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Resuming electricity imports from Russia: A very risky business for Ukraine

Ill-conceived regulations in Ukraine are a key reason for the poor condition of the country’s grids.
Ill-conceived regulations in Ukraine are a key reason for the poor condition of the country’s grids.

Energy is particularly important to Ukraine. It is not simply a matter of ensuring consumers and businesses have the energy they need, at the right price. Or that the country is fulfilling its international obligations in transitioning towards a more sustainable, renewables based, energy system. Energy is also absolutely fundamental to our national security and the nature of our relationships with our neighbours.

Real progress has been made in Ukraine over recent years to transform the energy market and to ensure that it works in the interests of Ukraine and its citizens. That is why it was so troubling to see the decision taken in the Ukrainian Parliament in September to allow electricity imports from the Russian Federation and Belarus for the first time since 2015.

The rationale for the amendment to the law “On Electricity Market”, driven by the Chairman of the relevant energy committee Andriy Herus, is that an increase in supplies from these countries will help to increase competition and lower prices for consumers. Whilst this argument has some merit, the decision is flawed and deeply concerning for a number of critical reasons.

One of the chief beneficiaries of this change will be Igor Sechin’s company RAO UES JSC. Sechin is currently under international sanctions in connection with the annexation of Crimea and Russia’s military aggression in the Donbass regions. This decision therefore undermines Euro-Atlantic unity in relation to the application of these sanctions and will compromise Ukraine’s standing with our western partners.

Additionally, the new Belarusian national power producer (NPP), Ostrovets, is also likely to supply electricity to Ukraine. Many EU countries, namely Poland and Lithuania, strongly oppose the purchase of electricity produced by this NPP because of its poor environmental record. Buying electricity from Ostrovets will compromise our relations with these strategic partners.

A fundamental goal of the Energy Strategy of Ukraine for 2035 is the synchronization of Ukraine’s energy systems with those of its neighbouring European partners. Under the terms of Ukraine’s agreements with the EU, it is impossible to integrate our energy systems while commercial supplies of electricity continue to be imported from Russia and Belarus. Decisions of this type not only compromise our ability to deliver on the objectives of our energy strategy in practical terms, they also undermine the confidence of the EU in our commitment to doing so. Neither is positive for Ukraine.

Opening Ukraine up to imported electricity will also lead to a significant decrease in domestic electricity production. This will have a big impact on domestic producers’ ability to re-invest and modernise assets and prepare for future integration with the European electricity market and the transition to renewable energy. The problem for state-owned producer Energoatom will be compounded by the fact that it has to carry a disproportionate load in terms of public service obligations.

The decision also significantly increases the risk of Ukraine facing an energy crisis during the autumn and winter period 2019-2020. We are already facing the very real possibility of gas imports being halted due to the termination of the contract between Naftogaz of Ukraine and Gazprom from January 1, 2020, alongside a shortage of coal. To these risks we can now add the possibility that electricity imports could be stopped, with all the obvious negative implications for the economy and the socio-political tensions that this will create.

The Parliamentary Committee is already rethinking its original decision and it is now proposing to remove the possibility of electricity imports from Russia. While that may appear to address many of the above concerns, it doesn’t in practice. There is no practical way to stop Russian electricity being routed through Belarus, and the nature of the relationship between the two countries means that Ukraine will still be vulnerable to the arbitrary termination of this supply.

The original decision was taken behind closed doors with minimal to no involvement of key stakeholders, including the EU Integration Committee and the Ministry of Energy and Environmental protection. Whatever the rationale might have been for the approach, it goes without saying that a decision of this magnitude – one that has implications for Ukraine’s sovereignty and national security – has to be taken with the full and transparent involvement of all relevant parties. The risks of not doing so are simply too great for Ukraine.

Volodymyr Omelchenko, Director, Energy Programmes, Razumkov Center

 

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