MUNICIPAL HEATING REFORM PROJECT (MHR)

The project was conducted by Law firm "JurEnergoConsulting" within the USAID Municipal Heating Reform Project in Ukraine. The document was prepared in September 2009 and made possible through support provided by the U.S. Agency for International Development. The technical and financial status of public utilities in Ukraine providing housing and communal services shows a rigid tendency towards degradation. The present rather dangerous depreciation level of production facilities, high energy intensity, and low efficiency of communal systems, considerable water and heat losses, and unsatisfactory quality of housing and public utility services provided to residential consumers require vigorous actions of the state to overcome the current negative trends, particularly in the heat sector. The objective of this paper is to make a revision of legal, regulatory, and organizational provisions applicable in the heat sector, aimed at exposing problematic issues that require thorough examination and management. In the present review, analysis of the Ukrainian legal frameworks governing the heat sector issues and basic program documents in the municipal heating sector has been carried out, as well as the assessment of institutional capacities for municipal heating reform conducted, and stocktaking of regulatory and institutional frameworks and capacities in the heat sector performed. The existing Ukrainian legislation in the field of heat supply requires further enhancement. The Law of Ukraine "On Heat Supply" governs relations relating to production, transportation, supply, and use of thermal energy. However, the Law requires further enhancement of such issues as tariff formation, settlements for thermal energy consumed, update and development of heating facilities. The drafts of the Laws of Ukraine on amendments to the Law of Ukraine "On Heating" are under consideration in the Verhovna Rada of Ukraine, but there are problems in these drafts of the laws. The Commercial Code of Ukraine, adopted on January 16, 2003, No. 436-IV, became effective since January 1, 2004, settles general issues of the economy regulation. The Law of Ukraine "On Natural Monopolies," adopted on April 20, 2000, No. 1682-Ш, defines legal, economic, and organizational frameworks for public regulation of natural monopolies. The Law of Ukraine "On Housing and Communal Services," adopted on June 24, 2004, No. 1876-IV, defines fundamentals of organizational and economic relationships arising in the field of provision and consumption of housing and communal services. The analysis of the existing Ukrainian legislation in the field of heat supply has been carried out, and proposals on introduction of changes and amendments to the legal framework have been made. The proposals include enhancement of the Law of Ukraine "On Heat Supply" to provide for authority punishments for license provisions breakers and special features of the licensing procedure for natural monopoly market agents acting in the field of heat supply. The institutional capacities for municipal heating reform have been assessed, and the stocktaking of regulatory and institutional frameworks and capacities in the heat sector has been performed. The review has been carried out in line with the financial, legal, and regulatory lines of approach, and the objective is to expose problematic issues that require thorough examination and management. The present review shall be advantageous for public utility officials who address the issues of modernization and development of the heating infrastructure. The review has been conducted to ensure further development and update of the housing and public utilities infrastructure, and the long-term communal sector upgrade and progress policy shall be formulated in line with its financial, legal, and regulatory lines of approach.