already started in Ukraine. Nonetheless, members of the Ukrainian parliament are very responsible for their mission and are now finalizing the bills that have already been initiated by the current membership of the Verkhovna Rada.

Does it also apply to a bill introducing a system of auctions as an incentive to the development of renewable energy sources (RES)? Members of the parliament presented six alternative bills that will complicate its passage in the building under a dome.

We are very glad that bills are discussed in Ukraine. This process helps making good-quality decisions. It is a bad practice when decisions are made behind the scenes. In my opinion, in 2018, the EBRD has been actively working with politicians, the government, and major market players that are involved in various market segments to produce the most rational decisions in connection with the incentives to the development of RES. Admittedly, we have not finished this process. But it seems to me that we have already made quite a good progress. I really hope that the Verkhovna Rada will have the willpower enabling it to adopt the law introducing a system of auctions promoting the development of RES.

The introduction of RAB-based regulation is an important factor in attracting investments into the energy sector. The regulator has already developed a regulatory framework required for transferring utilities (Oblenergo) to incentive regulation. Despite all these, RAB-based tariffs have not been introduced so far.

A matter of RAB-based regulation is a matter of the quality of the discussion held in connection with it. In my opinion, there was no real discussion. But the decision (about the introduction of incentive tariff design – Energoreforma) is very important as it affects a large number of stakeholders. We really hope that the new composition of the regulator will resume a discussion of the RAB-based regulation and attain the desired result, and I am totally confident that we will be able to find a solution that will facilitate the start of implementation of incentive regulation really soon.

Many experts believe that Ukraine needs a hub that would spur reforms. Does the EBRD intend to continue supporting reforms in the Ukrainian energy sector?

The EBRD has been acting as a provider and generator of reforms in Ukraine for many years. We have been involved without failure in all important reforms in the national energy sector. Considering an international experience available to the EBRD, the bank can expand the boundaries and helps local players look beyond the horizon. For instance, last year the bank opened a discussion into the replacement of “green” tariffs with auctions while encouraging the development of RES. It is this attempt to push the limits that helps see what is going on on the neighboring markets and understand that auctions make a much better and modern method for supporting RES.

At the moment, the EBRD considers providing financing ranging from 2 to 4 million euros to create an infrastructure for auctions with RES. We have already been approaching donors to arrange good-quality auctions. Otherwise, such auctions will not be accepted by market participants. It is important (when holding auctions – Energoreforma) to maintain a balance between various interests to achieve the best possible results. On our part, we would like to bring to Ukraine the experience that we acquired when organizing similar efforts in other countries. Similar mechanisms for stimulating RES have already been implemented in Turkey, Poland, Bulgaria, Jordan, Egypt, and Armenia. By the way, Armenia makes a very good example. There an auction for quotas to build RES capacities was held at the end of this year’s spring.

Important tasks scheduled for the next year that we are going to discuss and find a solution include the balancing of generation capacities. We expect that steep growth of “green” energy in Ukraine will create a demand for a more flexible system for balancing capacities.

I expect that in the next couple of years the balancing of capacities will not pose any significant problem for Ukraine’s energy sector. However, as and when new “green” generation capacities are commissioned, a need for a better developed balancing market will arise. There is no ready-made solution in this sphere. This is why we are planning to engage consultants very soon to find answers to such questions as what the reserves of the existing generation system are, and which additional capacities will be required taking into account the changes in the structure of generation capacities expected in the near future.

Will the EBRD insist that the progress of reforms in the energy sector should be a mandatory condition for financing provided by the bank?

All our projects include certain conditions concerning the reforms. The most talked-about project is the reform of corporate governance. For instance, the corporate governance reform that has been launched at Ukrzaliznytsia PJSC is tied to the projects that are already being financed by the bank under the contracts that we have signed at the end of the last year: the project of electrification of railway tracks in the south of Ukraine and the project for the procurement of coaches that we are preparing now and expect to sign shortly.

So, we always include a requirement for the implementation of reforms in our financing terms and conditions. On the other hand, these requirements are imposed on specific companies that are the beneficiaries of the loans that we provide. Concerning the private sector, we also place certain conditions, such as improvement of corporate governance, bringing business out of the shadows, on loans our bank extends. We take such matters very seriously when making decisions to extend loans. The EBRD, being a development bank, not only gives money but also strives to change the conditions for doing business radically.