Europe sets deadline for Ukraine to address Ukrenergo issues and warns of consequences

The European Energy Community has said that Ukraine has until 9 December to resolve problems with Ukrenergo, the country’s state-owned electricity transmission system operator, and maintain compliance with European standards or risk losing its European certification as a power operator. 

The letter from Artur Lorkowski, Director of the Energy Community Secretariat, to the National Energy and Utilities Regulatory Commission, is entitled "Compliance by Ukrenergo with unbundling requirements" and begins with a warning that Ukrenergo does not currently meet the requirements of European Directive 2019/944 on unbundling. 

The first problem is the incomplete composition of the NPC Ukrenergo Supervisory Board, which is supposed to mitigate the Ministry of Energy's control. Seven of its members are appointed by the Ministry, but four should be independent and elected through a competitive procedure. 

Currently, the Supervisory Board has only four members, three of whom are appointed by the Ministry, and one is independent. One "independent" position has been vacant since 2022, and two other independent members of the Supervisory Board resigned in September 2024 in protest after the dismissal of Volodymyr Kudrytskyi, Head of Ukrenergo. The term of office of the fourth independent member of the Supervisory Board expires on 9 December, and although the Ministry of Economy announced the procedure for electing one member, it has not yet been completed. 

"At this stage, the Supervisory Board of Ukrenergo is operational only in terms of quorum requirements, and it will cease to be so on 9 December 2024, when the mandate of the remaining independent member expires. Due to its composition, the Supervisory Board is, however, already not in a position to make independent decisions. It is therefore vital that all four independent members be appointed without delay and by 9 December 2024 at the latest, and a Chairman of the Management Board be appointed thereafter," the letter says. 

The second point is the issue of Ukrenergo's charter. "In order to ensure that an independent Supervisory Board can serve its aim of sheltering the operation and commercial activity of Ukrenergo from interference from the government, the Charter of Ukrenergo has to be revised with the aim of strengthening the role of an independent Supervisory Board in the company’s decision-making,’ the letter says. 

Thirdly, the EU Secretariat reminds the Ministry of Energy – which is now both the energy policy maker and the shareholder that manages the company – of its obligation to create a separate unit to independently coordinate the fuel and energy sector operators. 

The Secretariat does not currently have information on whether such a unit has already been created and whether it is functioning properly. 

They also refer to the Order of the Ministry of Energy 408/2022, which establishes a mechanism for the organisation and functioning of internal control and risk management in the Ministry and subordinate enterprises, including Ukrenergo. According to the report, this order de facto created a parallel control system, which led to conflicting lines of responsibility, in particular with regard to responsibility to the responsible supervisory boards.

"Order 408/2022 has to be revised to ensure that the Ukrenergo can operate entirely independently from the interference of the Ministry and of the Minister of Energy," the letter says.  

The EU Secretariat emphasises that each of these points is already a sufficient reason to restart the certification procedure, as each is an obstacle to the independent functioning of Ukrenergo. 

"We therefore kindly request NEURC to assess compliance of Ukrenergo with the unbundling requirements and to re-open the certification procedure, if compliance, with regard to the above aspects, is not achieved by 9 December 2024... However, in the event compliance is not achieved by 9 December 2024, NEURC is requested to reopen the certification procedure for Ukrenergo," the letter concludes. 

Oleksandr Kharchenko, energy expert and director of the Energy Research Centre, warned that if Ukrenergo loses its certification, Ukraine may lose electricity imports from Europe, which is a serious threat before the new winter in the face of Russian bombardments.

Earlier, it was reported that the EU plans to increase the capacity of electricity exports to Ukraine as part of a plan to "soften" the passage of winter in the face of Russian bombardment of the energy system. 

This should cover about 12% of Ukraine's needs. Therefore, the possible withdrawal of certification means that Ukraine may lose access to these volumes.