The Price of Ukrainian Electricity

The agreement with Russia on deliveries of surplus Ukrainian electricity (up to 6.5 billion kilowatt-hours per year) is practically ready and will be signed and made public in the coming days, The Day has learned from the Enerhoatom State Nuclear Power Company. In the meantime, the Monday before last the press service of United Energy Systems of Russia (UES) issued a statement that The Day’s experts call a provocation. With the launch of additional nuclear units at the Khmelnytsky and Rivne nuclear facilities, Ukraine, which no longer depends on Russian electricity even without the two new units (imports of Russian electricity declined to 213.6 million kilowatt-hours already in 2003), will become an exporter of electricity.

UES has stated its readiness to import up to 6.5 billion kilowatt-hours of Ukrainian electricity per year. At the same time, the Chubais-led company, which obviously still harbors old-time ambitions of hegemony over Ukraine, has stated that these supplies should be of a long-term and cost- efficient nature.

Enerhoatom has been in talks with INTER, an offspring company of UES, concerning electricity supplies since June. However, the Russian side has called the terms put forward by Ukraine “difficult to realize primarily because of their insufficient economic feasibility.” Ukraine insists on full prepayment for electricity supplies. The Russian energy holding considers this unacceptable, “given both the expected volumes of supplies (up to 500 million kilowatt-hours per month) and the past record and current level of Russo-Ukrainian cooperation in the power industry.” In addition, Enerhoatom has proposed signing a three-month contract for electricity supplies as of October 1, while INTER is interested in long-term contracts, because such significant electricity flows need to be reflected in Russia’s energy balance, which in turn requires long-term planning of energy production in Russia’s European territory. Simultaneously, Russia has resorted to light commercial blackmail by stating that “in selecting a contractor on the Ukrainian side, the decisive factor for the energy company will be the long-term nature of the contract and a price that would ensure the cost effectiveness of Ukrainian electricity deliveries.” In this respect, a stumbling block for Ukraine is the limited throughput of the Burshtyn energy island, which restricts supplies of cheap Ukrainian electricity to the West. So far Russia technically remains the sole buyer of Ukrainian electricity.

Meanwhile, The Day has learned from a source that the contract has been almost fully prepared and approved and is absolutely acceptable for Ukraine because it is selling surplus electricity, thereby channeling additional revenues into state coffers. The expert believes that the contract price will in no way be lower than the domestic price for electricity. The length of the contract was the major hitch in the talks. In his opinion, it was the Ukrainian side that was insisting on a long-term contract, but it could not leave out of consideration the fact that electricity rates are revised from time to time in Ukraine. “In fact, it was Enerhoatom that selected the best proposals from the list of Russian contractors,” he claims.

Simultaneously, Ukraine now has an opportunity to stabilize domestic electricity prices. According to Ukraine’s Fuel and Energy Minister Serhiy Tulub, the Fuel and Energy Ministry is developing measures to keep the wholesale price for electricity at the current level until the end of the year. According to Tulub, the wholesale price for electricity has increased by 8.2% since the beginning of 2004. He also mentioned ways to reduce by 75% the cost of electricity used in street lighting.

Understandably, these measures are primarily aimed at raising the reliability of power generating capacities. This year alone Ukraine’s generating companies repaired thirty-nine power units with a combined installed capacity of 10,204 megawatts. As of September 1, seventeen power units with a combined installed capacity of 3,702 megawatts were undergoing repairs.

However, this is not all about patching up holes in the energy system. In late August the government formed a commission to reform and develop the power industry, headed by Vice Premier for Fuel and Energy Complex, Industrial Policy, Environment, and Emergency Management Andriy Kliuyev. Enerhoatom president and Fuel and Energy Minister Serhiy Tulub has been appointed his deputy. The commission also includes Enerhorynok State Company director Valery Kalchenko, National Energy Regulatory Commission chairman Serhiy Tytenko, Deputy Foreign Minister Volodymyr Makukha, Deputy Chairman of the State Tax Administration Serhiy Liekar, Deputy Justice Minister Vasyl Marmazov, Deputy Fuel and Energy Minister Oleksandr Svetelyk, Deputy Minister for the Economy and European Integration Viktor Chabanenko, and Deputy Finance Minister Anatoly Shapovalov. The commission will oversee the preparation and implementation of a phased program to reform and develop Ukraine’s energy sector. The International Bank for Reconstruction and Development may also support this program financially. The commission’s overriding goal is to coordinate the preparation of a strategy for the legal and technical harmonization of Ukraine’s energy sector with the EU’s energy market. Thus, it is expected that Ukraine’s electricity supplies will become diversified, and that steps similar to those taken by UES will not affect us.