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Would gas and electricity prices for Ukrainian population change in 2021?

Author : Olena Holubeva

Source : 112 Ukraine

Last week we managed to talk to high-ranking officials, who unofficially talked about the government's intentions in the most sensitive areas – the supply of gas and electricity to the population
22:31, 31 March 2021

Open source

Seriously frightened by protest sentiments, the president's team decided to finally put an end to the games of liberal reforms. The authorities decided to sacrifice them and many others for the sake of peace and preservation of the political rating. For ordinary consumers, this means that in most regions gas will be sold below the market for another month: under pressure from the Office of the President in April, most suppliers kept prices at the regulated January-March level – 0,25 USD per cubic meter. From May, the price will rise, and consumers will be automatically transferred to annual contracts. The authorities have not yet decided on a sharp increase in the price of electricity for the population, but this problem is in the air, and sooner or later it will have to be solved.

Related: IMF demands from Ukraine’s authorities to increase gas prices for population

Gas price in April

March was the last month when gas suppliers for the population were obliged to keep prices no higher than 0,25 USD per cubic meter, and from April 1, suppliers could offer their own prices based on market conditions.

On the exchange, gas with a delivery condition in April cost 0,27 USD per thousand cubic meters, and on the Dutch hub TTF (international price benchmark for Ukraine) jumped from $ 217 to $ 228.6 per thousand cubic meters without delivery.

The president's office has done the same trick as in January when it asked market participants to drop to 0,25 USD retroactively. As a result, the price of 0,25 USD 9 in April was supported by the largest association of gas sales, which operate under the brand "Your gas sales" (104.ua), as well as a number of other private suppliers. Naftogaz and some other suppliers gave prices even lower than 0,25 USD / cu. m.

However, as can be seen from the table, several suppliers at once gave a price significantly higher than 0,25 USD / cubic meter. In particular, a supplier operating under the Yasno brand (DTEK), which came out with a price of 0,28 USD / cubic meter.

The fact that there are some suppliers among the suppliers who were not afraid to set prices comparable to the market ones is another confirmation that the others either have access to the resource with a price lower than the prices announced in the public plane or went to meet the "persuasive requests" of the authorities.

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Compromise between the authorities and gas sales

You can compete with expensive imported gas by selling gas produced by Naftogaz's subsidiary Ukrgazvydobuvannya. As has been repeatedly reported, the company accounts for up to 70% of all production in the country, the cost of gas does not exceed 96 USD / thousand cubic meters. This resource is monopolized by Naftogaz. The price at which he buys the resource from his daughter remains a closely guarded secret with seven seals. Its value can be judged by the fact that market participants constantly accuse the state-owned company of dumping in the supply market to the population.

Of course, Naftogaz is holding on tightly to the resource that gives it an edge. In particular, thanks to this tool, the coverage of household customers by NJSC only for the current heating season increased from 2 to 13% of the market. The impressive dynamics can be explained not only by the good work of the managers but also by the advantageously distinguished price from competitors, as well as by the ability to work through the supplier of last resort.

For this reason, the statement of acting Energy minister Yuriy Vitrenko became a real sensation – he voiced intention to open equal access to the Ukrgazvydobuvannya resource for all gas suppliers to the population. In particular, the Ministry of Economy was instructed to prepare a draft change, according to which Ukrgasvydobuvannya should start selling gas of its own production to natural gas suppliers and heat energy producers for the needs of household consumers at a fixed price from April 1, 2021, to April 30, 2022. In addition, the possibility of a bill was considered, according to which Ukrgasvydobuvannya was to sell at least 50% of the volume of produced gas on the exchange.

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This would make it possible to create an internal price indicator that would replace import parity, market participants noted.

Last week it became finally clear that it is still possible to put a bold cross on these plans. At the end of March, Naftogaz signed a gas sales agreement with Ye Energia LLC (formerly EGAZ), which is the main supplier of the largest gas sales association operating under the Tviy Gazsbyt brand (104.ua). The details of the contract - the volume of purchases and the price - were not disclosed. But what is noteworthy is that the Your Gas Sales Association could not agree with Naftogaz on gas supplies since September last year - the state company stopped supplying them with gas immediately after the PSO was canceled (from August 1, 2020). Acting Energy Minister Yuriy Vitrenko and Naftogaz itself spoke unflatteringly about gas sales, accused them of monopoly, and did not even hide their intentions under the program to squeeze out all their clients as much as possible, or a significant part in a moderate scenario. Price was mainly used for this.

