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  • OECD Recommends Finalisation of Ukrenergo Certification as an Independent TSO

    The Organisation for Economic Co-operation and Development (OECD) recommends that NPC Ukrenergo certification as an independent transmission system operator should be finalised.

    Obtaining the certificate confirmed by the Secretariat of the EU’s Energy Community is a key prerequisite to fulfilling the requirements of the EU’s Third Energy Package and further integration of the IPS of Ukraine into the ENTSO-E.

    It is stated in the OECD Analytical Report “State-Owned Enterprise Reform in the Electricity Sector of Ukraine” that provides the evaluation of Ukrenergo corporate governance on the basis of the OECD Guidelines on Corporate Governance of State-Owned Enterprises that are recognised as the global standard for governance reforms in the public sector. The review was carried out under the joint project between the Government of Ukraine and the OECD “Supporting the Energy Sector Reform in Ukraine”being implemented with the financial support of the Government of Norway.

    The OECD states that Ukrenergo has managed to meet most of the requirements for certification (ownership unbundling, corporatisation and corporate governance reforms). But changes to the legislation with the aim of Ukrenergo certification by the ISO model (similarly to the gas transmission system operator) will make it possible to resolve the issue of the ownership rights for the transmission system, which under Ukrainian law, must remain under the state ownership. “The ISO model would presumably grant Ukrenergo the title for usage of the transmission assets for a pre-defined period for the purpose of transmission system operation,” says the document.

    The OECD also recommends a number of actions for improving the corporate governance at NPC Ukrenergo and other power companies with the state ownership share. “For Ukrenergo the OECD recommendations will provide the foundation we will rely on in forming the governance improvement strategy. To achieve the best results in the short term, the implementation of the OECD recommendations will require the support of all key institutions and authorities of the state. By working together we will be able to build the system operator of the European level, and the state – to effectively implement its function as the owner of key strategic assets,” said Sevci Acuner, Chair of Supervisory Board of Ukrenergo.

    In particular, the OECD Report states that Ukrenergo has undergone major corporate governance reform: the appointment of the independent Supervisory Board, corporatisation of the enterprise, finalisation of the transition towards the International Financial Reporting Standards (IFRS), creation of a robust system of internal controls with the internal audit and compliance units established and functional.

    According to the OECD Report, public procurement practices of the Company have noticeably improved over the last few years through the replacement of the management of this unit, introduction of personal responsibility for compliance with procurement rules and procedures, and adoption of an integrated supply chain management process. All these actions have contributed towards improving corporate governance practices and moving Ukrenergo closer to the OECD standards.

    “Ukrenergo Management believes that the application of OECD best practices in the Company’s corporate governance system is the necessity that allows us to build business processes that are transparent and understandable to all, to ensure zero tolerance to corruption and independent operation of the TSO in line with European norms and rules.  The implementation of such reforms at Ukrenergo is also an important element towards achieving one of its strategic objectives – integration to the European energy system ENTSO-E.  Because a high level of corporate culture and an effective management system will allow the Company to reach an equal footing with the best system operators of Europe,” stressed Volodymyr Kudrytskyi, Acting CEO of Ukrenergo.

    The Report says that the Ministry of Finance, as the entity exercising the ownership rights over Ukrenergo, is aware of the need to professionalise its ownership role and to develop expertise in the energy companies it oversees. The document recommends that to expedite necessary governance decisions, the Supervisory Board of Ukrenergo should be given the powers of setting the strategy, approving important documents and plans, ensuring that the highest integrity standards are applied in the Company’s internal procurement and purchasing policy, establishing a risk assessment of legal compliance related to the launch of the new model of the electricity market, etc.

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