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Geothermal Energy Systems Assessment - A Strategic Assessment of Technical, Environmental, Institutional and Economic Potentials in Central and Eastern European Countries

5 Volume II.E: Country Profile - Ukraine

5.1 General Background Information

Ukraine has a population of 49 million inhabitants and the country covers an area of 603 700 square kilometres. The country is rich on mineral and natural resources, including gas, petroleum, coal and iron.

Since its independence from the Soviet Union in 1991, Ukraine has been in a difficult process of shifting from a central-planned economic system towards a market-based economy. From 1991-99, Ukraine suffered from a contracting economy, experiencing eight consecutive years of economic decline, with negative GDP growth rates (see table 1). Moreover, has high inflation, unemployment (estimated to be 35-40 per cent of the workforce), incompliance with debt payments and undue state interference in the private sector contributed to a risky investment climate, further impeding economic development in the country.

Table 1
GDP Growth Rate (annual per cent) 1995-1999

Source: www.worldbank.org

However, there are now an increasing number of positive signs that Ukraine might finally be about to recover from its long economic crisis. In year 2000, the economy started to grow for the first time in a decade and the aspiration for a free and democratic society has developed. The EBRD, in its "Investment Profile 2001" for Ukraine, states that "with a resurgence in domestic investment, an improved financial balance, substantially reduced inflation, a growing economy and restructured international debts, the prospects for investors in 2001 look more promising than ever since the transition began". See table 2 for energy economic key figures on Ukraine.

Table 2
Key Figures for Ukraine

Source: A combination of statistics from various sources³⁶

5.1.1 Map of Ukraine

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5.2 The Energy Sector

Currently, the Ukrainian energy sector is facing a range of problems. The country suffers from one of the highest levels of energy intensity in the world and the country's heavy dependence on coal makes it correspondingly high in carbon intensity. Coal is the source of nearly half of Ukraine's carbon emission, natural gas (38 per cent) and oil (15 per cent) the rest.

Moreover, equipment and installations within the energy sector in Ukraine are often in a critical condition. This causes big losses in energy output and unsustainable conditions in relation to national energy production. The Ukrainian nuclear power sector is on the verge of a collapse and the coal mining industry in the country is considered the world deadliest, killing 300- 400 workers each year.

5.2.1 Energy Supply and Consumption

Annual energy use per capita dropped 32 per cent (see table 3) from 1992 to 1998. This can be linked to the bad economic situation the country has seen throughout the decade. The year 1994/95 was the only year characterised by growth in energy use (see table 4).

Table 3
Annual Energy Use per Capita (toe per capita)

Source: IEA, International Energy Agency

Table 4
Annual Growth Rate of Energy Use per Capita

Source: IEA, International Energy Agency
Example: ((1991-1990)/1990) * 100 = per cent change
Average • (1990-1999) / 9 = -6.09 per cent

OECD 2000, www.worldbank.org, www.eia.doe.gov (Energy Information Administration)

Ukraine reduced import of energy from 1992 to 1998 by approx. 44 per cent, which corresponds to a similar reduction in TPES for the same period namely 35 per cent (see table 5). The same energy reduction is again reflected in electricity consumption (37 per cent) for the same period. In 1998 import constituted about 44 per cent of TPES. In 1992 imports made up about 51 per cent of TPES - a reduction in import dependency of about 7 per cent point.

Table 5
Total Primary Energy Supply, Net Import and Electricity Consumption

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5.2.1.1 Energy Supply and Consumption in Relation to GDP

From 1992 to 1998 Ukraine increased its use of energy per GDP unit by 31 per cent (table 6).

Table 6
TPES/GDP (toe per thousand 95 USD)

Source: IEA, International Energy Agency

The same development trend can be registered for the TFC/GDP ratio, except that this ratio is based on consumption figures. Table 7 illustrates that the Ukrainian energy use (TFC) increased by 25 per cent during the period 1992-1998, a 6 per cent point lower figure than in table 6 above. Hereby it is possible to 'cut out' losses from production, electricity generation, distribution etc. and just look at changes in end user habits. This means that energy efficiency in Ukraine has worsened during the period.