According to our sources, as a result of the compromise reached, the largest gas sales association received a lucrative and rather flexible contract that will allow them to trade gas on a margin and stop the customer churn process for at least a year. And that explains why the main opponents of the regulated price agreed to sell gas at 0,25 USD in April. Naftogaz received guarantees that the valuable resource of Ukrgasvydobuvannya, the sale of which provides the lion's share of the state company's cash receipts and the position of a market maker in the wholesale market, remains in its undivided ownership, and no one will receive it until the expiration of the contract with Ye Energia access. By the way, until recently it was the group of gas sales companies that received gas from YE Energia that most actively defended the idea of ​​equal access to Ukrgasvydobuvannya gas for everyone.

The main bonus that the government received by turning a blind eye to the tricks of Naftogaz and agreeing to a compromise with recent opponents is the ability to ensure that there are no sharp jumps in gas prices for the population until the end of April 2022.

Related: Gas supply rules change in Ukraine: What's the final selling price?

Gas price for the population

In the near future, NEURC will approve regulatory changes, according to which all consumers, without exception, will be transferred to an annual contract.

It was hard not to note that speaker representing the position of the largest association "Your Gas Sales" Artem Kompan softened the previously voiced position regarding the transition to annual contracts.

"The Association of Energy Suppliers supports the introduction of annual contracts for the population with a fixed price. The main advantage of an annual contract is protection for consumers from price fluctuations and a guarantee of a stable price throughout the next year. The annual contract will allow Ukrainians to better plan their expenses for housing and communal services, and the state, accordingly, better plan the costs of subsidies and benefits for vulnerable categories of consumers. In addition, consumers will not need to worry about the price of gas every month, and the amounts in payments will become more predictable," Artem Kompan noted.

According to our sources, the price under annual contracts will be in the corridor of 0,29 USD / cu. m (12 months starting from May 1). Experts predict that this summer, against the background of empty UGS facilities in Europe, gas prices will remain at about 0,25 USD / cu. m, but in the fall, most likely, they will go up. Thus, for some time, consumers will be forced to overpay a little, but then, if prices still do not fall, they will be able to save.

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Within the limits of 0,29 USD / cu. m will set the price "Naftogaz" and the largest association of gas sales after signing a contract with "Ye Energia". The state-owned company and gas sales companies account for 13 and 65%, respectively, of all households consuming gas (in aggregate, they provide 78% of all gas supplies in the country).

 “All this time we did not sit idly by, but increased the margin of safety of our business, therefore we are ready to adjust the annual or monthly prices and all types of competition in this market. In any case, we remain with our consumers and will only strengthen our presence in all segments of energy supplies," the press service of ETG.UA states.

Naftogaz suggested that the commission consider the possibility of lowering the price within the framework of annual contracts, depending on the price situation. As expected, gas sales and other market participants opposed this, which, unlike Naftogaz, do not have stable access to a cheap gas resource, and also do not have a similar financial cushion, which is provided, among other things, through a transit contract with Gazprom. (the state-owned company is a party to the contract and receives royalties from it). In simple words: they will not be able to fight for the client, reducing the price of the resource.

The gas market remains one of the most opaque - 90% of gas is sold not on the stock exchange, but on the Internet and by phone, in closed Internet groups, which are closed for mere mortals. Taking into account that the authorities decided to focus not on the assessments of the world energy community, but on a simple consumer who is ready to protest, just to pay less for communal services, this situation will not change in the near future.

Electricity to rise in price later

The authorities are not yet ready to raise electricity prices for households. At a meeting on March 24, the government extended for a month - until the end of May - the resolution, according to which the PSO remains, providing the population with electricity at a fixed price of 0,06 USD / kWh.

On January 1, the Cabinet of Ministers canceled the previously existing preferential tariff for the population for the first 100 kWh of electricity per month in the amount of 0,03 USD / kWh, which was paid by about 40% of the population. This half-measure did not save the Ukrainian energy sector, which subsidizes two large-scale special obligations - high prices for the green and low for the population. With a market size of UAH 250-300 billion, subsidies account for about a third of all revenues - almost 332 million USD. The biggest burden is borne by Energoatom (providing preferential prices for the population) and Ukrenergo (subsidizing the green tariff). Both state-owned companies ended the last year with losses.

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The fact that the government extended the special obligations until May suggests that the authorities understand that it will not be possible to keep the tariff at this level for a long time, the industry is suffocating from a shortage of financial resources, a high-ranking source said.

The authorities continue to consider a variety of options in this regard - from a gradual increase in prices to differentiation of payments for the poor and the rich. But so far there are no specific regulatory projects.

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