Since 2015, Ukraine has taken majorlegislative and policy steps to reform its energy sector andintroduce competition for natural gas and electricityservices, in particular by establishing cost-reflectivepricing, phasing out implicit tariff subsidies, andintroducing the ability for consumers to change suppliers.Because of this transition towards market-basedarrangements, the Ukrainian district heating (DH) sector hasbeen faced with major technical, commercial, financial,operational, and institutional challenges. The main purposeof this report is to present an analysis of the status of DHsector reform and of the remaining challenges, and toidentify proposals to address these challenges, so as tofacilitate the emergence of a comprehensive DH sector reformagenda, including an alignment of key decision-makers andstakeholders around crucial reform components and a processto implement these reforms. The report is organized asfollows: section one gives introduction. Section twoprovides an overview of the current situation of the DHsector including its relative weight in the country’s energyconsumption in the heating services provided to thepopulation, its financial situation, and the estimate ofinvestments at the national level needed for modernizationof the DH infrastructure. Section three analyzes the reformactions impacting the DH sector which have been implementedor initiated over the last few years, presenting theachievements as well as the limitations of these reforms.The outstanding key issues to be addressed as part of DHsector reform are analyzed in section four. Section fivediscusses two reform options for the DH sector which havebeen discussed among stakeholders for some time but forwhich there is no consensus. Section six identifies a listof reform actions for each major sector reform strategicpriority, separating short term actions, and medium-termactions to be implemented in 2020 as part of a comprehensivepackage of reforms after adequate technical preparation and consultations.