On 16 February 2017, the National Commission for State Regulation of the Energy Sector and Municipal Utilities (the “Regulator”) adopted the Licensing Conditions for Performance of Business Activity in the Natural Gas Market (the Regulator’s Resolution No 201, effective since 26 March 2017). 

The Resolution includes the following documents:

• Licensing Conditions for Natural Gas Transportation (currently such activity is performed exclusively by the state-owned Transmission System Operator – Public JSC “Ukrtransgaz”);
• Licensing Conditions for Storage (Injection, Withdrawal) of Natural Gas (it is also conducted by Public JSC “Ukrtransgaz”);
• Licensing Conditions for the Distribution of Natural Gas (performed by 39 regional Distribution System Operators, so-called “Oblgazes”); and
• Licensing Conditions for Natural Gas Supply (the “Licensing Conditions for Gas Supply”, which appear to be the most important piece of secondary legislation for numerous key suppliers in the gas market).

Within 3 months following the date of publication of the Resolution (i.e. until 26 June 2017) all companies engaged in the above-mentioned business will be required to comply with the relevant Licensing Conditions. Failure to comply with the rules may result in compulsory termination of the company’s commercial activity within the gas market. In terms of the supply of natural gas, it means that all companies selling gas directly to the end consumers for their consumption shall be required:

1. to obtain the gas supply licence prior to the mentioned date; and
2. to comply with  the numerous organisational, technological, professional, staffing and special requirements established by the Licensing Conditions for Gas Supply.

It is also worth mentioning that the Regulator cancelled a few requirements, which were considered as the most onerous ones for natural gas suppliers. In particular:

1. c.the so-called “capital adequacy requirement (CAR)” was removed (according to this requirement the applicants were required to demonstrate that they have sufficient financial resources to pay for the monthly volume of the natural gas to be supplied to the applicant’s customers).

1. d.the requirement for the applicant to declare the yearly amount of gas supply was also removed (previously the applicants were required to inform the Regulator of the annual amount of their gas supply and to comply with the established limit).

Please find below an overview of the most important requirements provided by the Licensing Conditions for Gas Supply.

1. Set of the organisational requirements:
2. to pay the fees, duly established by the Regulator, on a quarterly basis within 30 days following the reporting quarter;
3. to make payments for the services provided by the gas transmission system operator in a timely and duly manner;
4. to establish “contact points”, which may be located at the applicant’s office where the customers may obtain the necessary information with respect to their rights, applicable legislation and dispute resolution procedures;
5. to establish free access of the customers to the applicant’s “contact points” , where the incoming correspondence is duly registered;
6. to keep the documents, filed by the applicant for the purpose of obtaining the gas supply licence;
7. to notify the Regulator in a timely (i.e. within a month) and due (i.e. in written) manner about any changes to information and documents filed to obtain the licence;
8. to notify customers of any disruption to gas supply;
9. to submit the necessary reports with the Regulator in a manner provided by the law and comply with the Regulator’s orders and resolutions;
10. to supply gas at free prices on the basis of the gas supply agreements executed with the customers in a manner provided by the law and in compliance with the Gas Supply Rules;
11. to comply with the rules and procedures for change of the gas supplier by the customer;
12. to supply gas only to those customers who have duly executed the gas distribution / gas transportation agreement with the local DSO/TSO;
13. to perform the licensing activity exclusively with the use of the resources listed in the application documents;
14. to keep accounts of the licensed business activity separate from any other activities in line with the rules for separation of assets and obligation, profits and expenses with respect to such types of activities;
15. to have an official website, containing the following information:

• effective versions of the gas supply rules and gas supply agreement;
• effective gas prices, terms and conditions for performance of payments, etc.
• general terms and conditions for gas supply, rights and obligations of the supplier and consumer, a list of the applicable legal acts, available dispute resolution mechanisms, a standard agreement for gas supply to households (in the event that the supplier intends to supply gas to the households);
• procedure for resolution of disputes, contact information (telephone numbers, email, working hours, address, the name of the contact persons etc.) of the supplier’s department; and
• annual financial reporting in compliance with the applicable regulations.

1. to comply with the Regulator’s decisions, adopted in line with the applicable complaint and dispute resolution procedures.
2. Set of technological requirements:
3. to own/use premises/buildings where the contact points are established;
4. to maintain the gas reserve stock in a manner provided by the law (currently – 0%). 
5. Set of staffing requirements: 
6. to carry out the licensed activity under the direction of  persons with higher education, sufficient for performance of the professional obligations;  
7. to formalise the labour relations in compliance with the applicable requirements of the Ukrainian legislation.
8. Set of special requirements: 
9. the applicant must not be controlled by residents of the countries which perform military aggression actions against Ukraine (i.e. the Russian Federation).  

LAW: Resolution No 201 of the National Commission for State Regulation of the Energy Sector and Municipal Utilities “On Approval of the Licensing Conditions for Performance of the Business Activity at the Natural Gas Market” dated 16 February 2017 (in effect since 26 March 2017)

Author:

Radchenko Vitaliy, Partner, Vitaliy.Radchenko@cms-cmck.com