Ukraine moves to a market-based pricing: What to expect from reforms in the energy sector

Украина переходит на рыночное ценообразование: Чего ждать от реформ в энергетике

Since may 1, in Ukraine there are new tariffs for gas. The government has aligned the prices of gas for commercial and non-commercial consumers. Single price is calculated according to the formula on the basis of the forecast of gas prices at German gas hub NCG. The government promises to compensate the price increase to the citizens through subsidies and insists that such a step is necessary if Ukraine wants to move in the European direction in economic terms and to energy independence from Russia. Simultaneously with the gas sector, the market approach to pricing and introduced in the electricity market. In particular, the national Commission approved the methodology for the calculation of wholesale market price for electricity, which is based on the European index prices of coal.

Interviewed experts and politicians generally support such a decision, calling it market and contributing to the fight against corruption in the energy market. However, note the need to support citizens with low income.

On the difference in the cost of gas was making the oligarchs

Oleh bereziuk, MP, “Samopomich”

There is a positive in that now there is no difference between commercial and non-commercial use of gas. Exactly to earn it and our oligarchs plundered the country. But we will speak with the Prime Minister to offset the increase in gas tariffs for citizens. There is three things. Should really be created market system of regulation of tariffs, we need to know how many real country buys and sells gas to understand it’s current market price. The second point you must consider how much money is spent by the Ukrainian state, to encourage each household to high-quality energy-efficient policy, how much cheap money we gave to people so they can improve the energy efficiency of their homes and reduce gas consumption. And already the third – subsidies. But subsidies should be monetized, that is, there must be money to live and needs to be targeted.

The single rate removes the corruption on the gas market

Iryna Lutsenko, MP, BPP

Aligning gas prices, we remove the corruption component. Because there are so many examples where, on the pretext that allegedly the gas is charged to the population, he’s at a discounted price sold on the side of the same middle managers in state-owned companies. And earn serious money. Therefore, by aligning the tariffs and creating a unified gas price for all consumers, it is now important to create the right support for socially vulnerable segments of the population who do not have enough money to pay is high, but the market price for gas. To do this, and it says Groisman, said Stepan Kubiv, and I think in the near future this issue will be resolved is to monetize social assistance. That is money that previously just written off, will now be given to each household. And then I think to myself, you spend them on an extra loaf of bread, to insulate their homes, change the window and will pay less or spend it just to pay for gas.

Need to create competition in the energy markets

Oleg Ustenko, expert, Executive Director of the International Bleyzer Foundation (The Bleyzer Foundation)

Monopoly itself is inefficient and it is necessary to open competition in the gas market. If you go on raising tariffs, you should immediately open the competition, because she can continue to influence already on the reduction of tariffs. It’s not a fixed level of tariffs. They may be reduced. If you will be conducting structural reforms, they are in dollar terms may remain the same, and in hryvnia – can decrease. But this requires that the currency began to flow into the country. If there will be a fix currency, you’ll go from a constant trend for the weakening of the hryvnia will strengthen the hryvnia. It’s other risks, but it is a possibility. And for that we need structural reforms. That’s why I basically happy with what the IMF demands that Ukraine carry out these reforms. After all, similar memoranda were on hand with Yulia Tymoshenko and Mykola Azarov. However, they took upon themselves commitments, but stopped the action memoranda for the stage when it was necessary to introduce price shocks for the population tariffs for fear of political shocks for yourself.

Decisions on the alignment of prices was prepared long ago, but was blocked

Bohdan Sokolovsky, former Commissioner of the President of Ukraine on international energy security issues

The introduction of a formula-based approach to the pricing of energy resources in Ukraine with reference to the European indicators is progress for the industry and the country. At different prices it is possible to speculate, as it is impossible to separate in the tube of Ukrainian and imported gas resource for the industry and the public. Decisions on the alignment of prices was prepared long ago, but was blocked. Single price for obvious formula is the right move. In addition, the formula must be binding to the gas quality, to price it “clean”, to the calorific value. Also logical is to bind the cost of Ukrainian coal to the European API2 index, which shows market prices for this fuel scarce for the North European market. This is the first step towards reform of the industry. The coal industry should be restructured, to leave only the prospective mine. Cannot be such that the company operated at a loss. Energy prices should be market-based. Cross-subsidization is the remnants of the Soviet planned economy. The formula approach allows to determine the prices, no matter who is in power.

The best approach to formation of tariffs is purely economic

Valery Borovik, the Chairman of the Board, Alliance “New energy of Ukraine”

We can say about the two approaches to formation of tariffs – political, to be liked, and economic. A better approach is purely economic. In fact, the cost of electricity generation and gas supply for the population does not meet all the indicators, which are incorporated in this price. In fact, the state has always subsidized the population, and we have so-called social price was for gas. And now it is a thing of the past. The government most wants to use your small gap of time to trust it as to the new government, it takes 2-3 months to make such drastic steps, such a shock increasing these rates. Moreover, to date there is no heating season. That is not very much influenced by the bills that come to the people. It is obvious that the practice of cross-subsidies in electricity prices and subsidize the price of gas is categorically not true. In the first reading has passed the law on the electricity market. Parallel is the adoption of the law on independent regulator, which will monitor the rates and at work in this market. There are positive steps which indicate that now we have a big generation will not only in the energy market to sell your product, but actually under direct contracts. And it has really created a market field, a model that is more close to European. In General, transparent pricing for electricity – one of the fundamental conditions of interconnection between Ukraine and the EU. Given the fact that we go to Europe, it is very important.

Producers will be able to plan the economy

Alexander para, the chief of analytical Department of the IR Concorde Capital

Whether there are economic grounds to increase prices for gas and electricity? It is obvious that there is. For each product you have to pay at least enough to cover the cost of its production. Because when everyone – rich and poor – are paying a very low price for gas – that’s not fair. Moreover, we understand that it’s all kompensiruet from the state budget. NRCA, have developed a new method of forecasting the so-called wholesale market prices for electricity. This is the price, which influences the final price for industrial consumers. The fact that they introduced the forecast for the year is very good. So now every industrial consumer, every enterprise is at least a year in advance to understand how they will each month to pay for electricity. This is really great progress, because before that forecast was given in a month. And rates that you can know 5 days before the beginning of the month. The new technique will enable manufacturers to plan the economy to provide incentives for investment in energy and infrastructure modernization. Prior to the adoption of the new methods, the formation of orts was in manual mode. But, the electricity market must be reformed and liberalized further.

Igor Smolov