It is necessary to increase tariffs for heat and hot water by at least 20%, the Association of Ukrainian Cities reported. It will not be possible to avoid this, despite the desire of the authorities to prevent the growth of payments for political reasons.
Local authorities will have to make decisions on increasing tariffs and bear responsibility for this. The central government has completely thrown it off itself. The corresponding decision was made at the NEURC meeting on June 9.
Life after PSO
Since May 20, the PSO was canceled for thermal workers, under which Naftogaz sold gas (it accounts for 80% of the tariff structure) to heat producers at a price calculated in accordance with a formula approved by the government. Due to the complete unpreparedness of the industry for the market, the thermal workers opposed the changes and asked to postpone them in time. "Cancellation of PSO and the transition of enterprises with colossal debts to the conditions of the gas market will lead to the collapse of the industry in the coming months and to the disruption of the heating season," the press service of the inter-branch association for the development of heat supply systems Ukrteplokomunenergo quoted the vice-president of the association Serhiy Dunailo. The message said that Ukrainian producers and suppliers of heat predict an increase in debts for supplied gas and a complete stop of gas supply to enterprises by regional gas companies from the beginning of July this year.
"After the launch of the gas market, heat suppliers across the country faced the problem of the high cost of blue fuel. The price is significantly higher than the one stipulated in the current tariff. As a result, several regional centers are already left without hot water, since public utilities cannot buy gas. the situation may lead to a significant increase in tariffs already in the new heating season," Kyivteploenergo warned.
The cancellation of the PSO for thermal workers was one of the beacons of the IMF. Therefore, the authorities did not listen to the arguments of the representatives of the heating industry, represented by the communal heat and power plants, which are in deplorable financial condition. In response to the statements of thermal workers that almost all of them are not ready to move to work in market conditions, Prime Minister Denys Shmygal said: “The inefficiency of managers of utilities will no longer be covered by a fixed gas price. Now all TKE, most of which belongs to local authorities, will conclude contracts with gas supply companies independently, on the best conditions that will be present on the market.”
The worst of the predictions began to come true. Due to the lack of an opportunity to purchase expensive gas, thermal power plants in a number of cities stopped work. Residents of Lutsk, Vinnytsia, Lviv, Chernihiv, Rivne, Kremenchuk were left without hot water.
Kyiv is still holding on. Since May 1, Kyivteploenergo has been working with Naftogaz on commercial terms. The transition to a new contract meant for the company an increase in gas purchase prices from 0,24 to 0,31 USD/cubic meter. The metropolitan supplier was forced to take such a step, as he could not risk leaving the people of Kyiv without hot water. This would have hurt the rating of the mayor, Vitaliy Klitschko, who was already having a hard time - mass searches were carried out at the communal enterprises of Kyiv.
Kyivteploenergo was forced to reduce the number of units in operation in order to minimize the consumption of expensive gas. In the summer, when the enterprise is only heating water for the people of Kyiv, the company can still afford it, but during the heating season, all units will have to be put into operation, which will cause a significant increase in gas consumption. This means that Kyiv will not be able not to raise the tariff. The company has already accumulated the largest total overdue debt to Naftogaz for the supplied gas – 107 million USD.
It should be noted that thermal workers from other cities buy gas at 0,31 USD per cubic meter on the terms of one hundred percent advance payment (the conditions were set during the period of leadership of the state company by Andriy Kobolev) refused. Therefore, their clients were left without hot water.
The current tariffs for heat, which have not increased since the last heating season, include a gas price of UAH 4100 per cubic meter. m. At a real price of 0,31 USD cubic meters, on average, the heat tariff should have increased by at least two times. It should be noted that in May the price offered by Naftogaz was also one of the lowest. Due to the sharp rise in prices on the world market, private traders during this period were selling gas no cheaper than 0,37 USD/cubic meter.
On June 1, the state-owned company announced that it had prepared a three-year contract for the supply of gas to heat producers, according to which from June and for 12 months, the long-term market price will be 0,27 USD / cubic meter including VAT (excluding the tariff of the operator of the gas transmission system). Price offers for TKE in subsequent periods (from June 1, 2022 and from June 1, 2023) will be indexed, Naftogaz warned.
Naftogaz cut prices after President Zelensky was directly involved in the situation. There were several meetings on this topic, and the NAC went to a meeting, Deputy Executive Director of the Association of Ukrainian Cities Yaroslav Raboshuk told.
According to him, at the meetings with the president, an understanding was reached that TKE enterprises would be able to pay for the supplied gas only on a post-payment basis (under Kobolev, a 100 percent advance payment was required). "Now Naftogaz is concluding contracts that involve a 50% advance payment. They offer thermal workers to take loans from banks to buy gas. This is not easy to do, because even if banks agree to give loans, where to get funds to pay off interest? They also need to be pledged. in tariffs for heat for the population," the deputy executive director of the Association of Ukrainian Cities says.
