25 | 03 | 2014 www.marchenkodanevych.com © 2014 ALL RIGHTS RESERVED. MARCHENKO DANEVYCH LAW FIRM

Presentation on Main Points of Energy Strategy of Ukraine till 2030

25 | 03 | 2014

Adoption

Energy Strategy approved by Resolution of Cabinet

of Ministers of 24.07.2013 № 1071

Both Energy Strategy and Resolution were

published only in February 2014

Text of Energy Strategy is available at Ministry of

Fuel and Energy of Ukraine

http://mpe.kmu.gov.ua/fuel/control/uk/doccatalog/lis

t?currDir=50358

25 | 03 | 2014

Goals of the Strategy

Reliable and qualitative satisfaction of demand in

energy resources at the lowest expenses

Increase of the level of the state energy security

Efficient consumption and use of energy products

Decrease of pressure on the environment

Securing civil protection in the sphere of

technogenic safety of energy sector

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Directions of the Strategy

Implementation

Liberalization of energy markets

Development of competition in energy markets

Reduction of energy consumption

Increase of extraction and production of own

energy sources

Increase of volumes of energy and energy products

from non-conventional and renewable energy

Diversification of external supplies of energy

products

Securing civil protection in the

sphere of technogenic safety of energy sector

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Expected electricity industry

development

Expected demand in electricity in 2030 will be

from 244 to 315 TWT/hours

By 91 TWT/hours or 50% more than in 2010

mostly due to growth in industrial, commercial

and residential consumption

This will require development of electricity

generation

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The perspectives of development

of the electric power industry

The major steps to be taken by the state:

Modernization of the existing generating

facilities

Modernization and development of

transmission and distribution networks

Hydro power projects up to 5 gW

Extension of NPP operation

till 20 years

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Investments for development of

generation

Required amount of investments UAH 1 trillion

attracted due to

Transition to a new model of electricity market

which will adequately compensate production costs, including investments

Tariff system guarantying return of investments in

natural monopolies

Transparent procedures for permits construction of

generating facilities

Tender approaches towards state construction

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Growth of electricity generation

Types of generating

facilities

2012 2030

Capacity, gW Output, tW•h Capacity, gW Output, tW•h

Total 53,8 198 66,5 282

Nuclear power stations 13,8 90 17,8 133

Large hydro power

stations 4,5 10 5,8 14

Large hydro accumulative

power stations 0,9 1 4,7 7

Thermal power stations –

coal 22,0 79 19,7 91

Thermal power stations –

gas 5,4 - 3,8 2

Thermal Power Centers

and block stations 6,6 18 6,3 21

Renewables 0,6 1 8,4 14

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Main points on generation

development till 2030

9 GW of commissioned coal fired thermal power stations (UAH 132 billions)

Increasing power capacity of hydro by 245 mW of Dniper cascade (UAH 5 billions)

Total large hydro should reach 16% in the balance (UAH 55 billions)

2 nuclear blocks (8 gW, UAH 156 billions)

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Development of the transmission

and distribution network

Till 2030 the development of transmission grid is based lines with power of 330 and 750 kV

Enhancing the system, new construction and modernization

Secure output and stable consumption Increase quality and reliability UAH 134 billons of investments in distribution grids and UAH 53 in transmission grid

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Structure of ownership in

electricity sector

Large hydro, nuclear power, transmission and interstate grids should be owned by state

Thermal power stations and centers, distribution networks should be fully privatized till the end of 2014

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Tariffs in electricity sector

Transfer to market prices fully compensating expenses for production and distribution

Decrease and full cancelation of cross subsidies among consumers

Stimulating tariffs

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Heating industry

Increase of consumption with energy efficiency measures by 15% (271 mln. gigacalories)

Average energy efficiency increase by 20% Reduction of gas consumption, energy

efficiency, use of coal and renewables Reconstruction of heat electoropower stations

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Renewables in 2030

8 gW (14 gW with large hydro), 12,6% in energy balance, production 14 tW/h (18 tW/h with large hydro)

Potential 1-1,5 gW of bioenergy (10-15 gW of heat) 3-4 gW of wind farms 4 gW of solar farms 4 gW of small hydro

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Coal industry

Spheres of

consumption

2010

mln.t

2030

mln.t

Energy

companies

34,2 48,7

Metallurgic

companies

1,7 2,9

Households 1,0 3,8

Other

spheres

1,4 2,4

Total 38,3 57,8

Synthesis gas and hydrocoal fuel – 6,4 billion cub. m of gas 12 mln. tons of coal annually

Privatization and modernization of mining facilities

Liberalization of coal market Total increase of coal production

up to 115 mln. tons (UAH 50 billons investments)

Brown coal production

Energy coal (basic scenario)

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Consumption in gas industry

Consumption in 2010 57 billion m3 (60% households and 40% industries) Targets till 2030 Modernization of the industry Decrease waste of gas and heat Substantial increase of energy efficiency by

people and municipalities Planned consumption in 2030 – 49 billion m3

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Production in gas industry

Last 15 years annual production is from 18 to 21 billion m3 (mostly state companies)

Potential resources 5,4 billion m3 (balance deposits – 1,1 billion m3)

Potential deposits of unconvential gas are from 20 to 50 billion m3

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Planned production of natural gas

till 2030

Expected annual production 20 billion m3 New drilling on shore (including up to 1

billion deposits) Off shore drilling (up to 350 m), 1 billon m3

annually Deep drilling (6-7 km) Increase of productivit by available wells Investments till 2030 UAH 110-125 billion

