The first results and the future challenges of the new Gas TSO of Ukraine

25 February 2020Ukrainian Energy Forum

Sergii MAKOGONCEO of Gas TSO of Ukraine, LLC

New Gas TSO of Ukraine

2

Headcount of 11,100 FTE, incl. all key staff related to transmission function and equipped with required licenses & permits

UAH 3.8 bln of TSO-owned assets, incl. IT soft- & hardware, tools & equipment, transport etc.

Unblocked interconnectors made it possible to arrange the backhaul operations and deliver new shor-thaul service

Independent IT-environment and infrastructure, incl. go-live daily balancing platform, ERP and dispatching

~550 contracts concluded

TSO/SSO inter-operator agreement

TSO license and tariff

Gas war didn’t occur.

The Gas Deal is an acceptable compromise: Documents signed:

1. Interconnection agreement with Gazprom

2. Agreement on organization oftransit between Naftogaz andGazprom

3. Interconnection agreements with neighboring TSO’s of Poland, Hungary, Slovakia, Romania and Moldova

2020 2021 2022 2023 2024

6540 40 40

$bcm

bcm bcm bcm bcm

40

7bn

booked capacities: 65 bcm/year for 2020 and 40 bcm/year for 2021-2024

ship-or-pay clause

guaranteed transit revenues of about $7 bn

flows measurement and commercial operations in energy units

New Transit Deal

~3

Security

of supply

Market

impact

Efficiency &

Reliability

Integrity

Responsibility

Values

Reliable provision of gas transmission services in a transparent, non-discriminatory and sustainable way at fair price

Sufficient and diversified capacity

for gas transmission to Ukrainian

and European consumers to ensure

energy security and uninterrupted

supply in any circumstances

Support of development of non-

discriminatory, competitive,

transparent and liquid natural

gas market aimed at ensuring

fair gas pricing for consumers in

Ukraine

High standards of social and

ecological responsibility

Independence, fairness and

transparency of the operator

ensuring customer and market

trust

TSO Strategy: Vision, Mission and Values

Vision

To be a modern and innovative gas

transmission system operator within the

integrated European gas network

MissionTo ensure the development of the competitive,

transparent and non-discriminatory gas

market and to secure reliable gas flows for

Ukrainian and European consumers in the most

sustainable way

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2. To become a model for corporate governance and social responsibility in Ukraine

1. To optimize and modernize the GTS infrastructure

1.1Implementation of the GTS capacity optimization plan

Digitalization and automation based on Industry 4.0 principles while ensuring high level of cyber security

Operational efficiency improvement

1.2

1.3

3. To promote development of a transparent and liquid natural gas market integrated in EU energy market

3.1 Full implementation of EU market rules

Development of new services

Development of a gas trading hub in Ukraine

3.2

3.3

2.1 Introduction of OECD principles of corporate governance and internal controls at SOEs at the TSO

Development of CSR key focus and strategy

Ensuring high level of transparency and market trust

2.2

2.3

4. To actively pursue transformation opportunities and contribute to green energy transition in Ukraine

Promotion of CNG usage as transition motor fuel

Contributing to decarbonization of Ukrainian economy

4.1

4.2

TSO Strategy: key initiatives

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Estimated CAPEX for 2020-2029, UAH bln excl. VAT

TYNDP 2020-2029 summary

OtherGDSCS Pipelines

0.3

5.1

0.6

0.7

0.7

2020 2025-2029 yearly average

0.5

7.8

2021

0.6

1.3

0.7

7.5

2022

0.6

0.5

1.0

1.9

3.0

2023

0.5

1.3

0.0

2024

0.8

0.6

0.60.2

Ø UAH 4bln / year

0.0 0.5

9.610.1

2.7

0.81.5 20.0

6.6

5.9

6.3

10Y total:

UAH 38.8 bln

10-Year Network Development Plan (TYNDP)

6

CS KomarnoCS Dolyna-2

1.0 2.3

CS BerdychivCS BarCS Krasyliv

2.32.02.3

CS Yagotyn 2.2CS Oleksandrivka 1.6CS Dykanka 2.5

7

Estimated CAPEX for 2020-2029, UAH bln excl. VAT

10-Year Network Development Plan (TYNDP)

Compressor Stations (CS) reconstructions budget

CS UzghorodCS Bogorodychany

2.51.6

Strategic objective: To optimize and modernize the GTS infrastructure to reflect market conditions while ensuring reliable and efficient operations

GTS optimization and operational efficiency

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6971

15

58

17

0 bcm 30 bcm

28

70 bcm

Not in operation In operation

Number of the operational CS by transit scenario, units

Total CS = 86

As a result TSO incurs significant costs of maintenance of infrastructure that is not used in gastransmission

Historically, Ukrainian GTS was able to transmit ca.190 bcm (domestic and transit) but for the lastfew years it was structurally underutilized due to rerouting of transit volumes

Underutilized

OversizedTaking into consideration market environment and low prospect of significant transmission volumegrowth Ukrainian GTS is highly oversized

70% of CS have to be decommissioned

At the same time system is underinvested: execution of investment plans submitted to theRegulator in 2017 was 35%, in 2018 – 32%. Moreover, 2019 investment programs were notapproved by the Regulator which prevents the TSO from making any investments. As of the time ofstrategy preparation investment program for 2020 is under NEURC review.

Uncertainty regarding transit did not allow to start decommissioning of compressor stations thatdo not take part in gas transportation. About 70 Compressor Station (CS) yards would not beoperational in case of “0” transit, most of them would have to be decommissioned

Inefficient spending

Underinvested

Unauthorized offtakes

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Key challenges

Preparation for the PSO cancellations

Opening of the retail market

Absence of a gas insurance stock

Gas exchange trading

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Ukrainian Energy Forum 2020

Sergii MAKOGONCEO of Gas TSO of Ukraine, LLC

makogon-sl@tsoua.com

Thank you!