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Energy Billions

26 July 20181145
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“Everyone is on the velvet. And that is very cool. And I want to win further on,” Rinat Akhmetov commented on the achievements of Shakhtar FC in a recently released interview under the telling title “We Have a Bright Future”.

The successes in the sporting realm of the club of the richest man in Ukraine can be reliably transferred to his business as well. Even with the change of power in the country and hostilities, Mr. Akhmetov ranked 282th among the richest people in the world, according to last month’s Bloomberg rating. As of June, its estimated value of capital increased by USD 1.3 billion for the year.

Of course, Mr. Akhmetov’s ownership is not only energy, but metallurgy, telecommunications, banks, etc. But exactly the cost of energy assets has increased. If we analyze the company’s financial statements, then we will see that DTEK Energo completed Q1 2018 with a profit of UAH 4.3 billion.

In 2017, profits also increased. Thus, according to Concorde Capital, last year net profit of DTEK Energo increased by 10% to UAH 141 billion. According to calculations, the company’s EBITDA (operating profit before paying interest, taxes and depreciation) improved by 29% to UAH 23 bln.

Only in Q4 2017 DTEK Energo’s net income amounted to UAH 41.4 billion (increase by 34% compared to the previous quarter), and EBITDA was UAH 8.8 billion (increase by 92% compared to the previous quarter).

And most Ukrainians probably do not even realize that they are actively involved in replenishing the “moneybos” of the Donetsk oligarch. Let’s see how it works.

 

Game Rules

Electricity business in Ukraine is expecting dramatic changes. In April 2017, the Verkhovna Rada adopted the Electricity Market Law. Already in August 2019, Ukraine will have a model of the electricity market that operates in accordance with European standards.

Instead, today, the Ukrainian energy industry is one of the most problematic sectors for our state. And this has been influenced by a number of factors.

How does the electricity market work today? Consumers pay for the electricity of oblenergos. These companies, having left the share for their energy supply and distribution services, transfer funds to State Enterprise Energorynok. And it as the only wholesale buyer-seller distributes the payments received between the producers of electric energy.

The algorithm of distribution of funds for manufacturers is also provided. All generation has established tariffs at which they supply electricity. Therefore, the distribution of funds from Energorynok is formed in accordance with: a) the established tariff and b) the amount of electricity supplied. As a result, approximately 50% of all funds received by Energorynok should be given to heat power generators, about 40% to nuclear power plants, and the rest - to green energy and hydraulic power plants.

Such a mechanism is caused by the fact that the cost of energy produced at thermal power plants and district heating plants is much more expensive than at nuclear power plants.

As reported by SE Energorynok, the structure by volume and value of the electricity sold to the Wholesale Market in 2017 is as follows:

SE NNEGC Energoatom produced 56.58% of all electricity in the country. This is more than 80,502 million kWh. At the cost price – a little more than UAH 38,366 million.

Instead, the generating companies of the thermal power plants produced 28.48% of the electricity in the country (more than 40,526 million kWh). However, its cost price is more than UAH 64,665 million.

That is, thermal power plants generate much less electricity, but with much higher value.

 

Structure by Volume and Value of the Electricity Bought by SE Energorynok from electricity producers and sold to energy suppliers,  for each energy source in 2017

Primary energy sources

Share in volume of the electricity, %

Share in the value of the electricity, %

 

Nuclear power plants (NPPs)

56.46

27.85

 

Generating companies of thermal power plants (GC TPP)

28.49

47.31

 

Hydroelectric power plants (HPPs) (except for small ones)

7.04

4.40

 

Central heating and power plant (CHPPs)

6.54

12.98

 

Hydroelectric power plants (HPPs) (small ones)

0.15

0.55

 

Wind power plants (WPP)

0.68

2.34

 

Solar power

0.50

4.05

 

Biomass

0.07

0.27

 

Other

0.07

0.25

 

Total

100.00

100.00

 

 

Politica.media.com.ua

Data from CEC’s website

In fact, SE Energorynok is actually some kind of intermediary in distributing funds between consumers and oblenergos and producers. And it must allocate funds both to nuclear energy producers, and hydroelectric power plants, and thermal power plants.

However, over the past 3.5 years, a clear line of support for thermal power producers from the side of the Regulator (the NEPURC) and the Ministry of Energy and Coal Industry has been observed.

