Ukraine - Research Paper Example

UKRAINE Ukraine enjoys a strategic geographical and political position within European continent for various business aspects. Particularly for the energy service sector it has due strategic importance. This region touches the borders of Russia and Europe. This makes it energy transit country. It has strategic importance due to its position of being an energy transit country. It shares its borders with Russia and Europe. Demographic Profile According to the report of IEA (2006) the population of Ukraine is nearly 47 million people. Economy and Energy Market The economic scenario of Ukraine has faced the turbulence of the economic crisis of 2008. There has been tremendous fall in the GDP growth. Within a period of 2008 to 2009 the GDP growth fell by over twenty percent. However to the data of CIA, there has been increase of the salary income by more than thirty five percent. Ukraine is producer of all kinds of transportation vehicle. This market got affected due to the economic downturn. Energy Market Europe acquires nearly 80% of the gas and 17% of the oil from Russia. This oil and gas passes through Ukraine. The infrastructural investment is huge in these areas in order to minimize the loss and make the transfer of oil and fuel safely. Ukraine also relies on Russia to meet its energy requirements. The Russian relationship helps in fulfilling 85% of the oil requirements of Ukraine, 75% of the gas requirements and other fuel requirements coming in the form of nuclear fuel. The domestic source of the country is not sufficient enough to meet the growing energy requirements. Domestically Ukraine has coal, gas, and oil and hydro resources developed. Figure 1: Total Final Energy Consumption by Sector 1993-2004 Ukraine The energy consumption in industrial sector has declined however in the transportation and other sectors it has been constant with slight growth. “However, energy consumption in energy-intensive industries (mining, metallurgy and chemicals) declined at a lower rate than in other industries, which led to growth in the overall energy intensity of the economy in the early 1990s. From 1998-2004, energy consumption by industry remained relatively stable, despite the growth in industrial production. This reflects energy-efficiency improvements and the slight increase in the share of less energy-intensive industries in total production. In consequence, the share of industry in TFC has decreased from 49% in 1993 to 39.6% in 2004.” (IEA, 2006) However the industry sector is the highest among all the consumers of the energy sources. There are subsidies provided to the consumers by the government. Initially it was highly regulated market but Ukraine government liberalized and opened the market for the competition. It impacted the price as well as the level of services consumers have been receiving. “The government has liberalized the processing and distribution of petroleum products in Ukraine. Russian companies control four out of six Ukrainian refineries.8 Several foreign (mostly Russian) companies operate filling stations in various parts of the country. Since 2003, Ukrnafta, an oil company affiliated to Naftogaz of Ukraine, has purchased many filling stations across the country.” (IEA, 2006) The ownership of the private players is highest for the oil product distribution. This is followed by the oil processing, gas distribution, electricity distribution, coal production, electricity generation and oil and gas production. The activities like electricity distribution, coal production, electricity generation and oil and gas production has less than 50% ownership of private players. Figure 5.16 Ownership Structure in the Ukrainian Energy Sector The State rules the market of Ukraine energy. The oil and gas transportation, electricity transmission and district heating networks are some of the areas where the ownership of State is hundred percent. The Ukraine marker has various areas for concerns. One of the most important is energy security. The cooperation of the government institutes and service provides has been increasing in the recent past giving positive signs to dealing with the problems of the market place. The threat of energy mafia, smuggling, petty thieves and loss of energy products in the transportation and transmission of the energy products and services from Russia to Europe are always there. The energy policies and regulatory environment of Ukraine is the second area of concerns. The energy imports are being reduced in Ukraine in order to deal with energy inefficacy. The reduction of consumptions is the aim by the Ukrainian government that would help them achieving the desired improvements in energy efficiency. “At present, Ukrainian energy policy remains mainly focused on energy production, thus there is much opportunity to achieve greater gains through energy efficiency. However, domestic energy prices have typically been well below international levels; this limits investment in infrastructure, as well as incentives for efficiency. In addition, the government maintains a strong role in owning and regulating energy assets; this is often done in a way which minimizes competition and, hence, reduces efficiency.” 1 The normative regulation of energy use, energy audits and financing mechanism, training for energy efficient objectives and enabling the proper regulatory environment are some of the main factors of the Ukraine’s industrial energy efficiency policy. Different taxation system has been developed from different activities, different sectors, regions and local levels. The privatization and consolidated policy has been the main area of concerns. The flow of funds has supported the development of an appropriate and safe infrastructure. Different sector specific policies adopted by Ukraine government have helped the sector to deal with different financial impacts of the global economy. Some of the policies developed in order to deal with challenges of the economic environments are as follows: National Energy Programme of Ukraine to 2010 (1996) Creation of a Nuclear Fuel Cycle (1994); Development of Hydrocarbon Resources in the Ukrainian Sector of the Black and Azov Seas (1996); Energy Conservation (1997); Construction of Wind Power Stations (1997); Oil and Gas of Ukraine until 2010 (2001) Thermal Power Plant Reconstruction (2002). According to the Net import model: Figure 3: Net Import Model The impact of oil and gas price rise on the GDP of Ukraine is direct. The slightest change in the price leads to significant impact on the market structure and macroeconomic factors. The cost of production and transportation increases. This leads to the increasing prices of products and services. More than eighty percent of different energy requirements on an average are met by imports. The domestic and economic needs are fulfill by the imports of the energy products. This is the reason Ukraine government has been focusing on reduction of energy consumptions. Gas energy requirements does not have substitute. This will impact the rate of inflation resulting in the hike of the process of goods and services. In order to deal with that Ukraine government has to rely on the efficient gas energy policies that would help in maintaining or reducing the cost of gas as well as reduction of the domestic consumption. Reference: Ukraine, ENERGY POLICY REVIEW 2006, IEA retrieved on 4 February 2010 from http://www.iea.org/publications/free_new_Desc.asp?PUBS_ID=1819 http://siteresources.worldbank.org/INTUKRAINE/Resources/328335-1136408888892/Section_5.pdf accessed on 4 February 2010 http://www.wearethink.com/docs/ukraine_2006.pdf accessed on 4 February 2010 Read More