As Ukraine’s newly-elected president, Viktor Yanukovich, was meeting top European Union officials during a one-day quite unexpected trip to Brussels, a few blocks away in Rond-Point Schuman, I was moderating a panel discussion of the integration of Ukraine in the EU’s Energy Policy. Experts discussed ways to utilize Ukraine’s full energy potential, including connecting electricity markets, energy efficiency, renewables, and improving the effectiveness and environmental standards in the coal sector.
Yanukovich, whose first foreign visit as head of state was to Brussels, promised European Commission President Jose Manuel Barroso, EU Council President Herman Van Rompuy, European Commission Vice President Siim Kallas, High Representative for Foreign Affairs Catherine Ashton and European Parliament President Jerzy Buzek closer relations with the 27-country bloc. "European integration is a key priority," he said on 1 March, adding that the talks focused on a planned association deal with the EU that would allow free trade. He also promised to reform Ukraine’s key gas sector.
A diplomat in Brussels told New Europe that Yanukovich’s visit to Europe’s capital was a nice gesture towards the EU. “Now he will go talk business with Moscow,” the diplomat quipped. Yanukovich left for a one-day official visit to Moscow on 5 March.
But Yanukovich will not be Russian Prime Minister Vladimir Putin’s stooge. Moscow sees Yanukovich a friendlier partner than former president Viktor Yushchenko, but its tone was hardly celebratory. Yanukovich is more likely to pursue the interests of the group of Ukrainian oligarchs that supported him. For its part, the EU hopes that Kiev and Moscow will have close relations and Ukraine becomes a reliable energy partner. “We need urgent progress on modernization and restructuring of the gas sector,” Barroso said, calling for more transparency and market mechanisms. Changes sought by the EU include tariff increases for gas supplies for domestic consumers and businesses and restructuring of national joint stock company Naftogaz to ensure its sustainability. Barroso said Ukraine, which is member of the Energy Charter, could join the Energy Community Treaty, which is expected to "unlock significant direct investment" in the country, provided Ukraine adopts a gas law in accordance with the EU acquis. He expressed confidence that if Ukraine reforms its gas sector the "international financial institutions will be able to provide financial assistance" to the former Soviet republic. Yanukovich said he was ready to adopt the law on the internal gas market.
Yuriy Ryzhenkov, Chief Operating Officer of energy company DTEK, owned by SCM Holding, itself wholly owned by tycoon Rinat Akhmetov, said there is probably a greater need for reform in the electricity sector than gas. The need is twofold: to bring the tariffs to the adequate levels and reform the electricity market. “We need to move to more market-based mechanism to pricing of electricity sector,” Ryzhenkov, who participated in the roundtable, told me in an interview in Brussels before departing for Kiev. “Also the reform is necessary in the field of electricity distribution. Right now there is no incentive for distributing companies to be more efficient, we need to introduce those incentives, and we need to introduce incentives for the investors to come in to this industry. Another problem in the distribution sector of Ukraine is the plain field is different for local companies and foreign investors,” he said. But, as Ukraine’s political leaders struggle to form a new coalition, plans for an effective reform of the country’s energy sector will have to wait a little longer.
 KGeropoulos@NEurope.eu