 

Thermal Power Plants First

The electricity market needs urgent reorganization, first and foremost, because of fantastic amounts of debt.

As reported by the NEPURC, as of May 1, 2018, consumers owed to SE Energorynok (through electricity suppliers, in most cases, oblenergos) - UAH 29.753 billion.

Accordingly, SE Energorynok is also a debtor. According to the NEPURC, the total debt of this state enterprise for electricity to producers and SE NPC Ukrenergo is almost UAH 24 billion.

 

The head of the NEPURC Oksana Kryvenko notes that “the main reason for incomplete settlements by Energorynok with electricity producers is the consumers’ debts for consumed electricity.”

According to the Regulator, the largest non-payers are enterprises of the coal industry (as of May 1, 2018 - more than USD 14.235 billion); enterprises providing central water supply and sewage services (over UAH 5.6 billion); the population (more than UAH 5.4 billion).

Both in SE Energorynok, in the NEPURC, and in the Ministry of Energy and Coal Industry, it is undisputed that the indebtedness of consumers depends, in particular, on the efficient operation of electricity suppliers engaged in economic activities in the electricity supply.

So how does this all relate to the richest person in the country?

There is such a power holding of DTEK, which belongs to the oligarch Rinat Akhmetov.

According to the data of DTEK website, which is confirmed by the data of the State Statistics Service of Ukraine, DTEK Energo produces a quarter of the country’s electricity. The company’s production capacities are represented by the enterprises of the thermal generation in the structure of DTEK Skhidenergo, DTEK Dniproenergo, DTEK Zakhidenergo, Kyivenergo and Myronivka TTP, which is part of DTEK Donetskoblenergo...

DTEK Energo consists of 5 distribution companies serving 3.4 million customers: DTEK Dniprooblenergo, Kyivenergo, DTEK Donetskoblenergo, DTEK High Voltage Networks, and DTEK PEM Energovugillia.

That is, the energy holding includes companies that are both producers of energy and its suppliers to end users.

According to the Ministry of Energy and Coal Industry, DTEK Group controls about 80% of the thermal power generation. This information has been confirmed in the AMCU – here, the case of abuse of a monopoly position by DTEK Group has been investigated since 2015.

At the beginning of this investigation, the head of the AMCU Yurii Terentyev reported that DTEK companies produce 25% of the electricity in the country.

Thus, as Yurii Hnatiuk, Director of SE Energorynok, noted that, as of June 1, 2018, the total debts of energy supply companies Dniprooblenergo, Donetskoblenergo, High Voltage Networks, Krymenergo, Kyivenergo, PEM Energovugillia to SE Energorynok makes up UAH 7.9 billion.

Instead, the debt of SE Energorynok to the generating companies Zakhidenergo, Dniproenergo, Skhidenergo, and Kyivenergo amounts to UAH 3.5 billion.

It’s uncomplicated arithmetic - we get that companies from DTEK Group owe UAH 4.4 billion to SE Energorynok.

To the request as to why debts are not being repaid, Dmytro Saharuk, CEO of DTEK Energo, said that the company “does not carry out activities related to the electricity production and trading and has no relationship with SE Energorynok regarding settlements within the wholesale electricity market.”

“The enterprises mentioned in your appeal, which carry out the specified types of economic activities, in accordance with the provisions of the Commercial Code of Ukraine, are separate business entities, and therefore they are independent participants in contractual relations with SE Energorynok”.

It should be noted that the decision on the mechanism of distribution of funds between electricity producers for the supplied electricity is initially approved by the Board of WEM (wholesale electricity market). And it is not surprising why the game is “lopsided” - in favor of the thermal electric power plants. After all, out of ten members of the Council, four are representatives of DTEK companies, and the Chairman of the Board Borys Lisovyi is an advisor to the Director General of DTEK High Voltage Networks LLC.

 

To Whom and How Does SE Energorynok Repay Debts?

If we analyze the repayment and accumulation of debts for the past few years, then there is a natural tendency for invisible, at first glance, granting of disproportionate advantages to one of the participants in the Wholesale Market to the detriment of others.

