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Where there is no law, but every man does what is right in his own eyes, there is the least of real liberty
Henry M. Robert

Energy Market Still in the Dark

13 June, 2000 - 00:00

Most experts think Ukraine’s power-supply system stands an excellent chance of tumbling down as soon as mid-fall of this year.

The government’s resounding statements on radical and constructive reforms of the electric energy sector have so far only resulted in approval of the statute for the state- run Enerhorynok (Energy Market) enterprise and the promise that electric power will only be delivered to consumers after prepayment.

Almost immediately after taking over, the new Cabinet made changing the rules of the game on the electric energy market as virtually the main direction of its activities. The message was: as soon as we carry out energy market reforms, we will all feel good at once. In this context, Vice-Prime Minister Yulia Tymoshenko acts as the chief ideologist of reforms in the fuel-and-energy complex in general and the electric energy sector in particular. The main arguments Ms. Tymoshenko uses to convince society of the necessity of the above-mentioned actions can be easily counted on the fingers of one hand. It follows from her public speeches that: the old energy market is opaque and, hence, breeds corruption; the energy market pattern is ineffective and outdated; and the energy market cannot even be called a market as such due to a high degree of state involvement in its activities.

In fact, these arguments deserve all kinds of praise because their factuality raises no doubts. What is really depressing is the fact that both Ms. Tymoshenko and her opponents, to which the national media refer oligarchs with Dynamo Kyiv soccer club president Hryhory Surkis at the head, seem to be hushing up the true causes of the energy crisis. The most complicated problem of the Ukrainian energy sector today is the horrible condition of thermal power plant generators. What is most interesting in this problem is the methods by which the Ukrainian government has created it. So the main lever by which the state has practically “deep-sixed” thermal generation is the notorious energy market, now the subject of a hot-heated debate.

On the outset of Ukrainian statehood, the government of Ukraine, on the advice of the World Bank, decided to create a competitive environment in this country’s electric energy complex. So the energy market was created for this purpose. What is more, this remarkable entity, a direct “distributor” of financial flows, was not a juridical person.

And, to make the new entities look more market-oriented, the state divided the energy companies, functioning since the Soviet times, into producers and suppliers. This electric energy consumption pattern can be described in simplified terms as follows: the generated electric energy is delivered to a certain energy market from where it is distributed among the suppliers which work directly with the consumers. This put new actors — independent suppliers — alongside the regional power-supply agencies ( oblenerho ), i.e., energy companies under full state control. The

oblenerho and independent suppliers were put into slightly different conditions: the former supplied electric power at fixed rates, while the latter did so at non-regulatory tariffs. All these transformations were supposed, as conceived by the fathers of reforms, to bring about a market price for electric energy, while the competitive environment, being created together with the energy market, was to be reducing this market price until the consumers squealed with delight.

However, some time after the energy market began to work, some of its operators became favorite “sacred cows” of the fatherland. The rest did not, of course, immediately become the unloved stepsons, but still began to experience certain uncomfortableness. The government just laid all emphasis on the development of nuclear energy, thus further aggravating the plight of thermal generating companies. The Enerhoatom national joint-stock company was put in a privileged position and granted the status of independent supplier. In fact, nuclear electric energy, always much cheaper than thermal, was delivered to consumers at prices notably lower than those on the energy market. But the government thought this was not enough, so the most liquid industrial consumers of Ukraine were “attached” to Enerhoatom by an administrative decision. The ostensible reason was quite simple: to be able to purchase nuclear fuel in Russia for Ukrainian power plants, one must have money. The thermal power companies were losing consumers, which resulted in the “washing away” of the already scanty current assets, wear-and-tear of equipment, delays in retooling, and the growing dependence on the financial and industrial conglomerates.

The consumers, tired of the “pre- planned” daily power outages, felt something was wrong in the energy sector. It became still “more wrong” after some oblenerho were privatized. The consumers of these regions regarded previous “pre-planned” outages as good because the new power cuts became far more frequent and longer. The bony hand of the market gripped the throat of not only the generating but also the supplying companies. To be fair, this unsightly hand belonged not so much to the market as to the oligarchs who controlled various spheres of the energy complex. It became quite clear in 1998 that the “course of energy reforms” was erroneous, to put it mildly. In 1999 the state had to make strenuous efforts to keep the energy system afloat. The point is that in 1999 even the openly preferential policy toward nuclear energy did not allow nuclear power plants to stock up enough fuel for winter. Meanwhile, when the nuclear power plants “were having their heyday,” thermal stations sank to such a decline that they could not physically meet the country’s requirements in electric energy.

It is completely unclear how the government plans to prepare this country’s energy system for the forthcoming fall and winter: experts give a negative assessment of the 100-% prepayment for the electric power delivered from the energy market, and even a rough estimate shows that, to ensure normal functioning of the energy sector, the state will have to scrape up at least UAH 1.5 billion.

And since urgent problems are discussed far less actively than the changed rules of the game on the energy market, you just come to the conclusion that the advent of a new government signified the next stage in the re-carving of spheres of influence in the energy sector. But this re- carving is going to be quite difficult in the current situation, for the regional and central oligarchs have assumed control of energy companies to a rather large extent.

By Yury AKSIONOV (http://www.proua.com)
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