“Transparency Is Key”: Recovering Ukraine’s Energy Sector

When Russia invaded Ukraine earlier this year, the Ukrainian government quickly imposed martial law, leading to curfews and a mobilization of the military. It also led to a blocking of much sector-related information that was previously available to the public.

Some policymakers in Ukraine had expressed concern that transparency could be harmful to the country during wartime, as some information may be sensitive and could lead to attacks. “Some have even gone so far as to say that perhaps it was a mistake for us to have disclosed so much information in the past,” says Bohdan Serebrennikov, senior analyst of the Ukrainian think tank DiXi Group.

“When we hear statements like this, we realize that our work could be even more important after the war,” he continues. “In fact, we’re even more concerned about not reviving poor transparency practices of the past.”

Although some gaps remained before the war, there was overall progress and increasing openness to transparency in Ukraine from 2018 to 2021, as observed by DiXi Group in the annual Energy Transparency Index study.

“The transparency we achieved before was beneficial for the whole economy and market participants, for structural and long-term investments in Ukraine,” Serebrennikov says.

A step backward in transparency could have far-reaching effects, he explains: “Trust within the triangle between the government, businesses, and society will diminish. This will lead to a lack of investments, which is very important for Ukraine now to ensure the energy transition and build a cleaner, more sustainable, and resilient energy.”

Why Can’t We Do This?

Promoting transparency in Ukraine’s energy sector is at the heart of DiXi Group’s work. Roman Nitsovych, the think tank’s research director, says that transparency is critical to effective policymaking, leading to better financial market performance and protecting market participants from market abuse or discriminatory behavior. It is also a multifaceted problem. Nitsovych explains: “It’s about the availability of information important to various stakeholders. It’s about needs in terms of market performance, fair pricing, and competition. Beyond that, it’s also about the quality of the information, its relevance, whether it’s updated regularly and at what frequency.”

Against this backdrop, DiXi Group focuses primarily on energy market analysis, seeking to understand the gaps between Ukraine’s emerging markets and the mature European markets along which the country operates.

Their main tool for this is the Energy Transparency Index, which attempts to comprehensively assess Ukraine’s energy sector. Two years after its launch in 2018, DiXi Group expanded the index to include an international comparison with Moldova, Georgia, and Romania, creating a certain “competitive spirit,” Nitsovych describes. “It helps us reach out to stakeholders and policymakers and say, look, if Romania is like this, why can’t we do this?”

Adjusting the Policy

In Ukraine, we always produce a lot of policy documents. Yet we lack reporting. This creates a crucial gap because no one understands whether the goals were achieved and how much work was involved and at what cost,

Overall, according to Serebrennikov, most regulators are very interested in recommendations, trying to understand why an evaluation did not turn out well and how they can improve it.

One shortcoming DiXi Group pointed out was the lack of transparency in the impact assessment of regulatory measures in Ukraine’s energy sector.

The impact of legislation or regulatory action on the market, sector, and economy as a whole is usually evaluated by the authorities to eventually correct initial legislation and make it more effective.

Serebrennikov argues that it is critical to also make this policy-making process and subsequent deployment transparent so that authorities operate with greater accountability and effectiveness.

A lack of transparency prevents civil society experts from monitoring the impact of government policies independently. “In Ukraine, we always produce a lot of policy documents. Yet we lack reporting. This creates a crucial gap because no one understands whether the goals were achieved and how much work was involved and at what cost,” Serebrennikov explains.

Challenging Months to Come

Ukraine is facing an unprecedentedly difficult winter season. In this, transparency might also play a major role.

According to Nitsovych, publicly available information about leaders’ plans and actions regarding the security of the energy supply is critical to ensuring the well-being and preparation of society for what is to come. “In our current situation, the actions of every consumer matter for surviving,” he says.

The biggest challenge is the physical integrity of the system, especially regarding heating, Nitsovych notes. Particularly, district heating systems are more vulnerable because there are very few plants in large cities that can generate heat in the event of damage or destruction.

“The gas and electricity grids have already suffered from targeted missile attacks and other attacks but have shown flexibility in supply and in providing resources,” he adds.

From mayors of Ukrainian cities, DiXi Group learned that operators and the government are currently stockpiling equipment and spare parts to repair damaged areas as quickly as possible. Moreover, they are collecting mobile power generators and boilers that can replace the central power and heat supply for a limited time and could supply infrastructure such as hospitals, schools, and other public facilities in emergencies. They are also developing contingency plans that include establishing local mobile boiler houses and converting utilities to alternative fuels like firewood.

An attack on vital energy supply to a major city could mean thousands of people “on the brink of a humanitarian catastrophe” in the middle of winter, Nitsovych stresses. “That would mean a complex emergency response, including evacuation—and mandatory evacuation, as we know, is the biggest risk.”

Given this current challenge, the DiXi Group team believes that Ukraine must look for long-term ways to make its energy sector more resilient to all forms of threats.

“There might be a temptation to rebuild the energy sector on an old template, just using old technologies to quickly fix it,” Serebrennikov says. “I believe this would not be sustainable for Ukraine. One of the big challenges for Ukraine will be to find new ways to rebuild the energy sector. The global trend toward green, environmentally friendly, clean, resilient, and affordable energy might bring a lot of challenges.”

For all these challenges, as well as for post-war reconstruction of Ukraine in general, Serebrennikov believes that “transparency will be one of the crucial conditions for strengthening international trust and attracting investments to recover and build a new energy sector of Ukraine.”