According to the head of the NEPURC Oksana Kryvenko, the total debt of SE Energorynok to nuclear power plants as of June 1, 2016 amounted to more than UAH 11.744 billion. And in two years, it makes almost UAH 11.6 billion. In fact, it has remained at one level.

Instead, the debt of SE Energorynok to energy generating companies of TPPs, from a little over UAH 9.177 billion in June 2016, decreased for the same period to about UAH 3.94 billion.

Thus, as the figures say, debts to thermal power plants are systematically repaid. And as we have noted, 80% of the thermal energy is produced by companies of DTEK Group.

And this is often done bypassing the algorithm for the distribution of payments - in proportion to the cost of the electricity produced. After all, such a distribution is disproportionate - they first of all satisfy thermal power plants, which is the essence of the problem.

For example, according to Nashi Groshi, at the end of 2016, Energorynok distributed UAH 686 million. Not a single kopiika of this sum was received either by nuclear power plants or by hydroelectric power plants. According to the Resolution of the NEPURC and the decision of the Ministry of Energy and Coal Industry, UAH 676 million from SE Energorynok was received by companies of DTEK Group - Skhidenergo, Zakhidenergo and Dniproenergo.

Such tacit support for thermal generation in Ukraine is not a solitary instance.

For example, on October 18, 2017, the CMU adopts the Order No. 776-p On Measures to Stabilize the Operation of Energy Generating Companies of Thermal Power Plants.

In accordance with this Order, SE Energorynok takes out a loan of USD 2 billion from the state Oshchadbank. These funds are provided for repayment of debts to electricity producers, which were formed by Energorynok as of September 1, 2017.

However, thanks to the ability of the Cabinet of Ministers, all funds are exclusively for thermal generation.

Subsequently, on January 9, 2018, the NEPURC adopts the Resolution No. 9 on the allocation of funds.

According to Oksana Kryvenko, the head of the Regulator, out UAH 2 billion, almost UAH 1.307 billion were received by PJSC DTEK Dniproenergo, PJSC DTEK Zakhidenergo, LLC DTEK Skhidenergo.

Such commitment from the NEPURC, the CMU, and the Ministry of Energy and Coal Industry to the enterprises of DTEK Group was not ignored by the NABU.

As reported by Nashi Groshi, in February 2018, the National Anti-Corruption Bureau of Ukraine initiated two criminal proceedings “as regards the abuse of official position by officials of the NEPURC when making regulatory decisions in favor of the energy companies of DTEK holding”.

Regarding such support of thermal generation, the response was received from the Secretariat of the CMU, signed by the Head of the Department of Access to Public Information Roksolana Stadnyk, who indicated that the Ministry of Energy and the Coal Industry was the developer of the above-mentioned Order No. 776-p.

Instead, the First Deputy Minister Tetiana Maksymets explained such an initiative by the need of the settlement of energy generating companies of thermal power plants with coal products suppliers.

By the way, according to the Ministry of Energy and Coal Industry, in 2017, it was DTEK Group that produced more than 80% of energy coal in Ukraine.

“It is obvious that such “manual” decisions, under which the state Energoatom, Ukrhydroenergo and Ukrenergo do not receive anything, and all the money goes to the thermal generation, where Akhmetov owns 80% of the enterprises - these are DTEK’s preferences. Unfortunately, the Minister of Energy and Coal Mining and the NEPURC, thus, showed their loyalty to Akhmetov, while state-owned enterprises suffered,” the Association of Consumers of Energy and Public Utilities comment the described actions.

However, not all experts are unanimous in this position. Thus, Yurii Sakva, the First Deputy Chairman of the Council of the Union of the All-Ukrainian Energy Assembly, holds a fundamentally opposite point of view:

“This is a false statement that only thermal energy is supported. Partial settlement with TPPs is a situational but necessary start. Tomorrow, the government can make decisions for NPPs, the day after tomorrow for CHPPs, etc. Until the debts to all participants are repaid. Once again I want to express the opinion that during the procedure of debt repayment, it is difficult/impossible and unreasonable to achieve even distribution of debt obligations,” Yurii Sakva insists.

 

Loans at the Expense of the Population

If one clearly delineates the main problem of the described, then this is the distribution of funds in Energorynok in favor of the thermal generation of DTEK, which is disproportionate to their share in the cost of electricity.