Table 7
TFC/GDP (toe per thousand 95 USD)

Source: IEA, International Energy Agency

5.2.1.2 Energy Supply and Consumption Based on Energy Source

Mainly due to the negative economic development, Ukraine followed a continual trend of reduced energy consumption through the 1990's. Use of fossil fuels was cut down by 38 per cent (coal), 56 per cent (oil) and 31 per cent (gas) during the period 1992-1998 (see table 8). Nuclear energy remained at approx. the same level, thus accounting for a growing share over the period. Hydro energy increased by 98 per cent - still only accounting for a small fraction of total primary energy supply though.

In 1998, the main fuels used for energy consumption were natural gas (42 per cent), coal (30 per cent) and Oil (13 per cent). Whereas oil and gas are mainly imported, most of the coal used is produced in Ukraine and accounts for almost half of the domestic energy production. However, the coal industry is plagued by numerous problems (unsafe mines, labour strikes, inefficiency and low productivity, non-payments etc) and it is therefore considered cheaper for the country to buy coal abroad.

Thermal power plants account for around 50 per cent of the electric power produced in Ukraine. Most of the power plants are old with obsolete equipment and much of the electricity produced is lost in an inefficient transmission and distribution network, forcing Ukraine to rely on Russia for import of electricity. The other half of the electric power supply in Ukraine is produced at five nuclear power plants.

Table 8
Primary Supply³⁷ / Energy Source (Mtoe)

Source: IEA, International Energy Agency

5.2.1.3 Consumption of Electricity

Consumption of electricity dropped by 37 per cent during the 1992-98 period. Nuclear energy generates 43 per cent of all electricity.

Table 9
Final Consumption of Electricity (Mtoe)

Source: IEA, International Energy Agency

5.2.1.4 Energy Consumption Based on Sectors

Industrial energy consumption dropped by about 49 per cent, transport by 42 per cent and 'other sectors' by 18 per cent over the period 1992 - 1998. There has been a change in the pattern of consumption from 1992 where industrial energy use accounted for approx. 55 per cent to 1998 where the share is reduced to 44 per cent, and with residential and communal/public sectors now being the largest consumers (see table 10).

Table 10
Annual Energy Consumption - Mtoe (TFC) per Sector

Source: IEA, International Energy Agency
*: Residential (61 per cent) and Communal and public services (23 per cent) are main 'consumers' (84 per cent).

5.2.1.5 Energy Supply and Consumption - Summing Up

Energy use dropped by about 32 per cent from 1992 to 1998. Imports also decreased (44 per cent). Ukraine therefore got less dependent on energy from 'outside'. However, the TPES/GDP ratio increased by 31 per cent leaving Ukraine more locked in an energy intensive situation - more energy has to be consumed in order to produce one unit of GDP. The use of fossil fuels was cut down while nuclear energy remained the same. Hydro energy, being the only measurable renewable energy source increased by 96 per cent, but still only accounts for a small fraction of total energy production. The industry sector, - being the most energy consuming in 1992 - , reduced energy consumption by about half and is by 1998 second in energy use next to the residential/communal and public sector.

5.2.2 Energy Efficiency

Ukrainian energy efficiency worsened from 1992 until 1996 by 13 per cent but then began to improve (6 per cent). For the whole period, efficiency worsened by 6 per cent (see table 11).

Table 11
TPES/TFC

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5.2.3 Energy Sector Structure

Ukraine is highly dependent on foreign oil and gas supplies (imported, mainly from Russia). Moreover, Ukraine is the main transit route for Russian gas shipment to Europe and instead of cash payment for use of the transit, Ukraine has received gas in exchange from Russia. Through the 1990's, Ukraine encountered increasing difficulties in complying with its payments to Russia for the oil and gas supplies. As a result, Russia imposed a blockade, which caused shortage of energy supplies in Ukraine.

In order to reduce its independence on Russian oil and gas imports, Ukraine has recently been looking for alternative solutions for energy supplies and has started to look for other suppliers of energy. Ukraine's dependence on energy import is high, with some 44 per cent of TPES is based on imports.

