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Warming up on gas: profit searched by State, regional gas companies, and local officials

28 July 201713849
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An average family of three Uzhgorod residents in July consumed only two cubic meters of gas, because the largest part of this month they spent not in the hot apartment but on holiday in a village. However, the receipt for 12 hryvnias for the consumed gas did not make them very happy because it was accompanied by another payment request – for 140 hryvnias.

This is the amount that since recently has to be spent every month by an average family in Uzhgorod for services related to distribution and delivery of gas to the apartment – in addition to the cubic meters actually burnt in the kitchen oven.

At present, this is just an invented theoretical situation. However, this could be real if the decision on introducing a subscription fee for gas consumption for the population had been implemented in April as it was planned before. For Zakarpattia, the tariff happens to be the highest in the country, and in this oblast one of the towns announced its intention to return to the community the pipelines that are currently at the disposal of the monopolist – Zakarpatgaz PJSC. In the oblast council, individual council members went even further – they started talking about creating an alternative gas distribution company. Is this possible? Is the subscription fee necessary at all, and if yes, how should it be calculated? What is actually included in the "blue fuel" tariff at present?

SUBSCRIPTION FEE: NEW WAY OF COUNTING

At the end of March, the National Commission on State Regulation in the Sphere of Energy and Utility Services (NCREU) decided that every house that has gas should pay for the services related to distribution of natural gas as the capacity charge (hereinafter referred to as the subscription fee). Formally, this methodology has been in force since February 2016, and in March 2017 a decision was made to use it in practice. Since a big number of politicians and other publicly active people immediately began to speak about "betrayal" and "tariff genocide", not many people had time to figure out what this novelty was about. It should be mentioned here that now we pay the same subscription fee anyway – as part of the regulated gas price for services related to its distribution and transportation. This is included in the component of the tariff per 1 cubic meter of gas and totals 88 kopecks for every consumed cubic meter (12.6% in the tariff structure). The price of 88 kopecks includes the weighted average distribution tariff (received by the regional gas companies – 51.37 kopecks. + VAT, total – 61.64 kopecks), the weighted average tariff for transportation by trunk gas pipeline (received by the gas transportation system (GTS) operator – Ukrtransgaz PJSC – 26.28 kop. including VAT).

In fact, the novelty from the NCREU meant that the price for the volumes of gas that are counted by our gas meter was supposed to be decreased by about 88 kop. – approximately to 6 hryvnias. Instead, a new fixed payment appeared – the subscription fee. And it is the way of counting it as well as its amount that caused misunderstanding, mildly speaking.

The NCREU suggested the Ukrainians should count the amount to be paid not on the basis of the actual amount of consumed cubic meters, as it is done today, but on the basis of the maximum connected capacity of the gas networks. In other words, on the basis of the theoretical amount of cubic meters that the consumers would burn if they used all their gas devices during one month for 24 hours a day.

It should be mentioned here that there are various capacity meters for the population. Capacity means ability of the meter to let through the maximum amount of cubic meters per hour. If, for instance, a household has only a kitchen oven, the minimum capacity meter would suffice – G1,6, which can let through 2.5 cubic meters per hour. But if the household also has a flow-type calorifier, a higher capacity meter is installed – G2,5, which can let through maximum 4 cubic meters per hour. If consumers have an individual gas boiler that is used for water and for heating, then G4 meter is installed, which can let through maximum 6 cubic meters per hour. The meter capacity and the amount of cubic meters it can let through is indicated directly on the device. More specifically, the sign is G1,6; G2,5; G4; G6 or higher.

Meter capacity: the Qmax sign shows the maximum number of cubic meters it can let through per hour.

For every region, a specific tariff was calculated and for Zakarpattia citizens, the subscription fee is the highest. For instance, if the household uses only a gas oven for cooking, then in addition to 6 hryvnias for every consumed cubic meter, it would have to pay additional 87 hryvnias every month (for G1,6 meter) or 140 hryvnias (for a higher-capacity meter – G2,5 or if the metering device is absent).

The savor of the situation in Zakarpattia towns is furthermore increased by the fact that at present they don't have centralized heating and hot water supply. Therefore, many households have individual gas boilers. Those households that have them also have higher-capacity meters – G4. For such consumers, the amount of subscription fee would be 210 hryvnias per month. For those who have even more powerful meters – G6, the cost of services for the owners would be 350 hryvnias. This amount was supposed to be paid every month.