There are two important points in obtaining loans from SE Energorynok: the first is repayment of interest for using credit lines. And the second - to whom and how these funds are provided.

The first is how much they have taken and how much they have paid to banks.

According to the information provided by SE Energorynok, within the period 2015 - June 2018, the company obtained more than UAH 35.7 billion in total from two banks – JSC Oschadbank and JSB UkrGasBank.

In general, for the use of loans for this period, SE Energorynok paid almost UAH 3,319 billion.

Why does a state enterprises need loans? This money in previous years was provided as advance payments to electricity producers - as payment for commodity products of future settling periods.

That is, in order for energy generating companies to have funds for settlements for fuel, in particular coal, SE Energorynok takes loans, and provides them as advances to producers.

Consequently, electricity producers use the funds provided for free.

Interest is paid by SE Energorynok. But where does the enterprise have funds for this from?

According to the NEPURC, interest for using credit funds is included in the cost estimates of SE Energorynok: “In accordance with the provisions of the Procedure for Formation of the Forecast Wholesale Market Price of Electricity, approved by the Resolution of the NEPURC No. 289 of March 3, 2016, No. 289, which was agreed upon by the Ministry of Energy and Coal Industry, the Antimonopoly Committee of Ukraine and the State Regulatory Service of Ukraine and registered with the Ministry of Justice of Ukraine on March 23, 2016 under No.428/28558, one of the components of the forecasted wholesale market price of electricity is the cost estimates of SE Energorynok”, the NEPURC explained.

That is, it turns out that the interest for the use by energy producers of free loans is ultimately paid by each of us – electricity consumers. After all, these funds are included in the final wholesale price. And although electricity prices for the population are regulated and lower than market ones, the business pays the full price - with all the costs plus the cross-subsidizing of prices for the population, which ultimately reflects the prices of goods and services.

Therefore, it is not surprising that over the past 3.5 years, WMP (wholesale market price) of electricity in Ukraine has increased by more than 2 times, according to SE Energorynok calculations According to the data on the website of the National Energy and Public Utilities Regulatory Commission, this price has increased by 2.4 times since April 2015.

 

Whom Do We Subsidize?

To whom have free loans been provided in recent years?

The NEPURC provided calculations according to which from more than UAH 13.29 billion of loans obtained in 2015, more than UAH 8.533 billion were obtained by DTEK’s companies - DTEK Dniproenergo, PJSC DTEK Zakhidenergo, DTEK Skhidenergo LLC.

Of the more than UAH 10.8 billion obtained by Energorynok in 2016, the same companies and PJSC Kyivenergo received almost UAH 6.485 billion.

From over UAH 8.27 billion in 2017 – they received more than UAH 5,107 billion.

And for 5 months of 2018, of more than UAH 3.372 billion, PJSC DTEK Dniproenergo, PJSC DTEK Zakhidenergo, DTEK Skhidenergo LLC, and PJSC Kyivenergo were provided more than UAH 2.014 billion.

In total, of all borrowed funds from 2015, these companies were provided roughly 62% of this money in total.

Thus, the predominantly the oligarch Akhmetov’s companies used these free loans.

Interest on the use of loans was included in the estimates of SE Energorynok. This estimate was taken into account in the formation of the wholesale market price of electricity.

From this price, respectively, the cost of electricity for the population was formed.

And also for the industry. For which the tariff is much higher, but in the end it is mostly paid by Ukrainians.

After all, companies and producers who pay for electricity include their costs in the cost of products. Thus, going to the store, or paying for water services, every Ukrainian also pays for the high cost of electricity tariffs for non-residential consumers.

Tariffs, in which more than UAH 3,318,830,300 of interest have been included since the beginning of 2015.

Despite the described high favor of both the NEPURC, and Energorynok and the Ministry of Energy and Coal Industry to thermal generation, I recall that more than 80% of which is DTEK, statesmen continue to support the business of the country’s richest man.

Thus, the term of return of advance payments, which was to be given to Energorynok in April 2018, was extended till 2019.

And electric power producers will be able to use these loans for free for almost a year.

By the way, as Energorynok wrote, as of June 1, 2018, the total amount of such advances was UAH 1.78 billion, of which UAH 1.04 billion was provided to companies from DTEK Group (Zakhidenergo, Dniproenergo, Skhidenergo, Kyivenergo).