5.2.4 State-owned Energy Enterprises

The Ukrainian Government did in 1994 initiate a reform of the power sector aimed at improving commercialisation and competition within the sector. Progress has been achieved, but the government is still interfering excessively within the regulatory environment.

In early 1998, Naftogaz Ukrainy was created, a company formed by uniting former state-owned oil and gas companies into one single stateowned company. Naftogaz Ukrainy controls production and marketing as well as the national oil and gas pipeline network, one of the country's largest sources of revenue. Among the future plans is to privatise Naftogaz Ukrainy. However, when and by which model has still not been decided.

Few reforms have so far been implemented in the Ukrainian district heating sector, - neither by governmental authorities or the municipalities who are responsible for heat production. The main problems in this area are: Poor cash collection (in particular from the industry), low tariffs combined with an inefficient subsidy structure, lack of clarity in commercial arrangements between district heating companies and municipal owners and lack of an operational strategy by government or municipal authorities to address district heating reform.

The outlook from an investors point of view, may now look more positive than a couple of years ago, due to recent successful implementation of political and economic reforms in the country. However, it will probably take some time to convince investors to put money into the energy sector.

Concrete results need to be seen. Such results may require coherent, integrated and sustainable energy planning, - addressing both financial, political, institutional and technical issues.

Ukraine has developed a national programme "Oil and Gas of Ukraine to the year 2010" to meet at least half of the country's oil and gas needs, within the next 11 to 12 years. Under this plan, foreign investment will be used to finance the majority of this effort. For the most part, foreign investment in Ukraine's oil and gas sectors has been limited to joint venture agreements rather than privatisation.

5.2.5 Prices and Regulation

Although improvements have been made over the last couple of years, energy prices in Ukraine are still not reflecting costs. The electricity prices are set for the country as a whole, while heat price settings are based on municipality price calculations, approved by a national regulatory commission. Heat prices may therefore vary between regions and municipalities.

Heat prices have only increased modestly over the last couple of years. A reason for this is that Ukraine does not have an efficient subsidy system in function and sharp heat price increases may therefore create serious problems and conflicts among the already poor Ukrainian population.

Moreover, the heating sector is plagued by lack of payments, in particular from the industry. The heat tariffs for industry in Ukraine are around three times higher than for households. All this put together has left the heating sector with big losses and deficits.

Energy prices in Ukraine will soon have to be aligned with production costs in order to obtain a functioning, market based economy, as required by the international financial institutions. New, economically attractive and sustainable solutions for the heating sector are therefore urgently required in the country.

5.2.6 Environmental Issues

Ukraine's consumption of renewable energy is relatively low compared to other CEECs. However, renewable energy forms are now beginning to find a market in Ukraine.

Ukraine recently established a Ministry of Environment and introduced a pollution fee system that levies taxes on air and water emissions and solid waste disposal. The resulting revenues are channelled into environmental protection activities, but enforcement of this pollution fee system is lax. An environmental policy document "Main Directions of State Policy for the Protection of Environment, Use of Natural Resources and Environmental Safety" was finalised by the government in 1998.

Ukraine relies heavily on coal for its energy consumption and a possible economic rebound will therefore likely result in increasing total carbon emissions. From 1992 to 1998 Ukraine managed to reduce CO₂ emissions by about 37 per cent, but foresights estimate a future increase (see table 12).

Table 12
Carbon Dioxide Emissions from the Consumption And Flaring Of Fossil Fuels

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From 1992 to 1998 Ukraine increased CO₂ emissions per TPES by about 3.2 per cent (see table 13), thus improving the rate of emission of CO₂ per available unit of energy (toe) in the overall period. But from 1996 and onwards this trend was reversed and Ukraine's rate of CO₂ emissions per energy unit was worsened, consequently making Ukraine's potential for CO₂ savings greater.

Table 13
CO₂ (kg. of Carbon Equivalent) / TPES (Mtoe)

Source: EIA, Energy Information Administration IEA, International Energy Agency
* Preliminary

5.2.6.1 Convention on Climate Change (FCCC)

Ukraine signed the Kyoto Protocol in 1999 and the country is thereby committed to maintain the CO₂ emission for the period 2008-2012 at the 1990-level. Given the decreased industrial output, the country is expected to meet this target. However, a period with renewed growth in the country will challenge the target and increase the importance of a sustainable future development of the energy sector.

