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A Ukrainian energy reform started in 2015 has debundled its gas business, creating the GTSO, which is an independent company that owns and runs the country's pipeline system.
Unbundled: the Gas Transmission
System Operator of Ukraine
Since then, Europe has diversified its energy supplies, as following the collapse of the Soviet Union demand has risen, but there have been rising concerns about Europe’s dependence on Russian gas following several “gas wars” in the noughties where the EU found its gas supplies briefly cut in depths of winter.
Today the GTSO manages hundreds of kilometres of pipelines that transit Russian gas on its way to European clients. There are four main pipelines that can carry 146bn cubic metres of gas a year, the equivalent of between two thirds and three quarters of all of Europe’s imports of Russian gas.
However, since relations with Russia soured following the 2014 annexation
of Crimea the amount of Russian transit gas has fallen dramatically. Under the terms of a new transit deal signed at the last minute in December 2019 Russia was contracted to send at least 40 bcm of gas via Ukraine, but due to the cold winter actually sent 55 bcm. And going forward it is contracted to send 35 bcm in the next two years on a take-or-pay basis.
The unbundling of the gas business
has created an open and transparent market for gas that has at a stroke gone a long way to ending the corruption and distortions of the business that had long been a feeding trough for the oligarchs. The reforms are not finished, but the heavy lifting has already been done.
“We completely independent from Naftogaz, although of course we work closely with them. We are certified by all the relevant European authorities and 84% compliant with the EU gas network codes, so there is still some work to do. But we are already one of the biggest gas transit companies in Europe,” says Makogon.
Energising reforms
Ukraine has been quietly restructuring its energy business to put it on a transparent market-based footing
and a lot of progress has already been made. The power market has also been overhauled but there have been a lot more problems there, as the government has been struggling to pay $1bn it owes
Ben Aris in Berlin
Ukraine gas business reforms have been a huge success. By unbundling the production and transport segments the country has attracted hundreds of traders who compete in a vibrant market that has largely eliminated the old corrupt scams and brought prices down for the consumer.
The reform has been based on the deceptively simple principle of separating the production of gas from its transportation and making the pipeline network accessible to anyone that has gas to transport at the same price.
The old system was based on the principles of “who you know” and “how much you are willing to pay” that led
to chronic corruption and a distorted market as the oligarchs knew everyone and were willing to pay a lot.
The Ukrainian gas market reform came to fruition in 2015 with an unbundling that brought Ukraine’s gas market into line with the EU’s third energy package. The main feature was an unbundling
of the system and a separation of the
production housed in Naftogaz as well as the creation of the pipeline operator. At the end of 2019 Gas Transmission System Operator of Ukraine (GTSO),
a fully independent state-owned company under the Ministry of Finance, was created to manage access to the pipelines. At its birth the GTSO, by dint of its existence, becomes the
basis of a vibrant and competitive market for gas.
“The new gas law brings Ukraine into line with the EU’s third energy packet. It is an unbundling that mirrors the reforms in the EU,” Sergiy Makogon, CEO of GTSO, told bne IntelliNews in
an exclusive interview. “The GTSO is an independent company and must supply equal access to the pipeline network to everyone on the market.”
And it is massive. The Druzhba pipeline system that crosses the country was built in Soviet times and even at the height of the Cold War, the Soviet Union continued to be the main supplier of natural gas to Western Europe, supplying up to 80% of its
gas as late as 1970.
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