Many households in Zakarpattia have individual gas boilers.

It is known that the calculated tariffs on subscription fee for all regions caused such an outcry in the society that the resolution of the NCREU was canceled. However, one should not forget that setting the tariffs for gas distribution on the basis of capacity is the IMF requirement, which Ukraine is committed to implementing. "We apply the tariff on gas distribution and heating based on the capacity, which allows transferring some part of the cost to the summer months", the IMF memorandum reads. "Since the payment is disconnected from the actual amount of gas distribution, consumers will pay the same amount for these services both in the summer and winter months. This can be explained by the permanent nature of the majority of expenses on maintenance of the networks that do not depend on the amount of gas in the pipe", DiXi Group expert, Denys Nazarenko explains the idea.

In the separate payment request for gas network maintenance, one should see not only negative, but also positive aspects since it means the state officially declares opening of the gas market for competition, more specifically – it is planned that each household can choose the gas supplying company themselves. Actually, this is the reason for introducing the division – to pay separately for the operation and maintenance of the gas infrastructure, and to those who sell gas as commodity to consumers. What if we as consumers find a supplier who will give us every 10th cubic meter for free or introduce some other discounts?

However, the way of calculation of the subscription fee offered by the NCREU at present would result in real increase of the total amount to be paid for gas: primarily for those people who use the minimum of it – only for the kitchen oven.

So how should the payment be calculated in Ukraine? Energy Expert, Manager of Projects and Programs of Analytical Center DiXi Group, Roman Nitsovych says: "The optimal methodology is the one that makes it possible to distribute the necessary expenses on maintenance and modernization of networks, installation of meters and other measures, in the fairest possible way. At present, it is impossible in Ukraine to calculate the payment for the ordered capacity of networks – because of the absence of modern means of metering and forecasting consumption. Therefore, it is possible to apply payment for the technical capacity as offered by the NCREU, but it should be done in a way that does not increase the amount to be paid by citizens who use the lowest volume of fuel – to cook food on a kitchen oven. Another methodology is the fixed payment or payment that is connected to the consumption volumes (both metered and normalized), or a combination thereof. Payment for technical capacity is used only in the Netherlands – other EU member states use its combination with the fixed payment and the payment for the consumed amount".

Therefore, as we can see, only one country in the European Union calculates the subscription fee exclusively in connection with capacity. Yet, this is exactly what was offered in Ukraine: in other words, not to pay attention to the actual consumed volume of gas at all.

"A gas distribution company has its own proposals as to calculating and charging payment for capacity and for distribution of natural gas that were submitted to the NCREU in accordance with legislation and the procedure for revising and setting tariffs, and as you may know, the capacity payment was suspended or canceled on rather populist and political grounds and not on the basis of the positions of an owner who cares about the gas distribution system and wants to invest in it, improve something that has been more than worn over the decades and requires serious investments in modernization", Public Relations Specialists of Zakarpatgaz PJSC Yurii Lomakin commented on the situation with the way of calculating the subscription fee.

THE PIPELINE NEEDS MAINTENANCE. AND IT IS NOT FREE

"They are using our pipe, and we have to pay them money for it", "the pipeline was constructed in the times of the USSR, and they want to earn on us today"; "people paid their own money to bring gas to the village, and now they want to force people to pay again" – such messages with a tone of populism are heard from politicians, including those from Zakarpattia, with regard to introduction of the subscription fee. The majority of the gas pipelines today are in fact managed by regional gas companies in one way or another, even though they are not owned by them.

According to the NCREU's annual report, out of 5.690 km of the networks available to Zakarpatgaz PJSC, only 130 are owned by the company. The remaining kilometers of gas networks do not belong to it – Zakarpatgaz has the right of operation, economic management or use of them.

The networks with "blue fuel" that are maintained by regional gas companies

At the same time, one should remember that regional gas companies being gas distribution enterprises monitor and bear complete responsibility for the pipeline systems. "The term 'operation of gas distribution pipelines' refers not to receiving profit from owning gas networks as many people erroneously believe, but to the set of technical measures that ensure maintenance of the gas pipelines and respective constructions in a working condition and enable trouble-free and uninterrupted delivery of natural gas to consumers," representative of Zakarpatgaz PJSC Yurii Lomakin emphasizes. "At the same time, the networks as such are still owned by the respective local communities, local self-government bodies, and so on".

