Magic bulb of PM Groisman: Verkhovna Rada launched electricity reform

Author : Lilia Brudnytska

The consumer wouldbe able to choose the supplier and the tariff

15:19, 18 April 2017

Read the original text at 112.ua.

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Soon Ukrainian citizens would be able to choose the tariff and the electricity supplier. On Thursday, April 13, the Verkhovna Rada adopted the law "On the electricity market in Ukraine",  according to which consumers become the main power and dictate the weather on the market. A fierce squabble broke out between Ukrainian parliamentarians during the discussion. The MPs voiced the risk of raising the price of electricity as a result of the collusion of the clans.

One for all, and all for one

The bill "On the Electricity Market" was introduced to the Verkhovna Rada on February 21 by Prime Minister Groisman in fulfillment of Ukraine's obligation to implement the Third Energy Package of the European Union. He also thanked 277 deputies for accepting the document.

The current model of relations in the market is simple: all electricity is bought by state enterprise (Energoatom). It sells energy to Oblenergo, and then it comes to the end users. Tariffs are regulated by National Energy and Utilities Regulatory Commission of Ukraine (NEURCU).

In accordance with the European model, which is introduced by the new law, the traders would appear. By analogy with currency exchangers, they will enter the electricity market, buy and resell energy to the consumers. Only the market will regulate the prices. Thus, formally monopoly of Oblenergo in each specific region would be destroyed, and buyers would have the right to choose among several traders who offer the best conditions and tariffs.

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Any business entity can be a trader. But, the chairman of the subcommittee, Lev Pidlisetskiy, who represented the project in the hall, explained to the journalists, the traders would still receive licenses. The list of types of markets is also expanding. In addition to the "day ahead" market, the market is also expected to include a day-to-day, a balancing market, an auxiliary services market, and a retail market.

Oblenergo would not be able to combine distribution and transmission of electricity. Legally and organizationally, they have to choose something one or separate. And there are 18 months (from the date of publication of the law) to chose.

Darkness of traders

The main opponent of the new order in the power industry was the leader of the Batkivshchyna faction Yulia Tymoshenko with her companions. According to their version, the current model of the energy market in Ukraine has minimized corruption, providing citizens with cheap nuclear and hydroelectric power, and the consumer received a kilowatt cocktail at an average price. The Institute of Mediators would create prerequisites for corruption and lead to an increase in electricity tariffs, as enterprises would buy up cheap production, and citizens would get expensive thermal one.

The consequences of implementing the law, according to critics, look sad. Traders will start raising prices, cashing in on end-users. Since prices will rise not only for citizens, but also for industry, this will push up the growth of prices on the consumer market in general. The public transport, tied up with electricity, will become more expensive.

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Moreover, electricity prices would not be controlled and regulated by the state.

Let the light be... for kings

“No, not to overstate, but, on the contrary, to lower prices,” opposed her Lev Pidlisetsky. "All the electricity will be sold. Accordingly, the monopoly of Oblenergos as a sellers would no longer exist, and those who offer the best price for the consumer would have more consumers. In fact, in the UK from 2008 to 2010 years, after the introduction of competition in the electricity market, the price of it fell by 30%. The consumer could be called the king."

However, there is a nuance. Since it is impossible to create competiveness in the market artificially in a moment, the law provides for a preparatory period of 2 years and, in fact, a transition period - one more year. According to Lev Pidlisetskiy, the important role in these three years would be played by the NEURCU, since "for today only one person knows whether the electricity would rise in price, and this is Dmytro Vovk."

Since the regulator would play a notable, if not the main one, role in the preparation of more than 50 regulatory acts for the implementation of the law, "the correctness of the work of the NEURCU will enable us in 2019-2020 to hope for the results that were in the UK."

But not at once

As Olexander Kharchenko, managing director of the Center for Energy Studies of the EIR Center, said in a comment to 112.ua, the new model is unambiguous in the medium and long term for everyone: for consumers and producers.

If we talk about the short term, wher everything is so unambiguous. The expert does not exclude that "many producers and consumers would experience inconveniences in connection with the transition to a new system of work, so the law also presupposes a transition period, when the rules of the game will changed step by step."

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The expert of the energy market, the ex-member of the NEURCU Andriy Gerus in the commentary to 112.ua draws attention to the fact that the electricity market in Ukraine is monopolized enough, so if we just let it free, there is a risk that electricity prices can grow by two or more time.

However, the natural monopolies would be controlled by the regulator. NEURCU would prevent from inflating prices.

Cheap cheese

In the process of reforming the electricity market another risk can detonate - the actual structure of tariff formation. The social factor in tariffs for the population is significant. The market would take into account it to a lesser extent.

According to Olexander Kharchenko, "today the industry pays about 55% of electricity supplied to the population, these cross-subsidies reach significant sums (about 42 billion UAH last year) and are really an additional social tax for Ukrainian industry, reducing its competitiveness. In terms of market pricing, the industry would get the best prices."

As for the prices for the population, "today the Ukrainian tariff covers 45% of the real economically feasible electricity cost." The problem is that this is the cheapest electricity in Europe (and in the Russian Federation). This rate naturally kills power generation in terms of insufficiency Funds for the renewal of fixed assets." Therefore, the tariff for the population "should be economically justified in the transition period."

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Subsidy system that works successfully, and especially the targeted assistance system, which has begun to operate, would help to mitigate the effects of tariffs on electricity. And then, the experts believe, those who need it would receive assistance directly, and the system would be close to optimal.

In fact, if the tariffs rise, we would pay post-factum those low tariffs that were previously and partially subsidized by the state and industry.

The ideal picture of market relations and battles for the consumer king in Ukrainian realities could be easily spoiled by collusion of monopolists. At the moment the electricity market is monopolized, the degree of this risk, Andriy Gerus believes, directly depends on the number of market participants: "If there are 3-4 manufacturers, they can collude: "That is why, when speaking about a competitive market, there should be more manufacturers, so that no one has a dominant position."

On equidistance and equidecompositions

A specific law on the electricity market has become a platform for clashing political interests. Critics of the law contest first of all the voting procedure. Dissatisfied with the fact that the law "repels" the interests of the clans.

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Yulia Tymoshenko on the sidelines of the parliament accused those who voted "for", of collusion with the clans. According to Tymoshenko, traders would be determined by Poroshenko, Groysman and Igor Kononenko, Oblenergo would buy wholesale cheap electricity, and the consumer would have to pay for it more.

The clannish background was confirmed, but not in strict accordance with the version of Tymoshenko. Lev Pidlisetsky drew attention to the fact that factions and groups controlled by various Ukrainian oligarchs voted "for": "Opposition block" under the influence of DTEK and Rinat Akhmetov, "Vidrodzhennya", which is in contact with Igor Kolomoisky, etc. If all of them supported the initiative, it says one thing: the law is balanced, equidistant from all."

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The interest of the oligarchs could be easily calculated. Tariffs for electricity at best barely cover the cost price, there is no money to upgrade networks and generating capacity. Prices for electricity sharply increase is also problematic; the level of non-payments would increase. The only option for upgrading funds and capacities is to attract investors.

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So, speaking about the interest of the oligarchs, both sides are right. And if we talk about the interests of consumers, much would depend on how the state softens the price fluctuations. In fact, the electricity market would have much in common with the foreign exchange market.