The Joint Implementation mechanism, as dealt with by the Kyoto Protocol, may enable Ukraine to attract beneficial forms of co-financing for certain projects which lead to reduction in GHG emissions.

5.2.7 Renewable Energy

Ukraine's renewable energy consumption is very low, also in comparison with neighbouring countries. A main reason for this has been Ukraine's heavy reliance on nuclear power for electricity production. The close down of Chernobyl, together with new general increases in national energy consumption, has however brought a new focus on the potential for use of renewable energy sources in the country.

The Government of Ukraine is increasingly concerned about the problems related to the energy sector and is aware that one possible way to meet future challenges is through increased use of renewable and non-traditional energy sources. The government is currently financing three important national programmes, all aiming at supporting the renewable and non-traditional energy sectors in the country:

1) Renewable Energy Development Programme.

The National Academy of Science in Ukraine has recently, on request from the Ukrainian government, elaborated a long-term development plan for utilization of non-traditional and renewable energy resources within the Ukrainian territory. The plan considers the potentials for each of the 24 administrative regions in the country and can as such be used as a tool for regional energy planning.

The plan develops scenarios for regional renewable energy development up to year 2015. Some regions show impressing potentials for development of geothermal energy, such as the regions of Zakarpatsky and Crimea, where between 75 and 80 per cent of the heat demand could be covered by geothermal energy.

2) Wind Power Engineering Development Programme.

This programme is financed through a kind of "ecological" tax on electricity consumption. 0,75 per cent of the revenue collected from electricity consumption (10-12 million USD per year) is dedicated to develop wind power in Ukraine. Of this amount, 95 per cent goes to developing production techniques for wind power, while around 5 per cent is for scientific work. The programme is implemented within the Ministry of Industrial Policy.

Due to this comprehensive programme, wind energy development in Ukraine is gaining a comparative advantage compared to other renewable energy sources. From a purely economic point of view it may, however, seem difficult to justify this strong support to wind energy. The rational behind this strategy seems to be of more political character than based on real strategic decision making.

3) "Ecologically Clean Geothermal Power Engineering in Ukraine".

In 1996 the first 5-year programme to support scientific geothermal activities in the country was approved by the Cabinet of Ministers. The Institute of Engineering Thermophysics (IET) of the National Academy of Science was appointed the leading institution of the programme, which is to be implemented within the Ministry of Science. The first 5-year programme will be ended by year 2001, but due to great satisfaction with the results obtained so far, an extension of project activities for another 5-year term will most probably be approved. The annual IET project budget is around 200 000 USD.

The real challenge for these three programmes will be to establish a close relation between policy recommendations and real political action. This will again be closely related to how, - and to which degree - , renewable and non-traditional energy forms will begin to find their own markets in Ukraine.

Today, the wind power business in Ukraine is benefiting not only from large governmental support programmes, but also from the existence of several abandoned old military factories, which are now producing equipment for wind power. Moreover, commercial alliances and other economic support mechanisms have during the last years, been discussed with foreign companies and bilateral donors in order to boost the wind energy sector in the country. Even though some progress has been achieved, the results have not so far fulfilled the expectations.

5.2.8 The Energy Situation

Being one of the largest countries among the CEEC, Ukraine has during the last decade experienced serious changes within both the political and economic system. This affects upon the energy sector, which again bring related environmental problems to surface.

Ukraine has proven oil reserves of 395 million barrels, but is currently importing nearly 80 per cent of its oil. Similarly, Ukraine has large natural gas reserves but imports around 80 per cent of domestic use. Under the "Oil and Gas of Ukraine to 2010 Programme", the country aims to meet at least 50 per cent of domestic demand by year 2010 by development of new wells, more efficient production and increased foreign investment. Nuclear power accounts for about half of the energy used for electricity generation, but power plants are old and in bad condition.

