Ukraine May Attract Additional $10 Billion into Economy upon Introducing the Incentive Tariff Setting (Based on Regulatory Asset Base — RAB)

November 29, 2018

28 November 2018, Washington DC

Introducing the incentive tariff setting in Ukraine (based on Regulatory Asset Base — RAB) will stimulate the potential investors to invest into reconstruction and modernization of the energy infrastructure that would help attract additional $10 billion into the country’s economy.

This message was shared by the participants of the Conference “The State of Ukraine’s Energy Sector”, which was held in Atlantic Council Headquarters (Washington DC) and was devoted to role of Ukraine in the global energy processes.

The current "cost plus" tariff setting system does not provide incentives for the energy distribution companies to invest in it. Instead of investing in upgrading the infrastructure they tend to overestimate the costs artificially.

According to Volodymyr Omelchenko, Director of Energy Programmes at Razumkov Centre: “If current tariff setting method is maintained, the energy system of Ukraine wouldn’t be able to provide reliable energy supplies to consumers. “I have to remind that the average lifetime of electricity grids in Ukraine is 40 years with the wear and tear amounting to roughly 70%.”

The biggest obstacle on the way of implementing the new tariff setting in Ukraine is the low level on consumers’ solvency. Undoubtedly, tariffs may significantly increase at the first stage of incentive tariffs’ introduction, however, their implementation is beneficial for the country in microeconomic dimension.

To date the discussion is still underway on some key issues of introducing the RAB regulation — the method of determining the value of assets, the rate of return and the need for its differentiation, depending on whether the infrastructure is being operated or newly created. After careful consideration of these issues by the National Regulator, the RAB-regulation in Ukraine is likely to be introduced in 2019–2020.

The key Speakers were: Ambassador Richard Morningstar, Founding Director and Chairman of Global Energy Center (Atlantic Council), Mr. Edward Chow, Non-resident Senior Associate, Energy and National Security, Center for Strategic and International Studies, Dr. Ariel Cohen, Senior Fellow, Eurasia Center, Atlantic Council. The Conference Moderators were: Dr. Anders Aslund, Senior Fellow, Eurasia Center, Atlantic Council and Melinda Haring, Editor, Ukraine Alert, Atlantic Council.

The Conference included two panel discussions based on the paper presentation “The Role and Place of Ukraine’s Energy Sector in Global Energy Processes” delivered by experts of the Razumkov Centre’s Energy Programmes: Volodymyr Omelchenko, Victor Logatskiy, Svitlana Chekunova and Maksym Biliavskyi.

The first one was concentrated on discussing the Ukrainian Energy Sector: Opportunities for Expansion and Investment and the second one — on Ukrainian Energy Sector in the Global Context.