Assignment: how to pass the winter

Last Thursday a statement issued by Deputy Prime Minister Volodymyr Rybak, who also heads the Ministry for Civil Construction, Architecture and Public Utilities, made the headlines. “Our readiness percentage is over 80. I think we will have heating, lighting, and water,” he declared. Rybak also announced that the public utilities ministry is working on a system of rapid reaction to emergencies that could arise in the public utilities sector. “We will test this system by Oct. 1, which will help us to react rapidly and avert accidents like the one that occurred in Alchevsk,” he noted.

Yuriy Boiko, Minister for Fuel and Energy, also told journalists recently that Ukraine is ready for the heating season. There are about two million stocks of coal at thermal power plants, and this amount will increase to three million by Nov. 1. The minister pointed out that “funds have already been allocated for this, and the two ministries (Ministry for Fuel and Energy and Ministry for Coal Production — author) have coordinated the schedule of shipments.”

A deal has already been made with the railway to transport coal. As for gas, Boiko claims that reservoirs now hold 21 billion cubic meters. “The stock of heating fuels is being replenished on schedule, and we are definitely making up for existing deficiencies,” the minister said. “According to the schedule, there will be enough gas in reservoirs by Oct. 15 to furnish adequate heating to houses in the autumn and winter.”

Boiko also said he is sure there would be no price rise for the imported gas until the end of this year. But prices are certain to go up next year. “Today’s price of 95 dollars per thousand cubic meters will remain unchanged until year’s end,” Boiko promised, announcing that Ukraine and Russia are planning to sign a gas contract on Sept. 11 at the latest. “As for the gas talks, you know that our prime minister and the Russian leadership reached a basic agreement in Sochi. By next week we are going to draw up a specific contract in the context of that agreement,” the minister noted.

He also assured journalists that the fate of the international gas transportation consortium, the project in which the Russian side is eager to take part, would be decided by the end of October.

Boiko is also worried by the situation on the oil products market, although the average retail price of A-95 gasoline and diesel fuel at the largest filling-station chains dropped by 0.9 percent and 0.5 percent, respectively, in the first week of September.

To prevent a price hike, the minister is in favor of imposing import duty on oil products in Ukraine as early as October. As he explained to the media, the unopposed inflow of oil products across the border has placed the national oil-processing sector in unequal conditions with respect to Belarusian and Russian producers.

The real cause of this is Russia’s export duty on oil. “The oil price level is 470 dollars and the duty is 216 dollars. Russian and Belarusian producers are receiving oil at the expense of this duty,” Boiko says, “so from the very outset they are in a more favorable situation for their market oil products and reap greater profits.”

Yet Boiko is aware that introducing an import duty may cause a sharp spike in oil product prices. So “there must be a line, some balance, between these processes.”

Meanwhile, the Ukrainian market is showing a downward trend in oil product prices. Boiko predicts that prices for A-95 gasoline and diesel fuel will drop, respectively, from 4.65 hryvnias to 4.60 a liter and from 4.07 to 4.05 hryvnias a liter by mid-September.

To revitalize the national oil sector, there are plans to introduce a duty and enact eight bills now being examined by experts before being submitted to the Verkhovna Rada. These laws would improve the investment climate for refinery owners and retail outlets. Very soon we will be seeing draft laws calling for a zero rate of import duty on oil-processing equipment and of VAT on oil refinery modernization equipment.

Meanwhile, Boiko’s words immediately sparked opposition. The Ukrainian Association of Oil Product Users issued a statement questioning the minister’s claim about unequal conditions of competition. The association points out that Russia also imposes export duties on gasoline and diesel oil, which largely equalize the competitive situations of Russian and Ukrainian oil refineries.

The signatories believe that the cost of transporting light oil products by railway or through pipelines is higher as a rule than that of crude oil. Thus, it is wrong to say that export duty dramatically impairs the market performance of Ukrainian oil refiners.

The association believes that it is economically unwise to maintain the financial health of national oil refineries at consumers’ expense because imposing a duty on oil products may increase the danger of a new spiral of inflation. The association is convinced that it is impossible to make fuel available and ensure its high quality without free competition.