5.3 Geothermal Energy in Ukraine

5.3.1 Areas and Projects

Around 40 per cent of the Ukrainian territory represents promising geothermal sites, with water temperatures between 60ēC and 130ēC. The most promising areas are found in the Western part of the country (Zakarpatsky) and on the independent peninsula of Crimea.

Currently 10 geothermal projects are implemented, though in practice only 5 smaller plants (1-5 MW) with a total installed capacity of around 12 MW are in operation, mainly in the Crimea Peninsula. The IET has assisted in the implementation of these projects. However, it has until proven to be difficult to maintain a continuous operation of the plants after the IET staff has left the project site.

More than 100 wells drilled in Ukrainian territory during the last decades could be used for geothermal energy development. Currently less than 20 are in use. This is mainly due to lack of capital for project implementation, but also related to the fact that many of the drillings are not located in urban areas where they could benefit from existing distribution systems.

The assessment of geothermal potential for the whole territory of Ukraine has been ongoing for several years now, supported by the governmental scientific programmes. Through this research work priority sites for commercial use and for construction of demonstration plants have been identified. Moreover, operational reserves to a depth of 3,500 metres have been explored and evaluated and it has been estimated that geothermal heat supply systems with a total capacity of up to 50 000 MW could be constructed in the country.

Geothermal fields with water temperatures up to 100ēC are at present deemed to be the best prepared for commercial utilization. Moreover, feasibility studies made by the IET, based on 12 scenarios of heat capacity and water temperature, have shown that geothermal heating systems are economically attractive and profitable for capacities higher than 6.0 MW and water temperatures exceeding 80 ēs C.

The existence of high temperature geothermal water in the Ukrainian underground creates realistic possibilities and potentials for generation of electricity. This may be the case in the regions of Zakarpatsky, Kharkivsky and Crimea. Moreover, in Crimea, the geothermal water contains dissolved gas, which makes it feasible to produce electricity from low temperature water. The potential for electricity production, and related costbenefit estimations, have not yet been fully investigated.

5.3.2 Organizations and Institutions Responsible for Geothermal Energy Development in Ukraine

5.3.2.1 Government

In Ukraine, there is not one particular ministry responsible for geothermal energy development. Instead, responsibilities and support to geothermal activities in the country are spread out between different ministries and governmental related programmes and committees.

The Ministry of Energy in Ukraine, although being responsible for overall energy development in the country, is in practice mainly concerned with the "big" energy issues, such as those related to the power sector, including politics on nuclear and electrical power and power generation plants.

The Ministry of Science is responsible for, and finance, the scientific 5-year programme on Geothermal Power Engineering implemented through IET.

The Ministry of Industrial Policy is responsible for development of the governmental Wind Power Programme, financed through the eco-tax on electricity consumption, which in theory should also provide some funds for industrial and scientific activities related to other renewable energy forms such as geothermal. In practice the eco-tax does however function as a direct state support to the wind power sector.

The Ministry of Environment, through their geological department, is involved in drilling and underground activities, also involving those of geothermal concern. Moreover, geothermal energy development in Ukraine has until now been supported from various governmental programmes and committees established for specific purposes.

A clear future challenge in Ukraine will be to coordinate and integrate the geothermal support activities carried out between the different ministries and institutions. A clearer institutional set-up for renewable energy development, including geothermal, will probably be needed in order to make more efficient use of the funds designated for these purposes.

5.3.2.2 Private Sector

Within geothermal energy development, the private sector has not yet played a very visible role. This is mainly related to the fact that geothermal energy projects have not yet reached "commercial acceptance" compared to other energy sources, as for instance wind power.

For the wind energy sector, coherence has been established between scientific and commercial level through the Wind Power Programme. Equipment for wind energy projects is produced locally in the factories earlier used for military equipment production. These factories could, however, just as well be used for production of equipment for geothermal energy products and does thereby represent an important resource for the country.

5.3.2.3 Universities and Other Research Institutions

The centre for geothermal research and science in Ukraine is the Institute for Engineering Thermophysics (IET), placed in Kiev. Within the institute two departments are working on geothermal issues; the Department of Technology of Geothermal Energy Production and the Department of Thermal Energy Utilization. The technical capacity in the institute is very high and would provide a strong backup support in relation to future geothermal project implementation in Ukraine.

