Good morning Canadian time, and good afternoon Warsaw time.
I'm very happy to be invited to this hearing. It's my great honour. I think today's discussion is a very timely and important one, so we really appreciate your time. Thank you very much for the previous comments. They definitely set the stage for a very interesting discussion.
Let me introduce my colleagues: Mr. Grzegorz Kozlowski, head of the department of America at the Ministry of Foreign Affairs; Mr. Stanislaw Cios, head of the international energy cooperation unit at the department for economic cooperation at the Ministry of Foreign Affairs; Ms. Beata Slonimska, from the department of America; and Mr. Tomasz Kijewski, from the energy unit of the economic cooperation department, and also a future diplomat at the Polish embassy in Canada.
Mr. Chairman, honourable members of Parliament, and distinguished participants of this discussion, I would like to use this opportunity to reiterate the excellent political and economic cooperation we have had over years between Poland and Canada, reflected also in last week's visit of the Canadian Minister of Foreign Affairs, Trade and Development to Poland. During the visit we had an opportunity to sign the statement of principles of coordinated engagement on Ukraine and eastern Europe, part of which was also dedicated to the energy issue, which confirms our common approach and our joint work towards this goal.
I would just say, because some things were mentioned about excellent business cooperation, that business cooperation was also a part of the visit last week. We have had an opportunity to also hold business-oriented meetings, which are a reflection of the very good cooperation between our countries, including the business communities.
Coming back to the topic, I would like to start by making two assumptions here. First of all, the energy situation in Ukraine is an important determinant of energy security of central and eastern Europe and countries beyond the region from the perspective of the short, medium, and long terms. Ukraine retains an important role as a transit country for Eurasian gas to Europe. In the short and medium term, the flow of gas through Ukraine is a key to the energy security of the region. I just want to point out that eight countries of the EU import gas from Russia.
Secondly, the way Ukraine will tackle the task of modernizing its energy sector and meeting energy security challenges will be critical in achieving the success of the entire transformation process of the country. Ukraine wasted the last two decades to move away from one dominant supplier and reduce consumption of energy; as a result, today Russia can arbitrarily set the price for gas and demand economic and even political concessions from Ukraine.
International assistance to modernize the Ukrainian energy sector is a challenging must today. Although the political situation in eastern Ukraine is changing day by day, one thing is certain: we should intensify our efforts, work on immediate assistance, and analyze all the possible options we have.
To set the stage for our discussion, let me sketch out the energy landscape of Ukraine right now. First of all, Ukrainian economy is highly dependent on natural gas, the fifteenth worst consumer of gas. It accounts for 36% of the total energy supply. Almost 60% of gas consumed in Ukraine in 2013 was imported from Russia. These imports accounted for 8% of Ukraine's GDP. The obsolete and ineffective system of transmission and distribution is a factor additionally complicating the problem.
Second, the challenges faced by the nuclear power sector should not be underestimated in our discussion. Ukraine is strongly dependent on nuclear fuel imports from Russia. As nuclear power accounts for almost half of the electricity production in Ukraine, the strong dependence puts the nuclear energy management at risk and can negatively affect the economy in case of possible disruptions.
Third, concerning the coal sector, despite the vast resources that Ukraine possesses in this respect, this sector needs modernization and improvement in cost-efficiency and safety procedures. An efficient coal industry would be a reliable domestic resource capable of delivering adequate energy volumes.
Fourth, the Ukrainian economy is one of the most inefficient in Europe. In 2013 the energy efficiency of Ukraine was merely 54% of the EU average. The industry consumes over 50% of natural gas, while its energy efficiency is estimated at 25% of the EU average.
Any disruptions of supply can lead to further destabilization of the economy and social unrest, especially in the eastern and southern parts of the country, which are home to the energy-intensive metallurgical and chemical companies. If Ukraine increases its energy efficiency to today's EU level, it could save annually an amount of energy corresponding to 34 bcm of gas.
Recent events in Ukraine and an increase in the price of gas imports remind us once more remind of the problems in the Ukrainian energy sector and call for immediate assistance to the country. With almost empty gas storage facilities, a growing debt, and Russia's threats to halt gas supplies, we can expect a severe crisis in the coming winters. The remedy lies in diversification of suppliers.
A reverse gas flow from the EU could give the Ukrainian government a much needed alternative supply and put pressure on Gazprom, but modernization of the infrastructure would be needed, as well as removal of existing technical and legal barriers. I would be happy to delve more into these details during our discussion. This is the short-term picture.
In the long term there are more prospects for change. However, this will require enormous investments, a coherent strategy, and competent people to help Ukrainians. Fast-track reforms and an accelerated process of engaging with foreign partners in various projects are necessary.
I would indicate four major components of prospective Ukrainian energy sector reforms in the medium and longer-terms.
First of all would be supply route diversification. Never before has the lack of an independent energy system in Ukraine, as well as in Europe, been shown so clearly. Developing diversified and integrated energy markets is a key to ensuring the energy security of Ukraine.
Second would be an increase in domestic energy resources production. Ukraine is blessed with domestic resources, both conventional and unconventional. Their development could be a remedy for the Ukrainian problem of high dependence on imports, and I was very happy to hear the comments of our previous speakers on this topic.
A shift from gas to coal-based power generation could also lessen the problem, but significant investment in technology transfer would be necessary to accelerate the process. Assistance in modernizing coal mines by implementing advanced technologies that improve the efficiency and safety in mining would further help to strengthen the energy security of the country.
Third would be improving energy effectiveness. The gloomy Ukrainian statistics indicate there is huge potential, which could result in a substantial change. International assistance, including from the international financial institutions, is indispensable.
Fourth is the need to decrease internal demands for energy. The liberalization of domestic energy prices by a gradual removal of subsidies and the implementation of the metering system is necessary to lower the internal demands and increase efficiency.
The international financial institutions' assistance, which was already discussed and is partly in place, will be decisive for these reforms and modernization. The World Bank, IMF, and EIB are already active in energy effectiveness and infrastructure projects.
More importantly, we need to help Ukrainians with necessary knowledge and capacities to eventually take ownership of their energy policies. Without this our efforts will take us nowhere. Some countries, including Poland and Canada, have already expressed readiness to assist the Ukraine bilaterally. Canadian experience and expertise in developing locally available resources, especially unconventional hydrocarbons, could help Ukraine in developing its resource base and limiting dependence on imports from Russia.
We hope that Canada would support Ukraine by developing projects and increasing energy efficiency. Development of energy effectiveness programs, including thermal modernization, offers huge potential in energy savings in Ukraine.
With the growing potential of energy resources, Canada can play a significant role in increasing the supply of oil and gas on the world market, which could also have a positive effective on Ukraine, and not only on the Ukrainian economy.
To conclude, I would like to say that we very much look forward to working together with Canada in addressing these challenges. Let me also emphasize that last week during the visit of the Prime Minister to Poland, we tabled a paper offering food for thought on how both our countries can work together in assisting Ukraine in energy modernization projects. I'd be very happy to share more details of this paper and discuss the proposals that were included in it.
Thank you very much.