Knocked out by utilities tariffs

It is planned to raise the utilities tariffs to an economically justified level before the end of 2012. Valerii Saratov, head of the National Commission for the Regulation of Public Utility Services, shared these plans in his interview to RBK-Ukraine Agency. In this way, the main condition set by the International Monetary Fund for receiving another tranche of stand-by credit will be fulfilled.

“I think we will be able to shift to economically justified tariffs this year. All the details concerning this change and the schedule are included in the National Action Plan for 2012. We have to prepare all the necessary documents before the end of this year,” Saratov reported. According to the calculations made by the National Commission for the Regulation of Public Utility Services, present water tariffs on average cover 70 percent of the cost price, and heating tariffs cover 75 percent.

The main argument for the predicted increase of the community services tariffs is the price increase for all the components of the tariffs. For example, in the heating tariff structure, gas expenses take up to 65 percent of the payments, 8 to 10 percent are spent on electricity, 20 percent are for paying salaries, and 10 percent cover other expenses (repair works, amortization, fuel and oil, etc.). In water tariff 28 percent are spent on electricity, 47 – on salaries, and 25 – on other expenses. “But there are water supply enterprises that have to spend 50 or 60 percent on electricity,” Saratov says. So, the person in charge of tariffs in Ukraine is determined to take action.

However, does the left hand know what the right one is up to? Recently, Prime Minister of Ukraine Mykola Azarov “swore” in one of his public speeches that there are no reasons for raising housing charges. “The boilers are old, they are consuming too much energy, but on what grounds does the amount of used fuel increase year in and year out? It is disproportional to the production and expenses. That is why it is utterly important to determine the instrumentally correct calculations. The constant growth of tariffs should be stopped,” he said. The prime minister stated that an energy audit of the energy field can stop the groundless tariffs increase. “In a short time we need to provide insulation and modernize all of the community services establishments and units – from heating plants to walls and windows of the buildings. And only after this is done it would be fair that people pay as much as the services are worth,” he added.

This sounds like the same old song, the power industry requires a reform, but it is easier to carry it out verbally than by actually doing something. This is proved by the amounts of financing provided for the housing stock heating insulation and modernization. Only 40 million hryvnias were assigned for this purpose in 2012! The insulation of a regular nine-storied apartment building costs 8 to 12 million hryvnias, and heating modernization and energy audit of one building costs 1 to 1.5 million hryvnias. Billions of hryvnias are taken from the budget to pay all the officials from the Cabinet of Ministers, President’s Administration, and the members of parliament, and they managed to find only a few dozen million hryvnias here. And now a question arises: is there any common sense in this, and is the government’s intention to reform the public utilities sector really serious?

COMMENTARIES

Pavlo KACHUR, director executive of the New Energy of Ukraine Alliance:

“This is definitely a positive step for housing and communal services, since much has been said about the cost price of the present tariffs. However, about 25 percent of the population will be knocked out by the increase in the utilities tariffs. Especially those, who are on the verge of receiving social aid from the state. These are the people, whose utilities bills exceed the annual income level that allows receiving social aid only by a few percent. As a reminder, those, whose housing payments are no larger than 15 percent of the annual income, are to receive the social aid. The planned tariffs increase will additionally require 2 to 2.5 billion hryvnias for the new social aid payments. Does the budget have this money? Twelve percent of Ukrainians receive the social aid on housing payments now, and eight to ten percent more will appear in case the increase takes place.

“The increase is more likely to be carried out in stages – 10 to 15 percent at a time. It is impossible to indicate the level of the increase beforehand. No matter how much they are raised, sooner or later we are going to end up in a situation when the tariffs are not going to cover the cost price. And they will be raised once more. This is movement up the spiral. Why does this happen? The public utilities enterprise today is a monopolist. Their tariffs are based on their real expenses, so they have absolutely no interest in reducing the expenses. If the tariff calculation was based on a certain fixed standard, then these monopolists would lessen the expenses and the compromise between the producer of the utility service and the consumer would be possible.”

Oleksii KUCHERENKO, former minister of housing and utilities services:

“It is true that public utilities tariffs are loss-making. But besides, considering the present rate of the tariffs, the level of population’s payment is low. That is why a crisis of non-payments should be expected if the rates go up. In order to avoid this, interests of housing and communal services should be balanced against the real income level of the population. The tariff blow can be softened if the structure of tariff forming is reconsidered. It should be taken into consideration which gas is used for heating: Russian or Ukrainian. If the public utilities tariffs are raised to the economically justified level, the heating payment will increase by 150 percent, provided the gas price stays the same. And what will happen when the gas price increases? I do not even want to make predictions about this. It seems that these are just words and this increase will never happen, because the population will not sustain it.”