By the way, on their official web-site Zakarpattia gas officials boasted that last year they invested in the infrastructure development almost 14 million hryvnias.

However, with regard to the events of 2012, when the Cabinet of Ministers headed by М. Azarov transferred the state-owned gas distribution systems to regional gas companies for economic management, the Office of the Prosecutor General this year in May initiated investigation proceedings. The criminal proceedings were opened as provided for in Articles on Abuse of Office or Power and on Neglect of Duty.

In response to requests, leaders of Uzhgorod, Berehovo, Perechyn, and Khust confirmed to the author that the networks of their respective communities are included in the balance sheet of Zakarpatgaz PJSC, which means, as has already been mentioned, that is has the right of operation, economic management or use. However, the letters from mayors of two small towns looked interesting. For instance, the town mayor of Vynohradiv, Stepan Bochkai says that over the last ten years the town council has not adopted any decisions on gas networks, and today the council has no information about the owners or balance holders of the property of the underwater gas network. A similar response was provided by Ivan Lanio, the town mayor of Svaliava.

These leaders do not seem to know whether the gas pipelines in their towns belong to their voters. However, it is known for sure – whoever the owner is, they are maintained by the monopolist, Zakarpatgaz PJSC.

The company speaker, Yurii Lomakin, said: "Gas distribution companies do not use the networks for free. In 2012, the networks were transferred to the balance sheet of distribution companies, which were obliged to invest their own money to avoid a decrease in the cost of the networks. In the summer of 2017, regional gas distribution companies signed agreements on operation of the networks, according to which they are obliged to transfer respective payment to the budget for using them if such costs are included in the tariff structure".

AN ATTEMPT TO TAKE AWAY THE NETWORK IN MUKACHEVO AND THE RESULTS OF IT

In the context of introduction of a subscription fee for Ukrainians, the town council of Mukachevo in Zakarpattia made a decision in April, by which it returned to its ownership the property of a gas pipeline network "in order to avoid unjustified and arbitrary free use of the property (underwater gas network) of the territorial community", the document reads. Furthermore, the decision mentions preparation of expert assessment of the cost of gas pipes and equipment so that in the future they can be offered for rent on a competitive basis.

In Mukachevo town council, it was hinted in the information for regional mass media that, due to the return of the gas pipelines the town authorities will be able to control the amount of the tariff on gas distribution, or even cancel this payment as such.

The situation in Mukachevo, at the first glance, sets a precedent for the country, but what does it mean in reality? First of all, it should be mentioned that a decision of the town council as of April 4 has not yet been implemented in practice. More specifically, in a written response to a journalist, the First Deputy Town Mayor of Mukachevo, Rostyslav Fediv, said that inventory of items is being conducted today and the process of selecting an expert to evaluate the town's gas networks is underway. As to the specific timelines – when one could expect completion of inventory taking and evaluation – the representative of the authorities did not specify.

The former mayor of Mukachevo and the current member of Zakarpattia Oblast Council, Zoltan Lendiel from the Unified Center party, at a meeting of oblast council members on April 7 emphasized as written in the meeting minutes that "members of the council (Mukachevo – Author) protected the town residents from any attempts of the oligarchs and the government to rook the citizens charging illegal subscription fee from them". Mr. Lendiel suggested that the oblast council members should create in fact an alternative to Zakarpatgaz PJSC – a municipal company Zakarpatgazpostach that would manage all gas networks owned by local communities.

Answering this, the Chair of Zakarpattia Oblast Council, Mykhailo Rivis from Petro Poroshenko Bloc Solidarnist said that the oblast council cannot create municipal companies until all town councils transfer such gas networks to their balance sheets. At the end of the meeting, the council members addressed the representatives of state authorities statingtheir concerns and indignation” because of the introduction of the subscription fee.

At present, however, two main issues should be cleared – can local authorities really create their own municipal gas enterprises, and is it possible not to introduce the subscription fee if the pipes with the "blue fuel" are controlled by local authorities?

With regard to the latter, it should be mentioned: although regional gas companies do not pay the rental or usage fee for the gas pipelines in towns and villages, they provide technical maintenance. "The statement on introducing the fee for Zakarpatgaz for the "use" of gas distribution systems, would primarily have a negative impact on the gas users in Mukachevo", Yurii Lomakin, the Public Relations Specialist of Zakarpatgaz PJSC, commented on the situation. "Because this would result in the proportional increase of the tariff on gas distribution for each consumer and further deteriorate the level of welfare of each of them. It would be easier to say: have you ever seen a person who maintains and repairs photo equipment pay the camera owner for the possibility to repair this equipment?"