Such a grand gesture is explained briefly and concisely by the Ministry of Energy and Coal Industry. They allegedly postponed the repayment of advance payments for them, since SE Energorynok has significantly more debts to the indicated companies. Accordingly, the company will repay its debt until 2019, then the indicated DTEK companies will receive funds, and they will be able to return the specified advances.

For some reason, the Ministry of Energy and Coal Industry does not mention that the companies belonging to DTEK Group, as I wrote above, have UAH 4.4 billion of “net” debt to Energorynok.

The Ministry of Energy and Coal Industry also explains that “the repayment of these advance payments by enterprises may negatively affect the financial condition of enterprises.”

Why do Ukrainians have to subsidize the oligarch’s business if Akhmetov’s enterprises can take their own loans from commercial banks and pay interest on them?

The Ministry of Energy and Coal Industry covers its actions with good intentions and concern with the consumers: “Postponing the repayment of advances will allow heat generation companies to accumulate funds for reliable preparation and passing of 20181/2019 autumn-winter period,” the Deputy Minister Anatolii Korzun wrote.

 

Instead, Svitlana Holikova, a member of the Strategic Council of the HO of the Kyiv Institute of Energy Studies, believes that one of the main problems in the sphere is cross-subsidization:

“In the electricity industry, in recent years, the high level of cross-subsidization by industrial consumers of the cost of electricity, which is supplied to certain categories of consumers at fixed rates, remains high. The total amount of compensation for losses to energy supply companies from electricity supply to certain categories of consumers in 2015 amounted to UAH 43.8 billion, in 2016 - UAH 45.5 billion,” Golikov said at the round table "How to protect the consumer during the difficult reforms of energy markets”.

 

Ministry of Energy and Coal Industry and Its Balance Sheet

Despite all the above, thermal power plants continue to receive regular preferences from the state.

Thus, the Balance Sheet for 2018 approved by the Ministry of Energy and Coal Industry will reduce the production of cheaper electricity at nuclear power plants and, accordingly, increase the supply of more expensive electricity of thermal power plants (TPPs).

And here we have the result. As reported by the NEPURC, for 4 months of 2018, the share of production of SE NNEGC Energoatom, in total decreased to 50.2% (compared with 56.6% - for the same period in 2017). Instead, the share of generating companies of TPPs increased to 29.2% (from 28.5%).

Such actions were explained in the Ministry by the need to “increase the duration of repairs at power units in connection with an increase in the volume of planned work.”

Experts agree that repairs and safety at nuclear facilities are one of the top priorities in the country. But along with this, there is another reason:

“Energoatom’s production is systematically underestimated in order to allow heat generation (Akhmetov’s DTEK) to earn more, ​​although this scenario signifies a higher tariff for the consumer,” such a point of view is offered by the Association of Energy and Public Utilities Consumers.

 

Instead, Yurii Sakva, the First Deputy Chairman of the Council of the Union of All-Ukrainian Energy Assembly, said that it was solely about security issues:

“The main reason is an increase in the scope of scheduled repairs according to the approved schedule for 2018. As a reminder, in 2017, electricity generation at NPPs was higher due to the introduction of a special condition for the replacement of the stopped TPPs with anthracite culm (from February to August).

The second is due to the unplanned repair of the power unit at the KhNPP in April-May 2017, the production was reduced by about 1 billion kWh per gram, with the corresponding replacement of production at thermal power plants at the expense of burning an additional approximately 590 thousand tons of coal. I’ll say at once, this is a completely ordinary situation, it happens, such regimes are predicted and I am sure that before the autumn-winter period, coal reserves in the warehouses will be restored. The “hot” and “cold” reserve regime at TPPs to ensure the reliability of the UES in the event of an unplanned change in the operating modes of NPPs is set by NPC Ukrenergo permanently. Despite all the mutual claims that exist between producers, one must understand and take into account in the estimates that TPPs and NPPs in the united system today are an “inseparable pair,” Yurii Sakva insists.

 

Oligarchs’ Debts Rest on Consumers’ Shoulders

Meanwhile, in Ukraine, there are sharp discussions regarding the draft Law No. 8253 On Peculiarities of the Repayment of Debts Formed in the Wholesale Electricity Market developed by the Ministry of Energy and Coal Industry.

