Ukraine TSO transfer proposal triggers conflict of interest concerns

Author: Aura Sabadus

2021/01/21

LONDON (ICIS)--The Energy Community urged the Ukrainian government to undertake a thorough analysis of proposals to place the natural gas and electricity transmission system operators under the jurisdiction of the ministry of energy, amid concerns over potential conflict of interest.

Energy Community deputy director Dirk Buschle told ICIS that both efficiency gains for switching control from the ministry of finance to the ministry of energy, as well as the necessity for safeguards, still needed to be established. The Energy Community is an institution designed to extend the EU’s free trade principles to neighbouring countries.

“The unbundling of the gas transmission system operator [in 2019] was quite complex and a lot of safeguards had been put in place to ensure avoiding any conflict of interest,” Buschle said.

“This is reflected in the certification, and we need to maintain standards. The ministry of finance had been intentionally chosen as the owner of the shareholder [MGU, a shell company set up to oversee the gas operator], precisely because it is not involved in [energy] policy making.

Concerns about the transfer come after acting energy minister Yuriy Vitrenko last week issued proposals to cap gas prices to households less than six months after this segment of the market had been deregulated.

Proposals have been amended to set a temporary cap of Ukraine hryvnia 6.99/cubic metre, potentially until the end of the heating season.

However, the proposal raised questions about the Ukrainian government’s commitments to reform and the latest moves to place the gas and electricity system operators under the authority of the ministry of energy have added to those concerns.

BOARD VACUUM

The proposals also comes with the MGU mandate due to expire at the end of February. Buschle said the reliance of independent members of the supervisory board played a key role in certification of the gas transmission system GTSO. GTSO was certified as an independent entity at the end of 2019. Electricity grid operator Ukrenergo, remains unbundled.

While the Energy Community would be able to ask for a new certification procedure for the gas operator, Buschle said his organisation would prefer another option. This would involve providing a thorough analysis for the reasons and potential consequences of the transfer.

The analysis should involve the Ukrainian stakeholders and international partners such as the European Commission. “Beyond compliance, a consensual approach would benefit the stability of the TSO governance, which should remain in place longer than just a year” he added.

POLITICAL INTERFERENCE

Walter Boltz, elected as chairman of the MGU supervisory board before being dismissed by the ministry of finance last spring, told ICIS that MGU helped preserve the gas operator’s independence but Ukrengo had no such buffer in place.

However, he conceded that there was a period of uncertainty with the expiry of the MGU board mandate and the fact that the government had not yet initiated the recruitment procedure of a new board.

Boltz’ challenged his dismissal in court and won at the end of December 2020 .

The verdict was appealed by the ministry of finance earlier this month, with a verdict due by the end of February. Boltz said he was unlikely to rejoin the MGU supervisory board even if successful, but would be open to joining a supervisory board of GTSO should one be set up.