Analysis of Ukraine’s Transition to Stimulating Tariffs

Abstract

The current situation in the gas market in Ukraine is quite complicated. Problems of adapting the domestic market to European standards cause a number of inconveniences. The biggest problem is the adaptation of the Ukrainian legislation. Approaches to the existing tariff are outdated. Until recently, Ukraine has used a system of «cost-plus». There is a need to move to a tariff known world system «input-output». It is necessary for national regulatory authorities to adopt measures to ensure the compensation tariffs won’t be discriminatory and reflect costs. The article briefly describes the main ideas, thoughts and problems associated with the transition to this system. They are the major moments of the current laws of Ukraine and tariff systems and proposals to change current laws, the regulatory formula for calculating the tariffs and the main points that provide for the formation of tariffs for distribution of natural gas based on years of incentive regulation. Also the result of a pilot project promoting the use of European principles of tariff setting methodology using incentive regulation of gas distribution companies are showed.