If energy and public utility tariffs are not raised, this may lead to something even more undesirable — a shortage of these services, which is bound to fuel more radical price increase. This is what producers are saying. Last Friday oil-and-gas enterprises and trade unions issued a statement to this effect.
Its authors believe that this problem can no longer be shelved. The upper levels of natural gas prices, with due account of transportation and delivery tariffs, have remained unchanged since April 1999 and compensated for production costs by less than 50 percent. During the same period gas prices in Russia, one of the world’s largest gas producers, have risen by more than 3.2 times and even exceeded the price level in Ukraine by 21 percent. Current gas prices in neighboring countries are also incomparably higher: in Moldova they reach $113 per 1,000 cubic meters and in Poland, $450.
Experts have conclude that in selling natural gas to consumers in the social and public sectors of Ukraine at prices that do not correspond to economically justified levels, Naftohaz Ukrainy has been losing about UAH 4 billion a year. Therefore, in supplying gas to individual customers in 2006 alone its businesses lost more than three billion hryvnias. On the whole, this company is going to lose over UAH 7.5 billion because of undervalued prices.
The authors of the message cite the Decree of the President of Ukraine, dated Dec. 27, 2005, “On the Decision of the National Security and Defense Council of Ukraine dated Dec. 9, 2005, ‘On the Energy Security of Ukraine and Fundamental State Policies in this Field’,” which states that Naftohaz, together with the National Electricity Regulation Commission, the Ministry of Economy, and the Ministry of Fuel and Energy, has assessed economically justified prices for natural gas with due account of the rising costs of nationally produced gas and other indispensable expenses, as well as rising prices for imported gas. (Compared to 2005, Naftohaz’s expenditures for importing gas in 2006 have jumped by 20 percent.)
Moreover, gas producers insist that the consumption of gas at “privileged” prices (i.e., lower than the economically justified level) does not encourage the introduction of energy-saving technologies for industrial and domestic users. The most energy-consuming sphere in Ukraine is the public utilities sector, which may be topping the world list by these indications. Domestic heating costs in Ukraine are four to five times higher than in such “cold” countries as Finland and Sweden. The public utilities sector in Poland (with a population of 38 million and an average winter temperature of -5.0C compared to -6.5C in Ukraine) consumes four times less natural gas than Ukraine with its population of 47 million.
Low natural gas prices on Ukraine’s domestic market in fact mean that the gas sector has to subsidize the entire economy. Gas producers claim that this makes the sector financially vulnerable. So they cannot understand some politicians’ statements that gas prices should be left intact. “This cannot be explained by anything but political populism,” the signatories of the document say and ask people not to reach such unfounded conclusions.
In their view, if prices are not increased today, then tomorrow Ukraine will have no gas of its own extraction, while domestic consumers will have to use imported gas that will cost twice as much. Higher prices and resulting higher incomes will provide the state budget with additional funds to subsidize the population.
But let us turn to the ordinary Ukrainian citizen, who is not well off. God willing, he lives in a room of about 15 square meters. So higher gas prices will not greatly affect his family’s additional expenditures for heating, hot water, and cooking. Fortunately, there are also individuals who own apartments or houses with an area of 300-500 or more square meters. These people will not suffer either from higher gas prices. That is clear to everyone.
It is another matter altogether that today such people enjoy huge price reductions at the expense of the state or, to be more exact, at the expense of most of its worse-off citizens for heating their spacious rooms. There is a consensus that this should end. This is not envy or Schadenfreude: “I hope my neighbor’s house burns down.” After all, it is this neighbor who has the resources to use alternative sources of energy in his home and at the enterprise that he manages or owns. Raising prices will be a good stimulus for this.
