We all know that one of the main conditions allowing Ukraine to receive another IMF tranche is further extending monetary payments for electricity. First Vice Premier Yuri Yekhanurov, commenting on the results of the March visit to Washington, expressed hopes that Ukraine will receive the IMF money in mid-May. Government information says after the January setback the energy market shows much better payment dynamics. Finishing touches remain to be applied in the time left to honor all the IMF leadership’s critical remarks concerning electricity payments.
There is no denying that the government seriously intends to use the time remaining it to clean up the mess. In any case, people in the industry have felt this. State managers estimate that improving energy payments is the government’s mounting campaign against the oblenerho regional distribution companies, and that energy suppliers are the only ones to blame for the absence of 100% payments on the market. In order to increase monetary receipts on energy market account, people on Hrushevsky St. mobilized an additional “administrative reserve” in the person of the National Electricity Regulation Commission (NERC). It appears that the latter will have to forget about its allegedly independent status as a “regulatory authority” for the time being and turn into a money-squeezing implement on energy suppliers. Experts believe that the cabinet appointed Yuri Prodan NERC chairman with precisely this goal in mind, considering his reputation as an indefatigable oblenerho adversary while at the head of the Enerhorynok state enterprise.
With its February 13 directive No. 207 the NERC made a serious claim to the money-squeezer’s role, establishing the so-called downward ratios when allocating funds due power distribution companies from distribution accounts. The innovation essentially means lowering such allocations, using the adjustable tariff, to suppliers failing to make 100% of the payments due Enerhorynok.
Directive No. 207 was a surprise even to power industry experts hardened by long months of “hands-on allocations.” In the first place, the document contradicts NERC directive 861 of August 18, 2000, establishing proportionate allocation of money collected from consumers among the energy market operators. There are no amendments to the said procedures in directive No. 207, meaning that this March the energy suppliers may “theoretically” get their money in keeping with two different NERC regulatory documents. The problem is that, if this be the case, the amounts payable to the distribution companies will differ. In fact, one of the oblenerhos could contest NERC directive 207 in court and the committee will have to make up for the money unlawfully taken away from the energy suppliers in March.
The NERC has formally declared that it intends to deposit an extra UAH 40 million to the energy account with the aid of the downward ratios, depriving the oblenerhos of part of the money due them. Considering the industry’s annual turnover of UAH 1.5 billion, another 40 million is not likely to allow the government to report considerable energy market payment growth to IMF. Nor will it make any noticeable improvements in the status of the generating companies, despite the government’s alleged love and care.
In fact, the generating companies spent UAH 480 million for “other purposes” last December, former Fuel and Energy Minister Serhiy Yermilov told a press conference in February, explaining that the money, almost half a billion hryvnias, was not channeled in payments for fuel, equipment or as payroll. Considering the amount of credit they received from the Savings Bank in 2000, that 480 million was hardly the sum required for their repayment. Regrettably, the government seems to focus the energy interest exclusively on replenishing the energy market account, caring little if at all about the sources of such replenishment and completely forgetting about the industry’s efficiency as a whole. Meanwhile, the practice of administrative squeezing money out of the energy companies and injecting it into the energy market has many negative consequences in the absence of any more or less tangible gains.
Unlike the generating companies, the distribution ones make up a mere 20% in the electricity tariff, meaning that UAH 40 million is big money for them, evidenced by the faltering performance of 21 out 27 Ukrainian oblenerhos. Their being in the red means further degradation of the power lines, thus increasing technical energy losses; oblenerho losses also indicate their being unable to afford an effective electricity distribution infrastructure, meaning, in turn, an increase in electricity commercial losses. Gross energy losses in the Ukrainian grids had risen from 17.72% to 18.56% in 2000 in terms of power transport, compared to the 5-6% world standard, plus the over 50% depreciated fixed assets in most oblenerhos. Such losses sustained by the distribution companies will inevitably hit all consumers with mounting electricity costs — and the rate of increment will depend on how the government will continue to cope with its current and transitory problems, thus shortening the industry’s service life.
Power industry old-timers recall that Enerhorynok did not always act in keeping with the government guidelines when headed by Yuri Prodan. At the beginning of February, the president instructed the premier to restore electricity supplies to regional radio stations despite their debts. A week later, Enerhorynok manager Yuri Prodan sued them, claiming damages in the full amount of electricity bought on the wholesale market. Needless to say, he was fully aware that the distribution companies had to bear in mind not only NERC problems, but also those of, say, state enterprises that could not afford to foot their electric bills and remained ecologically dangerous. So what were the oblenerhos to do? Cut off electricity supplies to all debtors or wait for other Enerhorynok lawsuits and bankruptcy proceedings?
Who can answer this question now that the government has no comprehensive electricity industry strategy, while letting Enerhorynok — and now NERC — pressure the distribution companies? The confrontation between the state managers and oblenerhos, on the one hand, and between the oblenerhos and consumers on the other might receive a powerful impetus if NERC persists with its course set as on February 13. This time the committee leadership may do the government a very bad turn, as the current cabinet is supposed to be a reform one.
One of the indices of reform in Ukraine, apart from money being entered on the energy market account, would be successful sales of all six oblenerhos. Meanwhile, today’s NERC methods of increasing payments to the wholesale market call into doubt the expedience of the privatization of Ukrainian energy companies; no investors are likely to be enthused by the prospect of sustaining losses where and whenever wanted by bureaucrats.
