Great construction: Why Zelensky's Great Thermal Modernization project doomed to failure?

Author : Olena Holubeva

Source : 112 Ukraine

The number of global presidential projects that require billions of public funds to implement continues to grow
13:00, 6 December 2021

Open source

The number of global presidential projects that require billions of public funds to implement continues to grow. To the "Big construction" of roads, airports, global tree planting, another one has recently been added - "Big thermo-modernization", which should reduce gas consumption in Ukraine by insulating residential buildings and social facilities. Zelensky is going to spend 4 billion USD on the program in the next three years, which is almost five hundred times more than is allocated for the direction now.

It is becoming more and more difficult to find logical explanations for the president's initiatives that run counter to the real state of affairs in the country's economy. Thermal modernization is no exception.

Another thing is that Ukraine really needs to find a way to reduce gas consumption - if this does not happen, in the near future the country may face a critical shortage of gas.

Related: Ukrainian Foreign Minister: Migrants, troops at borders, gas as instrument of Russian pressure on EU

Complicated project 

President Volodymyr Zelensky announced a "big thermal modernization" in his message to the Verkhovna Rada. According to the president, we are talking about the insulation of several thousand high-rise buildings and social institutions to reduce their consumption of gas and heat. Ukraine plans to spend 4 billion USD on "Big Thermal Modernization" in the next three years, which is almost five hundred times more than on "warm loans" now. Where to get such funds, despite the fact that other big brainchildren of the president require no less funding, of course, is not reported.

Related: Govt allocates 660,000 USD to construct 65 housing units for Ukraine's IDPs

Recently, thermal modernization in the country is proceeding neither shaky nor fast, at a rate that does not have a noticeable effect on the consumption of gas and heat. "This program is at an extremely low level. It is necessary to develop a comprehensive strategy that would cover all areas of energy efficiency in Ukraine and comply with the energy security strategy," said Oleksandr Suslov, CEO of Volten.

For the current year, very little has been allocated for "warm loans" – 5,5 million USD, against 15 million USD in 2020. For this reason, partial compensation for loans through state-owned banks, as in the years before, was distributed according to the principle of "who got up first, that and the slippers." If you do not have time, you will not receive compensation. If funds under the compensation program in the budget cannot be obtained, the bank has to repay the loan with all the interest and commission on its own. In the budget for 2022, funds for "warm loans" are not provided at all for both individual houses and apartment buildings.

The Energy Efficiency Fund operates in Ukraine. "The fund's support consists in providing grants and implementing complex technical solutions to improve the energy efficiency of buildings in the amount of up to 60% of the project cost. The dynamics are not impressive. As of November 26, the Fund has only 30 completed projects, and this is in two and a half years," says ex-Minister of Energy Olga Buslavets.

Related: Authorities promised IMF to raise tariffs: How much will Ukrainians pay for gas and heat?

At the same time, given the real scale of the problem, even such an impressive amount as 40 million USD is not enough to solve it, experts say.

According to Buslavets, there are about 180,000 apartment buildings and 6.5 million private households in Ukraine. According to experts, up to 90% of all buildings require energy modernization, and this requires billions of euros in investments.

If the announced 40 million USD become a source for co-financing of energy efficiency measures in residential buildings, then the figure can be multiplied by 10,000, says Buslavets. This approach, as in the case of "warm loans", involves attracting funds from homeowners and local budgets.

Thermal modernization in multi-storey buildings requires the consent of the majority of tenants - apartment owners. And we still have far from all houses, especially in old ones, in which thermal modernization is necessary in the first place, OSDBs have been created. Finding a mechanism for obtaining the consent of the tenants will be simply necessary if the authorities decide to allocate funds as "warm loans."

Insulation of houses will not help reduce losses on networks

Thermal modernization of the housing stock does not solve the main problem, without which it will not be possible to effectively save gas. Huge losses of heat and gas occur on the networks that were laid in the last century and have not been updated since then, as evidenced by the massive breakthroughs and fountains of boiling water that regularly beat throughout Ukraine. The president does not speak about this at all. There is no algorithm and understanding of how to patch these holes at all.

Related: Russia does not want to negotiate with Ukraine on continuation of gas transit after 2024

"According to experts, reconstruction of 10% of emergency heating networks will reduce gas consumption by about 130 million cubic meters of gas annually. Reconstruction of 10% of generating equipment will reduce gas consumption by 110 million cubic meters per year," Olga Buslavets said. According to her, these events require approximately 1 billion USD of investments.

In recent years, cities, in particular Kyiv, have been rebuilding small sections of networks on their own. Obviously, this is not enough. Both the pace and funding of work need to be increased.

Until nothing else has been invented, tariffs may be the only source of financing for the reconstruction of networks.

If Ukraine does not reduce gas consumption, it may face a shortage

It is another matter that Ukraine needs to reduce the volume of gas consumption. Obviously, in the near future, at least during Zelensky's cadence, our country will not be able to buy gas at $ 128.5, like Belarus, and even at $ 450 per 1,000 cubic meters, like Moldova. The country's own production is falling, and the prospects for extending the transit contract after 2024 are far from bright. Recently, the head of Naftogaz, Yuriy Vitrenko, said that Russia does not want to start negotiations with Ukraine on the extension of the agreement on gas transit to the EU.

To pass the current heating season, excluding industry, 16.2 billion cubic meters are needed. m of gas (6.7 billion for the needs of the population, 6.4 billion for thermal workers, 0.5 billion for budgetary and religious institutions, 1.1 billion for reimbursing technological losses, and about 1.5 billion for generating electricity to replace coal)...

Related: New gas field opened in Kharkiv region, overall potential makes up to 5 bn cubic meters

If this figure does not decrease, if Nord Stream 2 is launched and transit in the Ukrainian GTS stops, provided that gas is imported from Slovakia, Ukraine will face a gas shortage of at least 8-33 million cubic meters. m per day, without Slovak imports - more than 33 million cubic meters. m per day (one-fifth of consumption in December). A critical local deficit is also possible in the southern and eastern regions (Sumy, Kharkiv, Odesa, Mykolaiv regions). Under such a scenario, the regions are really in danger of stopping gas supply to critical infrastructure - fuel and energy facilities, budgetary institutions, up to the termination of supplies to the population.

Related: Russia could start negotiations on gas transit with Ukraine after selling fuel in Europe

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