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Ukraine changes rules for selling natural gas to population

Author : Olena Holubeva

Source : 112 Ukraine

From May 1, all consumers will be automatically transferred to annual contracts. Within their framework, for 12 months – until April 30, 2022 - household consumers will pay for gas at tariffs that suppliers will publish by April 25, 2021. The declared tariffs cannot be changed upwards, but they can be reduced. Suppliers will not be able to refuse to fulfill annual contracts, but consumers can still change both suppliers and the terms of gas supply
21:52, 9 April 2021

The Ukrainian government has postponed the transition to market gas prices for population
Open source

How the population has been buying gas so far

Until August 1 of last year, gas was supplied to the population. According to the Cabinet of Ministers resolution, the gas price was calculated using a formula that took into account their fixed margin. The formula also regulated the gas price at which Naftogaz supplied gas for this purpose. The existing system of obligations belonged to the PSO category - it allowed the population to buy gas at special prices lower than the European ones that are relevant for industrial consumers. On August 1, the authorities decided to abolish the PSO and move to a market model built long ago in Europe. Gas prices were allowed to float, which immediately attracted commercial suppliers to the segment. In sales to the population, they saw an opportunity to increase sales, because the industry in Ukraine has not grown for a long time, on the contrary, it is stagnating. The volume of gas consumption in this sector is falling every year, in contrast to the competition: there are fewer buyers, and there are more than enough sellers. In total, the population consumes no less than industry - 8 billion cubic meters of gas per year. It is a very appetizing opportunity to sell even one-hundredth of this volume at a price not lower, but even higher than that at which gas is purchased by large plants.

Related: Rosneft not to supply diesel fuel, liquefied gas to Ukraine in April, - mass media

Several dozen private companies - independent suppliers - have gotten into the segment. As part of the changes taking place, Naftogaz stopped selling gas to gas distributors and brought to the market its own division specializing in supplying gas to the population on commercial terms. Both Naftogaz and independent suppliers began to beat off customers from gas sales. Due to the PSO operating for many years, by the time of the transition to the gas market, gas sales were monopolies in the segment. An important feature of the situation affecting prices was that both new independent suppliers and traditional gas distribution companies specialized exclusively in trading activities.

In contrast, Naftogaz operated with gas produced by its subsidiary, Ukrgasvydobuvannya, the largest gas producer in the country, with a share of about 73% of the total national production. All suppliers were forced to sell gas purchased on the wholesale market to people, and only Naftogaz possessed a huge volume of resource, the cost of which does not exceed 900 USD per 1,000 cubic meters. This allowed the state-owned company to set the most attractive prices, selecting gas sales customers and increasing the customer base much faster than other suppliers did (according to the latest estimates, Naftogaz's share in the segment of gas supplies to the population reaches the current 13%). Market participants made a lot of efforts to deprive Naftogaz of the right to monopolize the gas of Ukrgazvydobuvannya: up to a dozen bills were registered in the Verkhovna Rada, and acting Energy Minister Yuriy Vitrenko even promised to solve this problem at the Cabinet level.

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

Possessing large volumes of inexpensive gas, Naftogaz, in addition to monthly contracts, the prices of which were revised every month was able to offer customers the most profitable annual contracts with price-fixing for 12 months. Customers who signed up for the "Annual" tariff plan in August-September at Naftogaz pay 0,17 USD per cubic meter for gas. m monthly, no prepayment. Those who joined the program later received the price of 0,19 and 0,23 USD per cubic meter, which is even lower than the fixed price set by the government (0,25 USD / cubic meter). Since January, when prices in Ukraine and in the world sharply jumped to 0,32 USD per cubic meter, the gas supply company Naftogaz has ceased to conclude new annual contracts with the population. The largest association of gas sales companies operating under the brand "Tvoy Gazsbyt" (104.ua) was only able to offer the "Gas in reserve" program, within the framework of which customers had to immediately pay for the purchased gas volumes in advance. Those who joined the program in August were able to buy gas at 4.49 hryvnyas per cubic meter. m, until September 15 – 0,18 USD / cubic meters, from 16 to 30 September - 0,19 USD cubic meters.

The overwhelming majority of independent suppliers were unable to form annual products, since they did not purchase the required volumes of gas (the decision to cancel PSO and the transition to market relations in the segment for the population was postponed twice and no one wanted to immobilize working capital in large volumes of gas, since they did not believe, that the government will decide on such a step from August 1).

In winter, the gas price jumped sharply, mass protests and "tariff Maidans" began: the authorities decided not to risk their political rating. The decision to introduce a fixed price of 0,25 USD per cubic meter. m since February, at the request of the Office of the President, which was retroactively extended to January, put an end to the games in the free gas market for the population, which was supposed to be no worse than in Europe. Such actions of the authorities caused sharp discontent among the IMF and foreign donors, who, with poorly concealed irritation, are watching the cancellation of innovations, the introduction of which they have sought since the cadence of Petro Poroshenko. The authorities were forced to look for a solution that would look like a civilized and market one, but in the event of an increase in world gas prices, it would help them, without taking Ukrgazvydobuvannya gas from Naftogaz, to keep prices for the population, while not losing popularity among the population nor from creditors. Such an invention became the obligatory annual gas contracts, which were invented by PM Shmygal, and integrated them into the normative document of the gas regulator.

