Energy market players address the problem of old debts

The oil crisis seems to have given a new lease on life to all hopelessly suspended energy projects. In early June the government passed a decree on the Energy Company of Ukraine and approved the idea to create a national coal company. Meanwhile, two years of discussions have finally produced results: the interdepartmental committee coordinating the implementation of the Wholesale Electricity Market Functioning and Development Concept has developed and approved, albeit with some exceptions, a plan designating the priority steps needed to bring this concept to life. In simple terms, Ukraine’s electricity market has moved one step closer to the European model whereby consumers sign contracts directly with electricity producers, which results in a balancing market. Five permanent task forces will further implement the concept, with every task force responsible for progress in its own direction, whereas the interdepartmental committee will coordinate and monitor their work.

The Cabinet of Ministers endorsed the Wholesale Electricity Market Functioning and Development Concept as far back as 2001. Incidentally, then Vice Premier Oleh Dubyna chaired the task force that originally developed the concept. Today Mr. Dubyna is president of the as yet not fully created Energy Company of Ukraine, a public joint-stock company. The government endorsed the plan of measures to develop Dubyna’s concept without his participation. However, according to Enerhorynok state company director Valery Kalchenko, the authors of the plan have taken into account all the current realities and are therefore certain that the years spent on developing it have not been wasted. A major accomplishment of the energy sector is the fact that payments for electricity consumption have reached 95%, whereas Enerhorynok pays 92.5-93.5% of this amount to the power generating companies and uses the remainder to repay loans. Valery Kalchenko is certain, however, that toward the end of the year the level of payments for electricity that Enerhorynok buys from power generating companies and sells to power distributors and other suppliers will reach 100%. Incidentally, this is a mandatory condition for a transition to a system of direct contracts.

Other requirements include developing a mechanism to avoid possible administrative interference with the market mechanisms of the wholesale electricity market, developing effective monitoring methods for the energy market, creating a fund to finance the decommissioning of spent reactors of Ukrainian nuclear power plants, etc. According to Valery Kalchenko, market participants will be able to solve the problem of old debts single-handedly, which is also a binding condition for the transition to a different market form. When the concept was drafted in the winter of 2001, such debts totaled fifteen billion hryvnias. Debtors are currently repaying some of their debts, but not at the rate they were accumulating. The Enerhorynok director is certain that there is a solution. So far there are no mechanisms to accomplish this — whether by means of a single, all-embracing law or several enactments to address various aspects of the problem — still there is no other way but to solve it.

After solving the problem of arrears, the next step toward establishing a direct contracts system should be an effective billing system. Some suppliers already have a billing system in place, but significant investment is needed to make commercial billing universal. Different estimates suggest different figures, but a thousand or a million is an equally unaffordable price for the poor. However, Valery Kalchenko says that Enerhorynok already has a division that rates the title of commercial operator. The whole market could employ its practice. At any rate, the director of Enerhorynok says that there is already a possibility to transfer information about all the market participants directly into his company’s local network. Moreover, the company has a unified protocol for collecting data from automated commercial billing systems of certain suppliers.

Valery Kalchenko says there is every reason to believe that the volume of work that has been planned will be completed before the deadline in 2008. Moreover, there is nothing bad about the fact that Ukraine is not ahead of everybody else in this matter. While we are not trailing behind all that much, we are also far from being in last place, and at least our energy sector has time to learn from others’ mistakes.