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Expected production of

unconventional gas till 2030

Deep shelf (more than 350 m) total deposits - 4-13 trillion m3 since 2020 7-9 billion m3 annually investments - UAH 80-90 billion Tight gas total deposits - 2-8 trillion m3 since 2017 7-9billion m3 annually investments - UAH 55-65 billion

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Expected production of

unconventional gas till 2030

Shale gas total deposit 5-8 trillion m3 since 2022 7-9 billion m3 annually investments UAH 35-45 billion Coal-bed methane potential resources 12-25 trillion m3 since 2025 1-3 billion m3 annually investments - UAH 12-15 billion

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Expected production of gas till

2030 and import dependency

Total expected production of all gas is from 30 billion m3 to 47 billion m3 in 2030 Import dependency as of 2011 44,8 billion m3 (40 billion m3

from Russia) as of 2020 up to 28 billion m3 as of 2030 up to 17 billion m3

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Import diversification

Import of LNG from EG, QA etc (investments - US$ 1 billion)

Import of LNG from AZ (investments in construction US $ 5-8 billion)

Import through from AZ “White Flow” (investments in construction US $ 7-10 billion)

Reverse supplies from EU Dependency on one supplier not more than

35% of all consumption in 2020 (35% of all import in 2030)

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Oil products

In 2010 demand in oil products is 10,3 mln. tons In 2030 demand in oil products will be from 13,1 to 20,8 mln. tons, includling (in mln. tons) petroleum up to 6,3, diesel up to 10,1

kerosene up to 1 propane and butane up to 2,2 mln. tons,

methane up to 1,3 bioethanol up to 1,1 (10% blending in 2020,

15% in 2030) and biodiesel up to 0,8

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Oil refinery

In 2011 9 mln. tons refined (90% Lysychansk and Kremenchug oil refinery plants)

In 2020 11,7 mln. tons refined (80% - light oil products)

In 2030 14,4 mln. tons refined (85% - light oil products)

Investments in the sector – UAH 29-44 billion

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Oil and gas condensate

production

In 2010 production of 3,6 million tons Till 2030 average production will be from 2,7

to 4,5 million tons (subject to investments UAH 30-40 billions)

Shelf deposits - 1 billion tons (possible production since 2020-2022)

In 2030 possible production off shore is 3,5 mln. tons (subject to investments UAH 55-60 billions)

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State support for exploration and

production of oil & gas

EITI full membership Constant planning for resources exploration,

activate exploration by state companies Increase number of permits and PSAs Simplification of issuing permits and

conclusion of PSAs Security of land rights for investors

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State support for production of

unconventional hydrocarbons

Diversified resource payments depending on costs for production

Indirect support, including special tax regime, for exploration, drilling, machinery

State financing construction of most important infrastructure

State support for education of specialists in the industry

Special stimulating program to be adopted

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State measures for distribution of

gas

Unified principles for tariffs and elimination of subsidies for certain consumers’ groups

Gradual liberalization of natural gas market with remaining state control

More effective natural gas consumption (up to 40% till 2030)

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State measures for oil products

Maintenance and development of competition in wholesale and retail markets

Stimulation of efficient use of fuel and increased use of alternative types of fuels

Stimulation of use of liquid biofuels Planned transfer to higher standards of fuel

quality

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Energy efficiency

Energy consumption 0,21 tones of coal equivalent for UAH 1000 of GDP (the highest in Europe)

In 2030 the index should be 0,1 Average potential for energy efficiency 30-

35% The main measure to increase efficiency of

consumption, state incentives, introduction of changes per EU requirements

Direction 2012-2030

ELECTRICITY AND HEATING, INCLUDING 785

ELECTRICAL GRIDS 187

HEAT GENERATION 324

HYDRO 60

RENEWABLES 130

HEATING SYSTEM 84

NUCLEAR 391

COAL INDUSTRY 83

OIL & GAS INDUSTRY, INCLUDING 562

GAS TRANSPORTATION SYSTEM 52

GAS DISTRIBUTION SYSTEM 50

OIL TRANSPORTATION SYSTEM 7

PRODUCTION OF GAS 316

PRODUCTION OF OIL 93

DEVELOPMENT OF BIOFUELS 7

OIL REFINERY 37

TOTAL INVESTMENTS 1821

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Total investments in energy sector

in 2012-2030

Direction 2012-2030

ELECTRICITY AND HEATING, INCLUDING 785

ELECTRICAL GRIDS 187

HEAT GENERATION 324

HYDRO 60

RENEWABLES 130

HEATING SYSTEM 84

NUCLEAR 391

COAL INDUSTRY 83

OIL & GAS INDUSTRY, INCLUDING 562

GAS TRANSPORTATION SYSTEM 52

GAS DISTRIBUTION SYSTEM 50

OIL TRANSPORTATION SYSTEM 7

PRODUCTION OF GAS 316

PRODUCTION OF OIL 93

DEVELOPMENT OF BIOFUELS 7

OIL REFINERY 37

TOTAL INVESTMENTS 1821

In UAH billions, prices as of 2010

14 | 02 | 2014

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Kyiv 01054, Ukraine

+38 044 220 07 11

+38 044 220 07 11

marchenkodanevych.com

Thank you for attention!

Maksym Sysoiev LL.M., Attorney-at-law, Counsel