In year 2000 the Ministry of Education was merged with the Ministry of Science in order to create a stronger coherence between the scientific and educational environments. What regards geothermal energy, the merge has resulted in a stronger interaction between the IET and the Polytechnical Institute in Kiev, thereby improving conditions for creation of a future, wellcapacitated geothermal resource base in the country.

5.3.3 Insitutional Factors Governing Geothermal Energy in Ukraine

5.3.3.1 Laws and Regulations

An existing law on concession rights in Ukraine permits companies to obtain a 10-15 years license right to geothermal underground resources.

The Ukrainian legislation does on the other hand not permit penetration of potable water reservoirs. This will in practice impede realization of some potential geothermal projects where the geothermal reservoir is placed under such water reservoir.

5.3.3.2 National Funding Sources for GE Development

At present, no national funding mechanism is used to support geothermal project implementation.

However, the Ukrainian government does have in operation a couple of funds, which could apply also to geothermal projects. One example is the "ecological" tax on electricity consumption (0,75 per cent), mainly dedicated to developing of wind power in Ukraine. Another example is a fee system, although still not very operational, implemented by the Ministry of Environment, which levies taxes on air and water emissions and solid waste disposal. These revenues are channelled to environmental protection activities.

5.4 International Collaboration on Geothermal Energy Development in Ukraine

Ukraine considers membership of the European Union (EU) and other European institutions its primary foreign policy objective. The EUs Partnership and Cooperation Agreement (PCA) with Ukraine went into force on March 1, 1998. The EU has encouraged Ukraine to implement the PCA fully before discussions begin on an association agreement. The EU Common Strategy toward Ukraine, issued at the EU Summit in December 1999 in Helsinki, recognises Ukraine's long-term aspirations, but does not discuss association.

Ukraine has friendly relations with its western neighbours, especially Poland, with whom it cooperates closely. Relations with Russia are complicated by energy dependence and by payment arrears. However, the relations have improved with the 1998 ratification of the bilateral Treaty of Friendship and Cooperation. Ukraine became a member of the Commonwealth of Independent States (CIS) on December 8, 1991, but in January 1993 refused to endorse a draft charter strengthening political, economic, and defence ties among CIS members. Ukraine is a founding member of GUUAM (Georgia Ukraine-Uzbekistan-Azerbaijan-Moldova), the group of westernoriented former Soviet states that would prefer to limit the CIS to economic relations.

5.4.1 EU - TACIS

The European Union is providing substantial assistance to Ukraine through the TACIS programme. From 1996-99, TACIS concentrated its support to furthering the development of democratic society and the nascent market economy in Ukraine. Particular emphasis in the programme was given to Ukraine's high energy dependence. In 1999, 46 million EURO were provided through TACIS.

For the current period (2000-2003) TACIS is operating with a budget of 200 million EURO. The current programme is focusing on three main areas:

	Institutional, legal and administrative reforms
	Private sector and assistance for economic development
	Addressing the social consequences of transition

Within this framework, TACIS will continue to support reform of the energy sector. In particular, future assistance will focus on improvements to the regulatory framework and organisational level in the energy sector, the privatisation and restructuring of strategic energy companies, notably power sector distribution companies, and on improving cash collection.

The EU has been implementing a development project, strengthening a national information network for energy conservation. Project capacity development was recently supported by TACIS, which has been supporting a project preparation unit in the Ministry of Environment.

5.4.2 ERBD

EBRD business in Ukraine has grown considerably. In year 2000, deals were signed for 293 million EURO, 20 per cent more than the year before. In total, EBRD portfolio in Ukraine stands at 811 million EURO, however only around 1/3 has been disbursed. This represents 9 per cent of all foreign direct investment in the country and 7 per cent of total global EBRD commitment, and the EBRD is thereby the largest investor/lender to Ukraine.

The slow pace of disbursement of funds may, according to EBRD, be attributed to a range of factors. These include: legal and institutional constraints; lack of coordinated decision making by local authorities; local counterpart contribution not being effected and changes in implementing agency.

