10 September 2014
Legal alert: Reformation of Management of Gas Transportation System of Ukraine

On 14 August 2014, Verkhovna Rada of Ukraine has adopted the Law No. 1645-VII “On Amendments to Certain Laws of Ukraine with respect to Reformation of the Management System of the Uniform Gas Transportation System of Ukraine” (the “Law”) which comes into force on 10 September 2014. The Law allows, among other, participation of non-resident legal entities in the management of Uniform gas transportation system of Ukraine (the “GTS”).

Transfer of gas pipeline and underground gas storage facilities into management

The Law lifts the ban on transfer of such state-owned property as gas pipeline and underground gas storage facilities comprising the part of the GTS into management and/or concession or lease on a timely and remuneration basis and without the right to dispose of such property. The transfer may be made only for the purpose of fulfilling obligations of Ukraine within the framework of the Treaty establishing the Energy Community and subject to conditions set out by the Cabinet of Ministers of Ukraine.

Participation of non-resident legal entities in management of GTS and underground gas storage facilities

Pursuant to the Law, operator of the GTS designated by the relevant authorities of Ukraine shall exercise operational functions over the GTS. A legal entity may become such operator provided that it is owned solely by the state of Ukraine (including via NJSC “Naftogaz of Ukraine”) or jointly by the state of Ukraine (including via NJSC “Naftogaz of Ukraine”) owning not less than 51 percent share and a legal entity owned and controlled by the residents of EU member states, United States of America or Energy Community (the “Non-resident Participant”). The operator of the GTS incorporated jointly by Ukraine and the Non-resident Participant shall report to Verkhovna Rada of Ukraine on its activities every five years. To participate in the operator of GTS, the Non-resident Participant is obliged to disclose its ownership structure in a way allowing to identify ultimate beneficiaries -individuals owning major shareholdings therein. In addition, any changes in the ownership structure of the Non-resident Participant are subject to prior approval by the Cabinet of Ministers of Ukraine.

Owner of Non-resident Participant should have a minimum of five-year experience in the management of the gas transportation system on American or European market. Additionally, the Non-resident Participant should be an operator of the gas transportation system or member of the European Network of Transmission System Operators for Gas and certified pursuant to clause 10 of the Directive 2009/73/EC concerning common rules for the internal market in natural gas and clause 3 of the Regulation (EC) No. 715/2009 on conditions for access to the natural gas transmission networks. Non-resident Participant shall be approved by Verkhovna Rada of Ukraine upon submission by the Cabinet of Ministers of Ukraine.

The Law also establishes ownership requirements for operators of the underground gas storage facilities which are substantially similar to the aforementioned requirements of the operator of the GTS.