After all, in accordance with the Electricity Market Law of Ukraine, in order to reform the energy market, the entire debt in WEM should be repaid/settled by June 30, 2019 in connection with the termination of activities of WEM and the reorganization of SE Energorynok.

Accordingly, the Ministry of Energy and Coal Industry offers how to get rid of almost 30 billion debt.

Initially, the agency wanted to settle all issues with the repayment of the debt of SE Energorynok at the expense of the state budget. The Ministry of Finance, headed by Oleksandr Danyliuk at that time, was against it.

As the Deputy Minister Serhii Marchenko said in response to the request, “The Ministry of Finance did not support the attraction of funds from the state budget for settlements under debts of participants of the wholesale electricity market... As for the repayment of debt formed in the wholesale electricity market, we inform that such debts were formed as a result of economic results activity of business entities and should be repaid in accordance with the current legislation of Ukraine, which regulates economic relations,” the Ministry of Finance replied.

The Ministry of Energy and Coal Industry explained that they agreed with this position of the Ministry of Finance.

“ ... in the text of the draft law, the reference “at the expense of the costs provided for by the State Budget of Ukraine for the relevant year” is replaced with “at the expense of the sources not prohibited by the laws of Ukraine,” the First Deputy Minister Tetiana Maksymets wrote.

From this answer, it was difficult to understand where the money would be taken from. Thus, a similar question was addressed to the NEPURC.

The Chairman of the Regulator Oksana Kryvenko clearly informed about the issues that were not mentioned in the Ministry of Energy and Coal Industry.

The given draft law provides for “the following mechanisms of debt repayment:

  • mutual settlements between WEM participants;
  • writing off of debts to WEM participants;
  • assignment of claim or replacement of a party in the obligation;
  • establishment of the target surcharge to the tariff for the distribution of electricity by local electric networks to distribution system operators.”

In view of this, the last item, with regard to the target surcharge, is actually the banal regular mechanism of putting hands in the pockets of Ukrainians. After all, the target surcharge will definitely be included in the tariffs for non-residential consumers.

The MP from Samopomich Victoriya Voitsitska started an active “war” with such proposals of the Ministry of Energy and Coal Industry.

First, in her column in Ekonomichna Pravda, and later on Facebook, the deputy spoke about the inadmissibility of such developments.

“It is proposed “to forgive” UAH 7 billion to Akhmetov, UAH 0.8 billion to the group of Ukrainian oblenergos of the Russian oligarch Babakov, and “just a little bit” – UAH 150 million to Zakarpattiaoblenergo (Boyko and Liovochkin), UAH 77 mln to Vinnytsiaoblenergo (Hryhoryshyn and the well-known ICU), UAH 69 million to Lvivoblenergo and Prykarpattiaoblenergo (Surkis brothers). Instead of the above honored gentlemen, debts to SE Energorynok, in accordance with the CMU’s draft law, should be paid by Ukrainian consumers of electricity,” V. Voitstska wrote in a recent post.

In addition, a number of debts in the wholesale energy market are considered by Voitsitska as schematic, that is artificially created. The politician is convinced that some enterprises have already understood that it is impossible not to pay and, in the future, simply to write off debts at the expense of the state.

Thus, as an example, she names the mines of DTEK Rovenkyantratsyt and Sverdlovantratsyt in the occupied territories, which in the spring of 2016 ceased to pay to Luhansk Energy Union (LEO) LLC for the supplied electricity.

It should be recalled that Ukrainian control over these enterprises was finally lost in March 2017.

But it should be noted that Samopomich faction did not vote for the Electricity Market Law of Ukraine.

Although many Ukrainian experts consider its adoption as extremely important for the country and such that protects ordinary citizens:

The Electricity Market Law of Ukraine states that “vulnerable consumers” are exclusively a part of domestic consumers. The powers of the Cabinet of Ministers of Ukraine include the establishment of the procedure that will enforce the right to statutory support for reimbursement of costs for the consumed electricity and/or protection against disconnection in certain periods.

That is, the Ukrainian law has incorporated the general European norms, when the consumer can be provided both a monetary support (personal subsidy), and makes it impossible to disconnect him from electricity sources, as a rule, in the winter,” Ukrainian Energy Projects quotes Svitlana Holikova.