The amount to be invested by the EBRD in Ukraine during the years to come will depend on developments in business conditions and the pace of reforms. The current project pipeline to be developed over the next year or two, stands at more than 500 million EURO, not counting the power sector.

The Banks clear strategy is to promote diversification in Ukraine's economy and the energy sector is one of the target sectors for intervention. The EBRD project portfolio includes a number of municipal utility and district heating projects. The EBRD has also initiated the creation of a multilateral Energy Task Force aimed at raising cash collections and accelerating privatisation in the energy sector.

At the same time the EBRD states in their strategy for Ukraine that opportunism with an eye to strong demonstration effect will need to be a principle underlying the Bank's search for new business regardless in the sector in which they occur.

Regarding the DH sector, the EBRD finds that with the prevailing problems in the DH sector it remains difficult to attract private sector finance or to identify financially viable projects in which the Bank may invest.

The EBRD conclude that "In the long-term, the Bank believes it is a correct objective to help Ukraine increase its indigenous sources of energy, as well as use them more efficiently"

5.4.3 World Bank/GEF

Ukraine became a member of the World Bank in 1992. By year 2000, the World Bank's commitments amounted to over 3 billion USD, of which 2 billion USD had been disbursed.

In its new Country Assistance Strategy (CAS) for Ukraine, covering the period 2001-2003, the World Bank stress the importance of moving Ukraine closer to European Union standards, fostering environmentally sustainable development.

According to the CAS, Ukraine can obtain lending of up to USD 1.8 billion for the 3-year period through a mixture of adjustment lending under a Programmatic Adjustment Loan (PAL) and a number of institutionbuilding operations. The PAL, a USD 750 million loan and corner stone of the CAS, consists of three separate loans, each of USD 250 million, to be disbursed depending on the pace of implementation of reforms envisioned in the Government's economic programme. The programme includes removal of obstacles that have hampered reforms in the past, such as non-payments and barter, lack of transparency in privatisation, and poor budget control. The CAS is also designed to capitalize on the Bank's comparative advantages and maximize synergies with other donors and international financial institutions.

A number of WB projects have focused on support and promotion of reforms within the energy sector and the energy sector is by the WB considered crucial to the development process in Ukraine. Generally, the World Bank's programme within the energy sector is designed to complement Ukrainian and G7 initiatives. The WB project list includes a Hydropower Rehabilitation Project (USD 114 million), a District Heating Improvement Project in Kiev (USD 200 million), a Public Buildings Energy Efficiency Project in Kiev (USD 18 million), a Coal Pilot Project (USD 16 million), and a Coal Sector Adjustment Loan (USD 300 million). Recently, in March 2001, a USD 28 million loan was approved for a Heat Supply Improvement Project in Sevastopol.

5.4.4 USAID

Ukraine receives more USAID assistance than Russia and total US Assistance to Ukraine in 1999 was USD 180 million. USAID will continue to give high priority to Ukraine and for year 2000 a total assistance of USD 216 million was planned.

U.S. technical assistance to Ukraine has been focussed on supporting the transition process to a market based economy, primarily regarding economic restructuring, development of the private sector, and energy-sector reform. Within the energy sector, USAID has helped develop a multifaceted programme for Ukraine, which focuses on:

	Power sector restructuring, which has helped transform the power sector from a vertically integrated monopoly to a market system with regulatory oversight of tariffs and licensing, and power distribution based on financial bids;
	Assisting the Government of Ukraine to privatise the power sectors, starting with 27 distribution companies;
	Development of a coal bed methane industry;
	Improving energy production and conservation by introducing new technologies, management techniques and applying market principles; and
	Supporting Ukraine's nuclear safety performance and improving nuclear sector regulation and inspection.

USAID is also assisting Ukraine in the improvement of the environment with activities to coordinate with other donors to address social, environmental and energy efficiency issues related to the closure of the Chernobyl Nuclear Power Plant.

The Alliance to Save Energy began its operations in Ukraine in 1997 under a cooperative agreement with the USAID. The objective of the Ukraine programme has been to develop energy efficiency as a means of helping the country manage its rising energy demands in an environmentally sustainable and cost-effective way.

