Reform of the Operation System of Gas Transit in Ukraine

Project Description

Task A: Review of the findings of JEWG (Phases I and II) and final assessment of current situation
Activity A.1: Technical audit of the installations and equipment comprising the GTN
Activity A.2: Financial review of Naftogaz and Ukrtransgas activities relating to the transit, storage and transmission of gas
Activity A.3: Review of the legal framework governing or affecting gas transit and storage in Ukraine
Activity A.4: Consolidation and presentation of findings
Task B: Elaboration of draft proposals by the Consultant
Activity B.1: Elaboration of three scenarios for the reform of the operation system of Ukraine’s gas transit network
Activity B.2: Consultation with the Project Partner and Key Stakeholders – Workshop
Task C: Elaboration of final proposal and other deliverables
Activity C.1: Final Report
Activity C.2: Draft of the terms of reference for implementing a management account model
Activity C.3: Development of a financial medium-term model

Project Objective

The maintenance of the role of Ukraine as a key transit country for the secure and efficient supply of natural gas to the EU market through the detailed elaboration and substantiated recommendation of alternative reform options for the operation system of Ukraine’s gas transit network, which will ensure adequate financing for the rehabilitation, modernisation and maintenance of the gas transit network.

Specific Objectives

a)The detailed and substantiated review of the current situation (through a technical audit, financial and legal reviews regarding Naftogaz gas transit activities)
b) The elaboration of comprehensive studies for three alternative reform options for the operation system of Ukraine’s gas transit network:

Option #1: Management and/or organisational restructuring by studying the mechanisms for account unbundling of the activities of gas transit, transmission and storage by cost & profit centres implementation, considering that no legal changes regarding Naftogaz NJSC corporate structure will take place.

Option #2: Long-term agreements (such as concession agreements) regarding the operation, rehabilitation and maintenance of the GTN (Gas Transit Network), by studying the mechanisms of establishment and operation of a financial/ investment consortium for financing the operation system of the GTN

Option #3: Partial or full privatisation of the gas transit network through the creation and launching of joint stock companies on the basis of Ukrainian state-owned enterprises which deal with the transportation and storage of natural gas.

c) To propose specific implementation steps and activities (technical, legal, financial) for the implementation of the aforementioned options, with reference to factors such as cost, sources of financing, technical parameters, legislative and contractual environment, timetable of implementation for each option, risks and assumptions, environmental and social impact, etc.
d) The presentation of the Consultant’s proposals in a workshop attended by the key stakeholders and actors (managers of Naftogaz and its affiliated companies, representatives of government agencies and regulatory bodies, representatives of international financial and donor organisations etc.)

Expected Results

a) The reliable and up-to-date review of the GTN from technical, financial and legal point-of-view.
b) The production of three customised and comprehensive reform options for the operation system of Ukraine’s gas transit network, which shall take into account the specific nature of the companies in the sector, be efficient, realistic and acceptable by the Key Stakeholders and shall ultimately result in the rehabilitation and modernisation of the GTN.
c) The close co-operation and involvement of Key Stakeholders as well as Naftogaz and Ukrtransgas personnel in the process of elaboration of the reform options.