Policy Transfer and Vested Interests: The Europeanization of Ukraine’s Natural Gas Market, 2010-2022

The main research question of this study is what factor could explain the variance in translating different institutional arrangements concerning the same policy field at the same time? Why different elements of EU natural gas market model were to different extend implemented in Ukraine after its accession to Energy Community by taking into account their ability to change both formal institutions as well as informal power constellations underpinning them? The main argument of this paper is that the availability of clusters of bureaucratic elites willing and able to expand their influence through the translation of new institutional arrangements is the main explanatory factor for the effective translation of institutional arrangements challenging existing constellation of power relations in its new institutional context. Three main elements of Europeanized natural gas market contradicted the three institutional arrangements of Ukraine’s natural gas sector: ▪️ of state gas assets in one corporate structure - Naftogaz(making it also easier to establish political control over them); ▪️ third-party access (TPA) to the network for commercial competition for gas distribution – to monopolization of distribution networks companies (so-called "oblgazy") by oligarchs; ▪️ independent regulatory oversight – to presidential control over the energy regulator. The procedure of Naftogaz unbundling was facilitated in 2016 by government officials as the tool to preserve political oversight over profitable assets of gas transportation system operators being controlled by the leadership of Naftogaz appointed at the time of the previous post-Euromaidan government. Naftogaz lobbied for the abolishment of oblgazy monopoly for the residential market and became the main beneficiary of a short period of opening that market for competition in 2020. Despite most radical options (ITO model of unbundling considered before 2019 and abolishing of pricing regulation for the gas market for a short period in 2020) being dismissed due to different reasons, they posed a real challenge to status quo in these segments of natural gas market. On the other hand, the formal transposition of EU legislation on independent energy regulator had the weakest effect due to the absence of group of elites with interest and ability to challenge presidential leverage over the institution. The importance of local agency in making policy transfer happen was explored in such strands of literature as policy translation (Stone 2012, Clarke et al 2015, Berger 2017), agency of the governed (Draude 2017, Wiener 2017), and theory of contestation (Wiener 2014). Nevertheless, despite the vast existing literature concentrating on geopolitical aspects of the energy strategies of various countries, internal competition over the national energy policies non-related to energy transition was rarely stressed in the literature, especially concerning the implementation of EU energy acquis. Additionally, the literature on external EU energy governance (Prange-Gstöhl 2009, Herranz-Surrales 2016, Thaler and Pakalkaite 2021) concentrated predominantly on EU perspective on these developments. That makes the experience of Ukraine as the largest non-EU member of Energy Community especially useful for the further exploration of external significance of EU institutional arrangements.