Pursuant to the decision of the European Council in Corfu on 24/25 June, 1994, and to those of the G7 summit in Naples on 8/9 July, 1994, concerning an Action Plan for Ukraine aiming at the early and definitive shutdown of the Chernobyl NPP (ChNPP), the European Commission assumed a leading role in the implementation of the Action Plan (see e.g. Contract 22739). In December 1995 a Memorandum of Understanding (MoU) was signed between the Government of Ukraine, the G7 countries and the European Union, stipulating the decommissioning of Chernobyl Nuclear Power Plant (ChNPP) by the end of 2000.
In order to compensate for a loss of electricity power generation due to Chernobyl NPP shutdown, Ukraine had only two alternatives to natural gas and oil import from Russia and the Middle East: extensive use of national coal and/or increased use of nuclear power. Ukrainian coal is of low quality and includes a lot of ash, and thus, is not suitable for massive electricity production as it is very polluting. In this frame, the European Commission was supporting the completion of new VVER-1000 NPPs at Zaporozhe, Rovno and Khmelnitsky (see Contract 22739).
However, taking into account the energy problems in the economy of Ukraine and the expected increases in future demand for energy in the country after the breakdown of the Soviet Union, there was also a strong need to transfer western experience in the area of energy management and conservation. Demand side energy management was not sufficiently developed and it was considered necessary to encourage an energy saving policy in the country.
The European Commission decided to assist with a project programmed under the TACIS 1994 Nuclear Safety programme (see Contract 23843), to strengthen the capacity in Ukraine for implementing energy efficiency investment projects. At the same time, the present TACIS 1996 project was implemented, with the objective of establishing the Ukrainian Energy Service Company (UkrESCO) with assistance from the European Bank for Reconstruction and Development (EBRD). UkrESCO was expected both to assist in and benefit from the project.
The specific objective of the project was to establish the Ukrainian Energy Service Company (UkrESCO) and to ensure its successful launch and efficient operation.
The expected activities of the project were as follows:
Task 1 - Business Establishment Phase
Establish UkrESCO office;
Prepare a business development schedule and review the business plan;
Recruit the staff of UkrESCO;
Establish accounting procedures;
Train the staff in UkrESCO business;
Develop a marketing strategy and promotional materials;
Develop rules and procedures for UkrESCO operation;
Select pilot companies;
Run a training seminar for management of the pilot companies;
Conduct investment grade energy audit of pilot companies;
Carry out due diligence of selected clients;
Financial and risk analysis of selected projects;
First presentation of the projects to the Selection Committee;
Preparation of Energy Performance Contracts (EPC);
Second presentation of the projects to the Selection Committee;
Presentation of projects to UkrESCO, EBRD and EC for approval;
Prepare procurement packages;
Provide management for the implementation of EPCs, monitoring and verification;
Prepare a number of case studies.
Task 2 - Business Growth Phase
Develop information package;
Introduce lessons learnt from the previous phase;
Perform project cycle activities of UkrESCO’s services (see activities 9-18 of Task 1 above);
Prepare case studies.
Task 3 - Transfer of Skills Phase
Repetition of activities 2. - 4 of Task 2 with considerably reduced input of Western consultants;
Prospect new customers.
Task 4 - Privatisation Phase
Prospect potential investors;
Prospect potential financing institutions;
Assist UkrESCO in the preparation of tender documents for privatisation.
The contract was signed in May 1998 and was implemented until November 2002.
Tasks 1-3 were fully realised in accordance with the Terms of Reference.
UkrESCO was legally and physically established, equipped and staffed, and its operation was officially launched. The local personnel were properly trained to operate the company effectively. The market for UkrESCO services was firmly established and the company established a portfolio of energy efficiency projects, sufficient for further development.
With regard to Task 4, it became obvious by the end of 2001 that the Ukrainian stakeholders were not ready to start privatisation of UkrESCO, and the Privatisation Phase could not be implemented as originally planned. Therefore an addendum to the contract modified the Terms of Reference to limit the scope of privatisation-related activities and provided respective budget re-allocation.
Task 4 was finally achieved through the preparation of the outline tender privatisation documentation, screening of potential investors and financing institutions, establishment of contacts with them, as well as educating the UkrESCO staff. The final event under the Privatisation Phase was the Workshop on Corporate Governance held on 13 November 2002, which was intended to enhance UkrESCO's capacity for successful privatisation.