Law of Ukraine

"On Amendments to Certain Laws of Ukraine Relating to Reforming the Management System of the Unified Gas Transport System of Ukraine"

Date of entry into force:
September 10, 2014

Article 4 of the Law of Ukraine "On State and Communal Property Lease" determines lease objects. In particular, it determines a list of objects that cannot be leased.

The Law supplements Article 4, part 2 of the Law of Ukraine "On State and Communal Property Lease" with a new provision, according to which, restrictions established by Article 4 of the Law of Ukraine "On State and Communal Property Lease" do not apply to lease of state property that is part of gas trunk lines and underground gas storages included in the Unified Gas Transport System of Ukraine, granted to a company or companies on fixed-term paid basis, without alienation rights, in order to fulfill functions of an operator of the Unified Gas Transport System of Ukraine and/or an underground gas storage operator. The above lease of property can be carried out exclusively for the purposes and to the fulfillment of obligations assumed by Ukraine according to the Law of Ukraine "On Ratification of the Protocol on Ukraine's Accession to the Treaty Establishing the Energy Community", on the basis of an agreement and on the terms approved by the Cabinet of Ministers of Ukraine, with regard to the principles of the economic security of the state.

According to Article 7, part 6 of the Law of Ukraine "On Pipeline Transport", alienation of fixed assets, shares and portions of the statutory capital of state companies whose business entails transportation via trunk pipelines and storage in underground storages, as well as of companies, institutions, and organizations created due to their reorganization, their transfer between balance sheets, or under concession, rent, lease, pledge, or management, inclusion into the statutory capital of other legal entities, or execution of other legal relations that can result in alienation of fixed assets, shares and portions of the statutory capital of such companies, as well as fixed assets and shares of the National Joint Stock Company "Naftogaz of Ukraine", its subsidiaries or companies founded by it – is forbidden, except in cases when the result of such actions is: transfer of fixed assets, shares and portions in the statutory capital of such companies exclusively to a budget institution, state company, or a joint stock company where 100% of shares are owned by the state of Ukraine; or creation of state companies or joint stock companies where 100% of shares and portions in the statutory capital are owned by the state of Ukraine.

The Law supplements Article 7 of the Law of Ukraine "On Pipeline Transport" with a new part, according to which, Article 7, part 6 of the Law of Ukraine "On Pipeline Transport" does not apply to transfer of state property that is part of gas trunk lines and underground gas storages under concession and/or lease on fixed-term paid basis, without alienation rights, in order to fulfill functions of an operator of the Unified Gas Transport System of Ukraine. The above transfer of property is carried out exclusively for the purposes and to the fulfillment of obligations assumed by Ukraine according to the Law of Ukraine "On Ratification of the Protocol on Ukraine's Accession to the Treaty Establishing the Energy Community", on the basis of an agreement and on the terms approved by the Cabinet of Ministers of Ukraine, with regard to the principles of the economic security of the state. Only underground gas storages (one or several) can be transferred for fulfillment of the functions of an underground gas storage operator, on the terms established by this Article.

Article 44 of the Law of Ukraine "On Oil and Gas" is dedicated to the Unified Gas Transport System of Ukraine.

The new version of Article 44, part 3 of the Law of Ukraine "On Oil and Gas" envisages that the functions of dispatch (operations and technological) control of the Unified Gas Transport System of Ukraine are carried out by the operator of the Unified Gas Transport System of Ukraine determined by the central executive authority that provides for creation and implements state policy in the oil and gas sector; and in cases provided for by law, by the central executive authority that provides for creation and implements state policy in the oil and gas sector, by consent with the Verkhovna Rada of Ukraine (formerly – a state company determined by the central executive authority that provides for creation and implements state policy in the oil and gas sector).

The Law amends Article 44 of the Law of Ukraine to exclude part 4, according to which the structure of a state company that carries out centralized dispatch (operations and technological) control is determined by the central executive authority that provides for creation and implements state policy in the oil and gas sector.

The Law also supplements Article 1 of the Law of Ukraine "On the Principles of the Natural Gas Market Operation" with new provisions that establish the following:
  • functions of an operator of the Unified Gas Transport System of Ukraine are vested in a business entity founded and owned exclusively by the state, including through the National Joint Stock Company "Naftogaz of Ukraine" Public Joint Stock Company, or (in case of creating a joint enterprise), the state, including the National Joint Stock Company "Naftogaz of Ukraine" Public Joint Stock Company (owning a minimum of 51% of corporate interests), and a legal entity (legal entities) owned and controlled by residents of the European Union member stages, the United States of America, or the Energy Community, and is an operator of a gas transportation system, or a member of the European Network of Transmission System Operators for Gas, certified according to the requirements of Article 10 of Directive 2009/73/EC of the European Parliament and of the Council of 13 July 2009 concerning common rules for the internal market in natural gas, and Article 3 of Regulation 715/2009 of the European Parliament and of the Council on conditions to access to the natural gas transmission networks.
  • according to the resolution of the central executive authority that provides for creation of state policy in the oil and gas sector, functions of an underground gas storage operator can be separated and vested in a separate company – an underground gas storage operator. The Verkhovna Rada of Ukraine, by suggestion of the Cabinet of Ministers of Ukraine, approves the results of the competition and makes the final decision to determine the non-resident legal entity in the business entity vested with functions of an operator of the Unified Gas Transport System of Ukraine. The competition terms are developed and approved by the Cabinet of Ministers of Ukraine. In order to take part in the competition, a non-resident legal entity shall reveal the ownership structure of its legal entity founders to enable identification of the natural person owners of substantial interest in such legal entities. Changes in the ownership structure of a non-resident legal entity that, based on the competition results, was approved as co-founder of the business entity vested with functions of an operator of the Unified Gas Transport System of Ukraine must be approved in advance by the Cabinet of Ministers of Ukraine;
  • the founder or owner of a non-resident person holding shares in a business entity vested with functions of an operator of the Unified Gas Transport System of Ukraine must have a minimum of five years of experience in managing a gas transport system on the American or European market. The operator of the Unified Gas Transport System of Ukraine created with participation of a non-resident business entity shall provide a report to the Verkhovna Rada of Ukraine about the results of each five-year period of operations;
  • an underground gas storage operator is a gas storage company vested with functions to store natural gas in order to ensure continuous and accident-free operation of an underground gas storage, by resolution of the central executive authority that provides for creation of state policy in the oil and gas sector;
  • the founder and owner of a business entity created to fulfill functions of an underground gas storage operator can be exclusively the state as the sole owner, or the state (owning a minimum of 51% of the corporate interest) and a legal entity (legal entities) owned and controlled by residents of the European Union member states, the United States of America, or members of the Energy Community. The Verkhovna Rada of Ukraine, by suggestion of the Cabinet of Ministers of Ukraine, approves the results of the competition and makes the final decision to determine the non-resident legal entity in the business entity vested with functions of an underground gas storage operator. The competition terms are developed and approved by the Cabinet of Ministers of Ukraine. To take part in the competition, a non-resident legal entity reveals the ownership structure of its legal entity founders which enables identifying natural person owners of substantial interest in such legal entities. Changes in the ownership structure of a non-resident legal entity that, based on the competition results, was approved as co-founder of the business entity vested with functions of an underground gas storage operator must be approved in advance by the Cabinet of Ministers of Ukraine. The underground gas storage operator created with participation of a non-resident legal entity shall provide a report to the Verkhovna Rada of Ukraine about the results of each five-year period of operations.
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