Verkhovna Rada of Ukraine Reforms the Management System of the Ukrainian Unified Gas Transportation System

On 14 August 2014, Verkhovna Rada of Ukraine adopted in the second reading and in its entirety Law of Ukraine "On Amending Certain Laws of Ukraine on Reforming the Management System of the Ukrainian Unified Gas Transportation System" No. 1523-VII (the "Law") aiming to bring functioning of the gas transportation system of Ukraine in accordance with the liabilities taken by Ukraine within the frame of the Treaty Establishing the Energy Community, in particular in respect of the requirements set forth in Directive 2009/73/EU of the European Parliament and the EU Council regarding common rules for domestic natural gas market and Regulation 715/2009 of the European Parliament and the EU Council on conditions for access to the natural gas transmission networks.

The Law repeals the restrictions imposed on the transfer into the management (concession) or lease of state-owned property as part of main gas pipelines and underground gas storage facilities (the "UGSFs") forming the Ukrainian Unified Gas Transportation System (the "Ukrainian UGTS"). Main gas pipelines and UGSFs may be transferred into the use of the company or companies, for a specific period of time and for a fee, without the right of alienation, for such company or companies to function as Ukrainian UGTS and/or UGSFs operator(s). (The Law also provides that UGSFs operator functions may be individual and may be assigned to a certain company – a UGSFs operator).

Besides, the Law transfers the functions of the Ukrainian UGTS dispatch (operation and engineering) control from a state-owned company (presently PJSC "Ukrtransgaz") to a Ukrainian UGTS operator to be determined by the Ministry of Energy and Coal Industry of Ukraine.

In particular, functions of the Ukrainian UGTS operator will be assigned to the business entity established and owned exclusively by the state, inter alia, through NJSC "Naftogaz Ukrainy", or (in case of a joint venture) by the state, inter alia, through NJSC "Naftogaz Ukrainy" (owning at least 51% of corporate rights) and a legal entity (legal entities) that is (are) owned and controlled by residents of the European Union member states, the United States of America or the European Energy Community, and is (are) the gas transportation system operator(s) or member(s) of the European Network of Transmission System Operators for Gas. It should be added that the founder or owner of such a legal entity should have at least five-year experience of gas transportation system management in the American or European market.

This Law is to be signed by the President of Ukraine and will come into force from the date following its publication.

Thus, amendments proposed by the Law will encourage cooperation with European and/or American companies – operators of gas transposition systems – through establishment of a long-term joint venture. This will make such cooperation economically attractive, while the reforms regarding NJSC "Naftogaz Ukraine" and increase of economic efficiency of oil and gas industry will enhance energy independence of Ukraine.

For further information please contact Asters' counsel Yaroslav Petrov
and legal assistant Victoria Martynkova.

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