• The continuing reform of the energy sector is without exaggeration one of the most important issues facing the Ukrainian state.

    Ukraine has an opportunity to eliminate gas import needs within the next five years. In order to achieve this ambitious goal, Ukrainian companies involved in gas upstream will need to increase their production (see Operating activity — Gas production), while the largest consumers — both industry and the public — will need to cut gas demand by improving energy efficiency.

    Energy efficiency is an important part of the reform of the gas market and one of the key factors determining the future success of Naftogaz.

    According to estimates made by international advisers, Ukraine trails significantly behind EU countries in terms of the energy efficiency of heating supplies. The average value of energy efficiency for heating and hot water supplies in the country is 60% of the average level found in EU countries. When adjusted to the structure of the economy, the energy intensity of today's Ukraine is 1.7 times greater than the average for the EU.

    Estimated budget for the energy modernization of housing in Ukraine

    Over the past decade, Ukraine has spent more than USD 54 billion on direct and cross-subsidies for gas supplies to households. In the same time, the total budget for a full-scale modernization of Ukrainian housing and utilities is estimated at USD 36 billion.

    These figures imply that had Ukraine switched from cross subsidies to direct subsidies 10 years ago, the government could have financed most of the energy modernization budget in housing and utilities with money that was spent on cross subsidies during this time.

    Naftogaz has proposed a program which involves replacement of obsolete heating systems in private homes and covers nearly 7% of the total energy modernization budget. Other areas of energy modernization include programs for the insulation of apartment buildings and private homes, modernization of utility networks, improved metering and thermoregulation for apartment buildings, etc.Upgrading individual heating systems



    Naftogaz is currently working on an ambitious program of energy modernization for heating systems in private homes. A possible funding source for the program is a credit line from the China Development Bank. If this project is realized it will be the largest investment in energy efficiency since Ukraine gained independence in 1991.


    In December 2012, Naftogaz signed a loan agreement with China Development Bank for USD 3.65 billion guaranteed by the state of Ukraine for the substitution of natural gas with coal-water fuel and the construction of a plant for coal gasification in Eastern Ukraine. Because of the military aggression in the Donbas area in the East of Ukraine, the Chinese party later agreed to revise the purpose of the loan.

    Naftogaz has offered to direct funding towards the modernization of heating systems in private homes of low-income consumers. In addition, the list includes two projects to build power plants in Kyiv and in Lviv region, as well as the purchase of drilling and auxiliary equipment for UGV. Naftogaz is considering the possibility of raising funds from other sources, including international financial institutions.

    The introduction of energy efficient technologies through government programs is a rational way to conduct energy modernization for vulnerable consumers who receive targeted state subsidies for utilities.

    The project provides free replacement of heating systems for 6 million low-income Ukrainian citizens. This will not only reduce the spending on utilities, but will also enhance the energy security of the country.

    With an estimated project cost of USD 2.4 billion, this energy efficiency initiative is expected to bring long-term benefits for the state budget amounting to approximately USD 5.8 billion (based on a reduction of spending on subsidies of USD 4.6 billion and additional tax revenues of USD 1.2 billion). It is expected that the project's implementation will save 35 billion cubic meters of gas over the 15 years of the program.

    In accordance with the developed model, Naftogaz will be responsible for interaction with all parties (government, creditors, suppliers of boilers, heaters and other equipment, energy service companies, households). Naftogaz will oversee the timely performance of all obligations and be accountable to the public authorities, the creditors and society as a whole for the implementation of the program.

    Program execution is based on the principles of targeting (the most vulnerable categories of the population), publicity (regular reporting to stakeholders and civil society), environmental protection (reduction of carbon dioxide emissions into the environment and increasing energy efficiency), and taking into account the best global experience (similar programs offering replacement of obsolete heating equipment have been run in the USA, Australia, the UK, etc.).



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