It is also worth noting that, in spite of the statement of the MP Voitsitska, on the other hand, the draft Law No. 8253 On Peculiarities of Repayment of the Debt Formed in the Wholesale Electricity Market provides for the settlement of debts of state structures too.

Thus, Yurii Sakva believes that they are one of the biggest non-payers in the market.

“It is the state which remained the main non-payer for energy sources. Miners, water utilities, district heating companies, privileges, subsidies - all this is the responsibility of the state, which prohibits disconnecting certain non-payers. And continues to generate debt ...

One of the main reasons for the accumulation of debts was a devastating government’s decision to completely cancel the grant to miners from the state budget from 2015. Since then, state mines almost completely stopped paying for electricity, but, under the patronage of the state, still operated - the country extremely needs coal. After this decision, the annual partial restoration of subsidies to cover the high cost of coal mining by state mines did not solve the problem. The mechanism of free electricity supply to the state mines has been launched. Mines have not been paying for electricity for almost 4 years in a row and still work”, Yurii Sakva summarizes.

 

Corruption Schemes

Experts say about scheme payments too.

“Scheme non-payment, when some mines and enterprises did not pay for purpose, expecting that these debts will be covered by the state,” the Association of Energy Consumers and Public Utilities inform.

Neither the Ministry of Energy and Coal Industry, nor Energorynok, nor the NEPURC, explaining the reasons for the formation of debts in the wholesale energy market, do not mention such non-payments. Nor debts that arose due to the manipulation of market participants.

But law enforcement officers are aware of this.

Thus, at the initiative of the NABU, in 2018, “the court awarded the decision according to which over UAH 40 million lost through the existence of a corrupt scheme at the enterprise were returned to the accounts of OJSC Zaporizhzhiaoblenergo.”

As reported by the NABU, detectives of the department revealed a number of schemes for the seizure of funds in the field of electric power industry.

“Thus, the managers of one of JSCs and regional electric power companies, the share of state property in the authorized capital of which was more than 50%, “by concluding the agreements on the assignment of the right to claim and transfer of the debt ... took over funds totaling UAH 641,062,834.35, which were paid to companies being debtors for a private joint-stock company as a payment for electricity previously supplied by state-owned companies,” such a scheme was described to me at the NABU.

Instead, JSC used the money for its own needs – without transferring to oblenergo.

According to the NABU, another common scheme is setting-off similar counterclaims. Detectives revealed such violations in the amount of more than UAH 756 million.

This is how it works - agreements between oblenergos and the debtor for the provision of interest-free returnable financial assistance are concluded. The enterprise provides the supplier with funds. Oblenergo does not return them, crediting as payment of the cost of purchased electricity. Accordingly, it keeps the money. Although, according to the current legislation, it should have transfer the most part to SE Energorynok.

 

Next Advances

Meanwhile, recently, in May 2018, SE Energorynok opens credit lines ones again. In the amount of UAH 3.4 billion in total.

According to Ekonomichna Pravda, the total cost of servicing loans will cost about UAH 391 million to SE Energorynok (read - to electricity consumers).

Given the many years of practice, it is not a big secret, to which of the energy producers, for the most part, pieces of another free loan pie will go.

***

“And we are paid a lot of money. Well, why should we refuse,” Rinat Akhmetov commented on the success of the transfer of football players to his club in a recently published interview, under the telling title “We Have a Bright Future”.

But given the described “a lot of money” are paid by Ukrainians and the whole state to the energy business of the oligarch, who, of course, does not refuse from this.

 

Anticorruption blogger and human rights defender Liubomyr Pelekh believes that corruption in the energy sector is one of the causes of poverty among the population. “The cost of energy resources continues to be a corrupt component, and the economic behavior of energy companies is behind the scenes of the market. Power and business do not have a common understanding of energy as a full-fledged sector of the economy. Their unlimited ambition in such a sector is to ensure profit with the maximum shadowing of businesses and market impact. As a result of the corruption conspiracy, there is an increase in the profit of energy companies and the poverty of Ukrainian citizens,” Liubomyr Pelekh said.

* The investigation was conducted within the framework of the USAID Transparent Energy project. The author’s position may not coincide with the position of the US Agency for International Development and DiXi Group Think Tank. *

Taras Zozulinskyi


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