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World 2019-05-15T04:44:34+03:00
Ukrainian news
Uncertainty in the policy of pricing and tariffs in energy sector limits the flow of investment, - former US A

Uncertainty in the policy of pricing and tariffs in energy sector limits the flow of investment, - former US Ambassador Pascual

Photo: businesswire.com
Photo: businesswire.com

There is a continuing uncertainty in price and tariff setting policies in Ukraine, and the investors are not sure of their revenues. This restrains the inflow of investments into the energy sector, believes former US Ambassador Carlos Pascual

This is an opinion expressed by Carlos Pascual, former U.S. Ambassador to Ukraine and Vice President of IHS Energy in his interview to ZN.UA.

"On the one hand, investors see that Ukraine has quite significant resources and a long history of under-financing, which subject to improvement in the situation, might secure rapid development. Oh the other hand, uncertainties of policies, in particular, in setting prices and tariffs, remain, and the investors are not sure of their revenue," says Carlos Pascual.

According to Mr. Pascual, one of the examples is the electricity market and implementation of an incentive-based tariff setting system there. "Over year and a half, Ukraine has been actively discussing the feasibility to introduce an incentive-based tariff setting system, the so-called RAB-regulation. The outcome of the discussions will determine revenue flows the companies would obtain from the respective rate of return on investments made. Those are the core factors any investor should take into account," says Carlos Pascual.

The expert underscored that since the start of 2017, Ukraine had managed to achieve a significant progress in the natural gas sector development thanks to a better regulatory framework. "I believe the attractiveness of the gas sector is fully conditioned by the changes made in the policies and pricing over the last year and a half. In 2014–2015, the taxes and royalties were so high that it almost terminated the operations in the sector. The situation has been turned around with a decrease in the royalty rates and the taxation aligned with the comparable global standards in the sector."

When commenting on global standards in the electricity industry, Mr. Pascual underlined the importance of the rate of return and its application for the new and old assets of oblenergos as part the RAB regulation system: "The international experience shows that countries that initially introduced different rates of return later transferred to the single rate. The concerns discussed are related to ensuring the fair return on old assets."

As reported earlier, on 11 January, the new regulatory framework came in force in Ukraine, which transfers regional energy supplying company (oblenergos) and water supplying companies (vodokanaly) to operation under the incentive tariff-setting system (RAB). Pursuant to Resolution 972, the rate of return for oblenergos is 12.5%. According to NEURC Chairman Dmytro Vovk, the Ukrainian regulatory  framework for RAB regulation is fully in line with the European standards and relies on the best experience and good practices, which is confirmed by the consultants of the large international consulting company IHS Energy, headed by former U.S. Ambassador to Ukraine Carlos Pascual, and the reports of other European regulators. According to Vitaliy Hryhorovskyi, President of the Association of Distribution System Operators, RAB rates should be the same both for new and old assets and at least at 17% (the rate of the National Bank of Ukraine).

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