Speech Piebalgs over samenwerking met Oekraïne inzake elektriciteit (en)

SPEECH/06/132

Andris Piebalgs

Energy Commissioner

Conference on "Electricity Sector of Ukraine - Status and Plans ahead"

Brussels, 28 February 2006

Ladies and Gentlemen

I welcome very much this opportunity to address this conference which was organised by my colleague Minister Plachkov, with my strong support. I am sure this event will be an excellent opportunity to take stock of the current situation with respect to developments in the electricity sector in Ukraine, in view of our common objective of bringing our markets closer together.

The EU needs a response to the challenge of increasing energy demand and declining oil and gas reserves. The Commission will shortly outline its views on how energy policy in the EU should be shaped for the future. The promotion of a Wider-Europe Energy Market, based on common principles, values and regulatory approaches, will be an important element of such a policy.

Re-enforced co-operation with Ukraine is a key element of our considerations in this respect. The Memorandum of Understanding on co-operation in the field of energy which was signed on 1 December 2005, constitutes a good basis for working together. It recognises that the EU and Ukraine face common energy challenges. Indeed, issues such as the diversification of energy supplies, nuclear safety, energy market reforms, energy infrastructure and the promotion of a more sustainable energy sector are key concerns for both parties.

The Memorandum establishes a joint strategy towards the progressive integration of the Ukrainian and the EU energy market. It consists of road maps covering four specific areas: nuclear safety, integration of electricity and gas markets, enhancing security of supplies and the transit of hydrocarbons and improving the functioning of the Ukrainian coal sector.

It also foresees the development of a roadmap on energy efficiency, renewables and measures to tackle climate change. I very much welcome that demand management has now become a key priority for Ukraine. This roadmap should thus be developed rapidly.

With respect to electricity, the Memorandum of Understanding addresses two important areas: Nuclear safety and the integration of the Ukrainian electricity market into that of the EU.

I would like to underline that both areas are closely interlinked: To strengthen public confidence in the benefits of enabling trade in electricity between the EU and Ukraine, Ukraine must meet internationally recognised nuclear safety standards. I am therefore pleased that Ukraine and the EU underline in the Memorandum that safety of nuclear installations is a primary objective for both parties. Rapid progress is necessary in this area, in parallel to the necessary work on market integration.

Integration of electricity markets requires the implementation of key elements of Community rules on electricity. A level playing field with respect to the rules prevailing in all parts of the wider market will facilitate the development of substantial trade between the EU and Ukraine.

As regards the framework for a future participation of Ukraine in the internal electricity market, both sides consider membership of Ukraine in the Energy Community as the appropriate solution. The Treaty establishing the South-East Europe Energy Community was signed on 25 October 2005 and I expect its entry into force this summer.

The Energy Community creates a common regulatory space surrounding the EU and promoting effective energy collaboration between the EU and its neighbours. The electricity and gas markets of the Energy Community will be organised on the basis of European Community rules including environmental and competition rules. Against this background, the MoU provides for Ukraine to align its legislation with the relevant Community rules as envisaged under the Energy Community.

I am aware that this is an ambitious objective. I am however confident that it can be met, provided both the Ukrainian government and industry are strongly committed to this process. Already under previous governments important first steps towards market reform have been taken, such as the creation of a regulatory authority. I can only encourage you to further pursue this work.

We will also be able to dwell on industry initiatives in this area. I am thinking notably of the work undertaken jointly by EURELECTRIC and the CIS electric power Council on possibilities of bringing markets closer together.

Apart from equivalent market rules, trade in electricity requires a reliable physical interconnection. At the moment only a minor part of the Ukrainian electricity system is connected to the EU system. The establishment of an interconnection between the system operated by the Union for the Co-ordination of the Transmission of Electricity (UCTE) and the Ukrainian grid system will thus be necessary. A comprehensive study, co-financed by the Commission, is currently ongoing to look at possible options of linking the synchronously interconnected CIS electricity system with the UCTE system. First results of this study are expected for the end of this year.

I know that the objective of Ukraine is to become a full member of UCTE. This would probably require some significant upgrading of the Ukrainian system, to meet UCTE standards. I understand that experts from both UCTE and Ukraine are looking at this issue, in line with the usual procedure following a request for membership in UCTE. This process will be supported by technical assistance under the TACIS programme of the EU.

Though this conference focuses on electricity, I would like to say a few words on gas. The MoU and indeed the Energy Community cover both, electricity and gas market reform and integration. Progress in reforming gas markets is necessary for the development of a competitive electricity sector. Gas is becoming increasingly important as input fuel for electricity production and a real market of electricity requires fair and equal access to all input fuels. I believe the best way to achieve this is the creation of an open gas market.

Another important issue related to gas is security of transit through Ukraine, which is an important transit country for deliveries of gas to the European Union. The MoU addresses this issue and provides for the establishment of a joint EU-Ukraine technical support Group to develop and suggest concrete measures in this area.

Ladies and Gentlemen,

Creating a wider-Europe Energy Market is the objective of the European Commission. Such a market must be based on common principles, values and regulatory approaches. Ukraine should form part of such a wider Energy market. This requires strong commitment of the Ukrainian government to the process of reforming its electricity and gas sector. I can tell you from our own experience within the EU that this is not an easy task.

The Commission reported in November 2005 on progress made in the creation of the internal electricity and gas markets. We had to conclude that some success can been observed - e.g. the fact that electricity prices are lower in real terms than in 1995 for most consumers. However, the internal energy market is not yet completed. Market functioning needs further improvements. A number of obstacles remain, such as the lack of integration of national markets, insufficient unbundling and the question of market dominance. The Commission will undertake a further review of the situation this year and, on this basis, draw final conclusions on the need for further measures.

A lesson from liberalising electricity markets is the following:

"Liberalisation is not a single event, but rather a long process that requires on-going government commitment."

This, I believe, applies to the creation of a wider European energy market. But I am confident that we can and will succeed.

Thank you for your attention.