Price 0,27 USD / cubic meter is not a guarantee of maintaining tariffs at the current level. "Today, with tariffs of 0,27 USD / cubic meter and 0,07 of distribution fees, almost all enterprises in the next heating season will have to increase tariffs by at least 20%," Raboshuk said to 112ua.tv.
According to the latest data, contracts with Naftogaz are priced at 0,27 USD / cubic meter and on the terms of 50% prepayment so far only 34 enterprises of the fuel and energy complex have concluded.
Note that 7.4 UAH per cubic meter. m - the price is much lower than the market price. Spot prices in Europe continue to break records. The price of gas with delivery on Wednesday at the TTF hub in the Netherlands increased by 6% in just one day - to $ 357 per 1,000 cubic meters. The achieved indicator is the maximum over the past three years and three months - from the beginning of March 2018. For this reason, commercial gas prices remain high and do not fall below 0,41 USD / cubic meter.
Taking into account the fact that a huge volume is used for the needs of thermal workers, about 8 billion cubic meters. m of blue fuel per year, it is difficult to imagine how "Naftogaz" is "looped" between the president's fear of rising tariffs for heat and hot water and his demand not to allow losses, due to which Andriy Kobolev paid off with his position.
Obviously, it will be difficult for Naftogaz. The payment discipline of heat workers in the current heating season may deteriorate sharply. At the end of May, the authorities decided to cancel the special accounts that were used to pay for gas. The funds received for them, on account of payment for the services of thermal workers, were written off as a priority in favor of current settlements and payment of debts to Naftogaz. The thermal workers themselves are satisfied with the solution. The Association of Cities called it a "big plus".
Tariffs to rise further
The final configuration of the settlement of the problem of heat workers' debts accumulated over the past periods will also have a serious impact on the financial performance of Naftogaz and the size of tariffs for heat and hot water.
The total debt of heat supply and heat-generating organizations for consumed natural gas as of April 1 is 2,1 billion USD (of this amount, 300 million are penalties), says the explanatory note to the bill 3508-d "On measures aimed at overcoming the crisis phenomena and ensuring financial stability in the natural gas market." The document has already been approved by the profile committee of the Verkhovna Rada.
The bill contains a model for settling the debt of thermal workers. If the legislative acts that preceded it provided for a complete write-off of the debt, which is clearly not in the interests of Naftogaz, then this document provides for the write-off of penalties and fines and the restructuring of the body of the debt. "In our opinion, this law does not adequately reflect the interests of heat workers and was written out for Naftogaz. Even if the debt is restructured for five years, as it is assumed by this document, 0,4 billion USD a year for heat suppliers is an unbearable load," Raboshuk noted.
According to him, the authorities can mitigate the situation by settling the issue of compensating the difference in tariffs, which was also stipulated by the memorandum on non-increase in heat tariffs.
A memorandum of understanding, according to which tariffs for heat will not increase until the end of the 2020/2021 heating season and will remain at the level of the 2019/2020 heating season, was signed between the Cabinet of Ministers and the Association of Cities in winter. According to him, the state undertook to compensate for the difference in the price of gas, as well as to resolve the issue of compensating for the difference in tariffs for thermal energy.
In a press release dated May 19, the Ukrteplokomunenergo Association accused the authorities of not fulfilling the provisions of the memorandum, including "in terms of compensating for the difference in gas prices set in tariffs for heat energy and the actual cost of gas in the last heating season."
"The bill 3508-d provides for a compensation mechanism, but it also says that it can be paid both from the state budget and from local budgets. I want to emphasize that local budgets do not have funds for this. Compensation should be paid only from the state budget, as and it was supposed to be at the negotiations when concluding a memorandum," Yaroslav Raboshuk told.
The amount of compensation for today has not been finally calculated. Again, the bill provides that the compensation will be established by special commissions at the Regional State Administration, which will include representatives of NEURC. Thermal engineers and the Association of Ukrainian Cities oppose the participation of representatives of the commission in the calculations. "The heating workers are opposed to these commissions including representatives of NEURC, because it was the commission that set the tariffs that led to the current state of affairs. Of course, they will justify their actions and it is not excluded that they underestimate the amount of compensation," Raboshuk explained.
According to him, according to preliminary estimates, the amount of compensation could be 1 billion USD. At the same time, it will not be paid in real money, but by offsetting, as it was in 2014. This will reduce the amount owed. If this does not happen, a number of cities will not be able to start the heating season, since they have not reached a certain level of mutual settlements necessary to obtain gas nominations.
"In addition, if the issue of compensation and debt of the heating companies to Naftogaz is not settled, tariffs will have to be increased even more significantly," Raboshuk said.
It is noteworthy that the authorities completely transferred the responsibility for the increase / non-increase of tariffs to the city authorities. NEURC transferred the right to set heat tariffs to the local level. The corresponding decision was made at a meeting of the commission on June 9.
Will the cities decide to raise tariffs for heat and hot water by at least 20% to an economically justified level or will they go to the failure of the heating season? So far, there is no doubt about one thing - it will be difficult for them in the fall. We can already see the consequences of dissatisfaction of the President's Office with their actions for mayors on the example of Kyiv.