Related: Four people injured due to gas explosion in Odesa residential building

The document was approved at the meeting of the commission on April 7.

Changing the rules for buying gas for household consumers

Price of natural gas for the population
Open source

The approval of the new rules by NEURC means that from May 1, all gas consumers will automatically switch to a one-year contract from their current supplier. It will be valid until April 30, 2022. Those consumers who have signed an annual contract with Naftogaz, gas sales or another supplier during the current heating season will be transferred to a new annual contract at the end of the previous one - for example, from September, August or October. All suppliers are obliged to publish the prices of annual contracts on 25 April. You can get acquainted with them on the Gazpravda website. Payment under annual contracts will be monthly.

Having announced the price of annual contracts, suppliers will not be able to change it until April 30, 2022. This only applies to annual contracts. The prices of other products - monthly, quarterly, semi-annual contracts - they are free to change as they please. Changes can be tracked on the websites of the companies, where they should publish them. What is important, suppliers will not be able to change prices upwards, but downwards they can. This means that Naftogaz will be able to continue dumping and taking consumers away from gas sales and other suppliers. For ordinary people, this is even good, for the market as a whole, it is bad. The number of suppliers on it will melt away, and, accordingly, competition is a traditional tool for improving the quality of services and keeping prices down.

Related: Gazprom shortens volumes of gas transit via Ukraine

If the consumer is dissatisfied with the price offered by his supplier, he can conclude an annual contract with another supplier, this is not prohibited. However, if after that he wants to return to his previous supplier again for the basic annual contract, he "has the right to refuse to re-supply him with gas on the terms and at the price in force within the framework of the proposal in the period from April 1 to April 30, 2022".

Also, if the consumer decides to switch to another commercial offer of the supplier (monthly or quarterly package). For example, if the price of these packages turns out to be lower than the declared base annual. In the initial version of the decree, it was assumed that having jumped off the annual contract until April 30, 2022, the consumer would not have the right to return to it. However, in the latest version, approved yesterday, the solution to this issue is left to the discretion of the supplier: he may refuse the consumer, or he may agree to continue the basic annual contract with him. Of course, such situations can occur if in some months the prices operating within the framework of monthly contracts fall below the annual rate, and after a while, they turn out to be higher than them.

The consumer, in order to switch from the basic annual contract, which will be automatically imposed on him by the supplier from May 1, will have to submit a new application for joining or "register his consent to change the conditions through his personal account, the supplier's website, call center, mobile application or any other the method proposed by the supplier, which provides for the identification of the consumer in accordance with the legislation on electronic document management and the use of electronic documents."

Importantly, gas suppliers who will continue to operate on the market from May 1 and publish the terms of their basic annual contracts will not be able to refuse to fulfill them until April 30, 2022. If this happens, they will be forced to leave the market, handing over their customers to the "supplier of last resort" - in fact, the same "Naftogaz". After that, customers will have to enter into a new contract with a new supplier - to switch to a new base contract, on which they were with a supplier that could not fulfill its obligations, or to enter into a contract as part of another commercial proposal. As already mentioned, they will be able to return to the basic contract after switching to another commercial offer, if the supplier agrees to this.

Related: Life without Rosneft: Ukrainian gas stations to face shortage and speculated price increase

What will be the gas prices

The main question for the consumer is how much gas will cost in the context of the changes. At the junction of March and April, the market price for blue fuel was kept at the level of 287 USD / thousand cubic meters. High prices are formed under the influence of European ones, they do not decrease against the background of a sharp decline in reserves in underground storage facilities. The cold March made its adjustments. For example, in Ukraine, the extraction of gas from underground storage facilities is 17 times higher than in March last year. For the population, again at the insistent request of the Office of the President, the price for April does not exceed 0,25 USD / cubic meters.

What the price of gas will be within the framework of the basic annual contract of its main competitor - the supplier from Naftogaz (13% of the population's market) - is the biggest intrigue. We will know the exact price on April 25 or earlier, the state company has not yet announced it. Sources of 112ua.tv are confident that, taking into account the global price trends, Naftogaz will most likely not dare to dump and will offer basic annual contracts at the level of 0,27 USD per cubic meter. Although it cannot be ruled out that the state-owned company will come out with a price of 0,25 USD / cubic meter and will continue to skim the cream off the situation in the form of a rapidly growing client base. The rest of the suppliers will be forced to keep in the wake of these prices or, if they seem unbearably low to them, leave the market, handing over their customers to the "supplier of last resort."

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