Naftogaz of Ukraine Presentation of the Gas Transmission System - PowerPoint PPT Presentation

Advisory Naftogaz of Ukraine Presentation of the Gas Transmission System Operator Unbundling Roadmap 2018-2020 19 September 2018

For the past one and a half year, Naftogaz of Ukraine has been conducting numerous projects supporting unbundling process List of projects Name Advisor Time Scope Key outcome ✔ Branch TSO created 1 Naftogaz 06.2017 – T o facilitate the efficient and timely unbundling Unbundling 02.2018 of gas transmission activity of Naftogaz of in 11.2017 Project Ukraine Management ✔ Preparation of TOM 2 Ukrainian Gas 08.2017 – T o prepare a business and structural plan and TSO Target 07.2018 a target operating model based on European for the future TSO of Operating best practices Ukrainian GTS EU- funded Model ✔ Comprehensive 3 Comprehensive 07.2017 – T o run independent technical review of study of ongoing existing assets and define optimal storages study on UGS facilities Underground portfolio together with implementation in Ukraine EU- funded Gas Storage roadmap Facilities in Ukraine ✔ Strategic Business 07.2018 – 4 Support in T o support NAK in unbundling process unbundling ongoing implementation through pilot function Plan, investment process optimization and strategic business plan planning function implementation transferred to TSO Development of the action plan for TSO Branch; extension and separation. ✔ Action plan for TSO Input to the presentation extension and separation 19 September 2018 Naftogaz of Ukraine 2 PwC

Unbundling action plan is divided into 3 stages which will allow to reach a final goal – formal legal unbundling Unbundling roadmap 1 Storage Branch separation 2 TSO Branch extension and optimization 3 Legal unbundling Organizational Adjustment to comply Cost and process Formal legal separation at all levels with EU standards optimization unbundling 19 September 2018 Naftogaz of Ukraine 3 PwC

1 Storage Branch separation 2 TSO Branch extension and optimization 3 Legal unbundling Separation of Storage Branch is planned to be based on Lvivtransgaz regional branch and includes also flattening of management structure Storage Branch separation plan As-is To-be 1 st 1 st Storage Branch – based on Lvivtransgaz UTG HQ tier Flattening tier structure LvivTG aparat (~220 FTEs) TSO 2 nd Services/ from 3- Regional branches Branch other tier UTG aparat PrikarpatTG aparat levels to (15-20 FTEs) (3-4 FTEs) 2- levels Cherkasytransgaz KyivTG aparat aparat KharkivTG aparat (3-4 FTEs) (3-4 FTEs) From Prykarpattransgaz those branches Kharkivtransgaz only LPUs related to Kyivtransgaz storages Proletar- Mryn Dashava Opary 2 nd 3 rd ske SPU SPU SPU SPU Main ✔ tier – Lvivtransgaz tier base for SPUs Storage Bogorod Storage Production Units Branch Stryi Uhersko -chany (SPUs) SPU RSS SPU 7 units under regional branches 19 September 2018 Naftogaz of Ukraine 4 PwC

1 Storage Branch separation 2 TSO Branch extension and optimization 3 Legal unbundling Full separation of transmission and storage functions within UTG is planned to be performed till beginning of 2019 Schedule of Storage Branch separation plan (main tasks) 2018 2019 2020 Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec H1 H2 I. Storage Branch separation plan 1. Formal decision about Storage Branch creation finished – 1.01.2019 Storage Branch creation 2. Selection and transfer of assets, people, procedures, updating IT systems 3. Construction / reconstruction of measurement points for all storages 4. Creation of necessary Storage Branch functions currently not present in UTG 5. Storage SCADA development and implementation 6. Optimization and effectiveness improvement 19 September 2018 Naftogaz of Ukraine 5 PwC