With the cooperation of its Ukrainian partners, the Alliance is striving to implement results-oriented projects and build the capacity of stakeholders in the government, private and civil sectors. These efforts are focused at both the local and national levels.

5.4.5 Other Donors

Beside USAID, the largest volumes of bilateral funding for Ukraine are provided by Canada and Germany.

Among the EU member states Denmark, France, Netherlands, Italy, Germany, Sweden and UK are the most active in Ukraine.

5.5 Summing Up

Ukraine has just recently started recovering after nearly a decade of recession and struggling through a difficult transition process towards a more liberalised political and economic system. Although still in a premature phase, the ongoing process is directed towards the EU requirements. Recent development trends in Ukraine have been recognised by the international financial institutions, which have credited the country by increasing their loan portfolio significantly.

Ukraine has traditionally been very dependent of Russia on energy import, mainly on gas and oil. The wish to become more independent, together with recent increases in national energy consumption and energy intensity, has motivated the Ukrainian government to consider more intensive use of alternative energy sources.

Ukraine possesses significant high-temperature geothermal resources, which could cover a large part of the energy supply in several regions of the country. The geothermal resources have been scientifically investigated and feasibility studies and data material have been developed. However, so far geothermal project implementation in the country has been very limited, and only on a small scale, mainly due to financial constraints.

The Ukrainian government is currently supporting development of renewable energy sources, - including geothermal - , through three programmes. Wind power is, however, the renewable energy form receiving by far most political and economic support in Ukraine.

Geothermal energy in Ukraine will need to demonstrate its economic and commercial feasibility in practice in order to activate a dynamic politicalprivate sector support in the country. Production capacity for equipment is available in Ukraine as well as technical geothermal engineering expertise. Moreover, the government has demonstrated its competence and willingness to introduce eco-taxes on energy production (for the Wind Energy Programme) in order to support development of renewable energy forms.

With a view to current conditions and the situation in Ukraine, it is therefore recommended that support is given to assist ongoing efforts to implement geothermal demonstration projects in the country. However, taking into consideration the government's current fragmented support mechanism for geothermal energy, together with political and economic reforms and sharply increasing inflow of foreign capital, it is also recommended that practical project implementation should be complemented by development of coherent (business) strategies and plans for regions where particular encouraging geothermal potentials have been identified.

The regions identified as being the most prospective concerning geothermal energy development are Crimea and Zakarpatsy. These regions have quite different characteristics and should therefore be analysed separately in order to assess their potential in relation to potentials, sustainability and demonstration effects of project implementation.

5.6 References

EBRD. 2000. Strategy for Ukraine.

EBRD. 2001. Ukraine - Investment Profile.

EU. 2000. Ukraine Indicative Programme, TACIS 2000-2003.

IET. 1997. Geothermal Power Engineering in Ukraine.

Schurchkov A., Zabarny G., Razakov A., Zadorozhna A. 2000. Promising undiscovered thermal waters potential of Ukraine planned for commercial utilization.

World Bank. 2000. Ukraine - Country Assistance Strategy.

5.7 List of Institutions Visited and Individuals Met

Ukrainian National Academy of Science, Institute of Engineering Thermophysics:
Mr. Anatoly A. Dolinsky, Director of Institute
Mr. Anatoly Schurchkov, Head of Department of Thermal Energy Utilization
Mr. George Zabarny, Head of Department of Technology of Geothermal Energy Production

Ministry of Environment:
Pyotr Blinov, Chief of Department of Natural Resources
Olga Stepanova, Vice-head, Department of International Affairs

Ministry of Science:
Mr. Vyacheslav Botvynov, Head of Department for Science and Technology
Mr. Mikhailo Khvodrov, Chief of Department

Ministry of Fuel and Power Engineering:
Mr. Juliy Kutsan, Chief of Department, Ecologic and Technical Policy

Ministry of Industrial Policy:
Mr. Stepan A. Kudrya, Director, Department of Renewable Energy Development
Mr. Lev S Dulnev, Deputy General Director, Windenergo ltd

World Bank:
Mr. Yury Miroshnichenko, Operations Officer, Energy Sector

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