In his post, energy expert Andrian Prokip tries to figure out what exactly is destroying the Ukrainian energy sector: Russian missiles or management mistakes. Let's figure it out together.
ENERGY POLICY WITH A SPIRIT OF COMMUNISM
Ukrainian energy policy has had one chronic disease for decades — the desire to equalize something, to allow someone not to pay, to shift payments to others. There are constant attempts to patch up debt holes, shifting responsibility from one player to another. The motives for this can be different: either populism and feigned concern for the consumer, or the desire to improve the situation of a company that is closer to the heart of those who make decisions.
Such decisions were relatively easy to pull off before the start of a full-scale war. Despite the fact that things in the energy sector were far from ideal, it was always possible to scrape together financial resources to pull off such a plan of decision. However, a full-scale war and the associated economic decline, reduced energy consumption, and loss of energy assets both due to occupation and constant shelling significantly reduced liquidity and cash flows in the energy sector. As a result, during the full-scale war, the government twice resorted to raising electricity tariffs for the population. Such a radical increase in tariffs was unimaginable until 2022. And it even seemed that sound economic logic would begin to defeat the logic of communism: divide, equalize, do not pay. But “nit”…
In mid-July, the energy regulator began talking about equalizing distribution tariff rates, regardless of consumption volumes and connected voltage — a decision that confused both energy professionals and key electricity consumers.
I wrote a separate text about this then, explaining why this decision is wrong and even harmful. In particular, this is a return to cross-subsidization, when one category of consumers does not fully cover costs and losses, and compensation is provided at the expense of others. In addition, such an approach contradicts the principles of European energy regulation, and can also significantly affect the incentives for the development of large enterprises that consume significant amounts of electricity, and therefore, it is a direct blow to the country's economy. It is not even worth mentioning here that large industrial consumers are already suffering from rising prices, so they want to give them a little more as a bonus.
At the same time, I wrote that the key beneficiaries will be those companies that subsidize a lower electricity tariff for the population (PSO mechanism) — “Ukrhydroenergo”, and above all — “Energoatom”. These companies will have more funds: on average 38 kopecks for every 1 kWh. So from the world by a thread — to the giant capital. And this is in addition to the fact that these companies will accumulate a larger resource after the tariff increase from 2.64 to 4.32 UAH/kWh.
And when it seemed that the regulator had abandoned this idea after a wave of criticism, information appeared in the media that the renewed composition of the regulator was going to return to this issue. Equalization. But in our collective farm, although everyone is equal, there are some who are more equal than others.
Energoatom was in the news last week. And again, about the economy in the energy sector. Yes, a photocopy of the order of the Ministry of Strategic Industries appeared on the network, which will allow the company not to pay on debts. I wonder how you can build a normal energy sector, allowing not to pay on debts? Which companies will be ready to work with a strategic enterprise of the energy sector, if they understand that they may well legally not be paid for the work performed and services provided? How will this increase payment discipline in the conditions that debts are one of the biggest threats to the Ukrainian energy sector on the eve of a very difficult winter?
Last week, another idea of the same kind appeared - proposals were voiced to involve gas companies in the PSO mechanism in the electricity market. That is, gas companies should pay for electricity, because energy companies no longer have money. It is clear that the motive is noble: if electricity companies do not have the resources to purchase imported electricity to cover social goals, then there is a desire to find other donors for such operations. But still, the question arises: there are companies that have received additional financial resources after the increase in tariffs for the population, why shouldn't they act as donors? And who will be the ultimate beneficiary of the operations after gas companies pay for electricity imports, consumers receive it and pay for this electricity by paying electricity companies?
And the cherry on the cake is a bribe of half a million dollars, which one of the deputy ministers was detained for receiving. And the bribe, as the media reports, was given for facilitating the transfer of equipment from one state-owned enterprise to another. That's the effectiveness of state ownership in our conditions and the economic model that has become an integral element of Ukraine's energy policy in recent decades.