1 Storage Branch separation 2 TSO Branch extension and optimization 3 Legal unbundling Target structure of Storage Branch could be achieved at the beginning of 2019 Concept of storage system operator org structure (Storage Branch) Lvivtransgaz Storage Branch Initial concept of UTG Branch Technical and operational functions Commercial and business dev. Technical Fuel and Metrology Planning and Technical Auto- Information Labour Capital Commercial Commercial Strategy and Relationship dis- energy (gas ordering of docu- transport, technology, protection construc- dispatching relations, development with the patching resources, measurem maintenance mentation machine automation tion contracts and Regulator energy ent) and repairs, tools, load- and commu- customer saving, supervision lifting nication service, ecology equipment international relations Support functions Financial functions HR Legal Security Materials Procurement Property and Administra- Secret Finance and Accounting department services and land tive and paperwork technical household and resources support mobilization training SPUs (all storage SPU’s will be transferred to Lvivtransgaz) Proletarske Bogorodchany Mryn UGSS Dashava UGSS Opary UGSS Stryi UGSS Uhersko RSS UGSS UGSS 19 September 2018 Naftogaz of Ukraine 6 PwC

1 Storage Branch separation 2 TSO Branch extension and optimization 3 Legal unbundling Extension plan foresees merger of TSO Branch with Regional Branches as well as flattening of the management structure from 3 to 2 levels Key assumptions of TSO Branch extension plan As-is To-be 1 st 1 st UTG HQ TSO Branch tier Flattening tier Kharkivtran Kyivtran- Prykarpat- Cherkasy- structure Regional -sgaz sgaz transgaz transgaz TSO 2 nd Services/ from 3- branches Regional branches Branch other tier levels to merged with 2- levels Kharkivtransgaz Branch TSO Prykarpattransgaz Reduction in number Cherkasytransgaz of LPUs from 35 to 2 nd Kyivtransgaz 10-12 LPUs LPUs LPUs LPUs tier – ✘ Base for Lvivtransgaz LPUs Storage manage Branch technical Linear Production Units 3 rd processe (LPUs) tier s only 35 units under regional branches ~ 137 FTEs transferred to TSO Branch in October 2018 (pilot project) ~ 5 200 FTEs transferred to TSO Branch in June 2019 ~ 7 200 FTEs shall stay in UTG and should act as external service 19 September 2018 Naftogaz of Ukraine 7 PwC

1 Storage Branch separation 2 TSO Branch extension and optimization 3 Legal unbundling Pilot Project assumes creation of the new Network Development and Planning Department in Branch TSO and transfer of the function in October 2018 Network Development employees transfer Departments that are subject to analysis for FTE’s transferring As-Is location of employees involving 1 in network development function Transfer to Branch TSO UTG HQ’s UTG HQ departments that 1 ~16 FTEs 16 FTEs are subject to Branch analysis in terms TSO of FTE’s Regional Branches Capital Investment transferring to Construction 2 ~121 FTEs Project Sub- 140 FTEs Transfer before branch TSO Sub- Department 18.Oct 2018 Department LPUs Transferred at 3 NA 232 FTEs a later stage 2 Regional Branches' departments that are ~137 FTEs Regional Branches subject to analysis in terms of FTE’s transferring to branch TSO • The final number of FTEs that will be transferred will be clarified after confirmation of design of to-be Department Department processes of Capital Budget of gas compressor construction office (excl. pipeline stations Department Kharkiv) operation operation 19 September 2018 Naftogaz of Ukraine 8 PwC

1 Storage Branch separation 2 TSO Branch extension and optimization 3 Legal unbundling Creation of fully functional and certifiable extended TSO based on Branch TSO and Regional Branches is planned to be finished in mid 2019 Schedule of TSO extension plan (main tasks) 2018 2019 2020 Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec H1 H2 III. TSO separation plan 1. Formal decision about TSO extension TSO extension TSO extension finished - 1.06.2019 kick-off - 1.10.2018 2. Assets (low value assets, land) 2.1. Selection of assets related to transmission not yet transferred to TSO and subsequent transfer 2.2. Identification and resolving of land plot issues 3. Organizational structure & people 3.1. Analysis, approval and development of Extended TSO 2-level org structure 3.2. Selection and transferring of people, merger of RBs with Branch TSO and merger of LPUs 4. Preparation and/or updating of internal processes and procedures 5. SLAs & internal agreements preparation, acceptance and signing by all sides TSO ready for conditional 6. Selection and transferring of existing contracts to certification – mid 2019 Extended TSO 7. IT systems - selection and transferring of IT related assets to TSO together with Identification of required changes to IT system and implementation 8. Headcount outsourcing – SLA with UTG 9. Project Management activities execution 19 September 2018 Naftogaz of Ukraine 9 PwC