War Communism in energy sector no longer viable
The energy market is not a pana cea but an objective reality that needs improving, concludes participants in the Concept of Energy Market Development public hearings.
Interestingly, this function might not have been held at all had it not been for overseas help. US diplomats seem to be exerting a certain influence on serious decision-making in this country. No sooner had the Pifer-Pascual ambassadorial duet said that energy sector reforms were foundering than the Ukrainian Union of Industrialists and Entrepreneurs (UUIE) decided to fulfill Prime Minister Anatoly Kinakh’s instruction dated December 26, 2001 and held the much needed hearings on January 31. The burning questions raised during the hearings were far beyond the scope of theoretical debates. That same day the Enerhorynok (Energy Market) state enterprise forecast that in January the share of prepayments for electricity would drop to 61% vs. 86% in December last and that of money-based payments to 54% against 69.8%. This is caused by reduced public utility payments and inadequate settlements among industrial enterprises. At the same time, the National Commission for Electricity Regulation (NCER) limited the growth of retail electricity charges in Kyiv, Zhytomyr, and Rivne oblasts, as well as in Sevastopol, to offset a considerable growth of electricity costs for industrial consumers, following the rise in rates for oblenerho (regional power supply companies —Ed.). Although it is common knowledge that such strict government regulation of electricity (especially when a considerable part of enterprises have already gone out of state control) does not, to put it mildly, fit in with any market-economy pattern, this practice still exists.
The concept authors suggested ten tasks which, if carried out, would admittedly solve the current problems of the Ukrainian energy sector. These tasks range from the financial improvement of electricity generating facilities and the clearance of arrears strangling the development of the Ministry for Fuel and Energy as such. Moreover, the authors believe these tasks can be fulfilled even irrespective of when the vetoed law on the wholesale market of electrical energy passes. Yet, it is not so much the concept as the law itself that became the subject of debate. The concept, born in the lower depths of but not yet discussed or approved by the government, was to play the role of a trial balloon in order to determine whether it was worth moving this law again. Without doubt, the first trial balloon was the NCER recent promise to raise rates for the privatized oblenerho. The international public thus received a signal that foreign criticism was heeded and all red tape with respect to energy investors will be streamlined. But is this measure perhaps just a tactical concession? The organizers of the hearings and authors of the wholesale energy market concept wanted to convince the Ukrainian and international public of precisely the opposite, that they were solving strategic issues.
On the other hand, the premier’s advisor Oleksandr Svietelik did not insist too much on the necessity of further reforms on the Ukrainian energy market. In his opinion, the amendments made to the law on electrical energy have restored normal monetary relations in this country, so the obvious positive tendencies should be developed. Nevertheless, the energy market displays a 9% monthly increase of accounts payable. The debts of power-generating companies alone, Mr. Svietelik said, have risen to UAH 15 billion. But for these debts, the expert believes, nothing would have to be changed. In his opinion, if the arrears are not cleared on a priority basis, this will discredit any structure or pattern on the energy market. Moreover, the advisor thinks, if this country continues to neglect reforms, the electric companies and, hence, the whole Ukrainian energy sector will have no other prospect but slide into a bottomless debt pit even if the existing system ideally carries out its functions. Simultaneously, drawing the outlines of a new energy market, Mr. Svietelik asked who we are establishing it for. For the consumer, of course, he answered himself and sought the opinion of regional representatives.
This opinion was not so favorable. Yury Chelembei, executive director of the UUIE Poltava regional branch, presented an analysis from which it followed that the policy of war communism in the energy sector is undoubtedly a bad thing, but reforms still “should be confined only to some indispensable changes in the way the sector functions.”
At the same time, Ihor Boiko, chairman of the Chernihivoblenerho supervisory board, thinks that the problem of energy problems can be solved by the rapid and complete privatization of energy companies and further reform of the energy market. Failing that, the energy sector will be torn apart by endless conflicts. In his opinion, the proposed concept of the energy market, which assigns the leading role to the association of its members, will if implemented allow the now disparate producers, sellers, and consumers of electric power to unite their interests. He said that the concept’s proposed direct contracts for the delivery of electric energy from the producers to the consumers or the power-supply companies form the primary joint interest of all market operators. Mr. Boiko and UUIE Vice President Leonid Ryzhkov, who supported the former, opined that it is possible to solve the debt problem by setting up a clearinghouse as part of the association of energy market operators. This proposal, as well as the debate itself, aroused a keen interest of the present foreign consultants.
