Reform #1. Why Ukraine has to reform its gas sector
Reform #1. Why Ukraine has to reform its gas sector

Author(s): Wojciech Konończuk
Subject(s): Energy and Environmental Studies, Economic policy, Developing nations
Published by: OSW Ośrodek Studiów Wschodnich im. Marka Karpia
Keywords: Ukraine; gas sector; reform
Summary/Abstract: In April 2015, the Ukrainian parliament passed a long-awaited law on the gas sector which paves the way for the extremely difficult process of reforming and de-monopolising the Ukrainian gas sector. The law will come into force on 1 October 2015 and involves the break-up of the state-owned company Naftogaz, the current monopolist, and the gradual creation of a competitive gas market in line with the so-called Third Energy Package. At the same time, a threefold increase in the price of gas paid by individual customers and the public sector was introduced. The price had been subsidised for years and no previous government had ever decided to raise it.The comprehensive reform of the gas sector is one of the most important and most difficult reforms Ukraine has to implement. Its success will be of fundamental importance for the Ukrainian state due to its impact on several major areas of the state’s functioning. Without the marketisation of gas prices and an improvement in Naftogaz’s financial standing (in 2014, the company’s deficit accounted for 7% of Ukraine’s GDP), it will be impossible to reform Ukraine’s public finances to end the long-lasting economic crisis. Without an improvement in Ukraine’s energy efficiency, which currently is one of the world’s lowest, it will be impossible to reduce the country’s dependence on the import of gas. Successful implementation of the reform will also be important in the context of the future of Ukrainian-Russian relations. The question of gas supplies has been one of the major aspects of this relationship since 1991. Another extremely important consequence of the reform will be to eliminate the main source of income from corruption in Ukraine., which has benefited the ruling elite since the 1990s. Corruption seems to be the reason behind the reluctance of all previous governments in Kyiv to reform the gas sector.

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