But we should not forget that in Mukachevo it was hinted that Zakarpatgaz would be removed from the market altogether - both in the town and in the oblast. Is this possible at least de jure if not de facto?

As the company speaker, Yurii Lomakin, said, according to the Code of gas distribution systems, gas distribution networks (hereinafter – GDN) can be operated only by GDN operators. To this end, they need to receive a license for implementation of economic activities in the natural gas market related to its distribution.

Furthermore, Zakarpatgaz representative emphasized – it is prohibited to have two GDN operators in one territory of licensed activities. However, with regard to this statement the Energy Expert, Roman Nitsovych, points out that everything is not so unambiguous here. "The license conditions refer only to a restriction of the number of connection points – minimum 50,000 consumers, but not a specific territory", the expert explains. "Therefore, the obstacle for creating such new gas distribution company is receiving the statements of division of the balance sheet property and operational responsibility among all market actors. Regional gas companies actively resist it".

From these words, we can understand that in the territory of Zakarpattia theoretically there is a possibility to create a new gas distribution company. However, one decision of a local self-government body is definitely not enough. It is necessary to receive a license for work from the regulator – the NCREU. And before that – finalize with Zakarpatgaz the division of gas networks. And still before that – hire a team of specialists on maintenance of gas pipelines.   In other words, there is a prospect as well as a very long organizational effort plus substantial financial expenses. These will ultimately become an additional burden either for the budget of a regional (or other local) council or will have to be borne by the gas consumers. With the current gas tariff, the newly created gas company would be able to compensate its current expenses such as salaries, and technological gas. As to the capital investments – buying premises, equipment, etc. – local authorities would have to find additional resources (or add them to the tariff for companies). Perhaps, this is why no other announcements on the intention to return gas networks to the property of towns or to create municipal gas companies in Ukraine followed.

So, the relevant question for Mukachevo authorities is as follows: is the town budget ready to bear the expenses related to the routine maintenance of the gas network items – instead of consumers or instead of a gas company? In response to a request, Deputy Town Mayor Oleksandr Halai confirmed, "As long as the gas network is not transferred (to the balance sheet of the community – Author), it is maintained by Mukachevo Office of Zakarpatgaz PJSC at its own expense".

As to the availability of budget funds, Mukachevo town mayor Andrii Baloha during the spring session said: if the subscription fee is introduced, residents of Mukachevo will have to pay 60-65 million hryvnias a year. "For this money, the town could refuse to use gas and could provide electricity heating to the residents at the town expense", the mayor said.

Yet, today we can only assume that the local authorities of Mukachevo will not be able to rent out its gas property on a competitive basis in the nearest future since maintenance of the gas network requires a license, which in the westernmost oblast, as we can conclude, is only available in one company. This is Zakarpatgaz PJSC. The statement of Mukachevo authorities that the town gas network is "used free of charge" is not quite correct since, as it was admitted by the representative of the same town authority, maintenance of the gas pipelines in the town is currently performed at the expense of this company.

As one should remember, the company receives this money from consumers. Actually, it is important to mention that the Zakarpattia regional gas distribution company, just like other regional gas companies, receives almost all profit from the current tariff, which, as it has been mentioned, is included in the structure of the price per 1 cubic meter of "blue fuel". According to the expert Roman Nitsovych, even if the gas pipeline is rented, expenses for this under the current system will also be taken from the tariff.

WILL A RIVER OF MONEY FLOW TO GAS DISTRIBUTORS?

Of course, one has to pay for ensuring the quality of work of the pipe and of all equipment. But how much? According to the option offered by the NCREU, Zakarpattia residents have to spend from 1051 to 4205 hryvnias per year depending on the meter capacity (from G1,6 to G6). Let's not forget that this is an addition to payment for the actually consumed cubic meters, the price of which would decrease to approximately 6 hryvnias per 1 cubic meter. Then Zakarpatgaz PJSC would receive the money for gas distribution.

Back in spring, Head of the Company Vitalii Shatylo explained to journalists the cause of the highest tariff in Ukraine. According to him, every oblast has its own specific features of gas supply. Zakarpattia is a mountainous area. Therefore, 70% of the maintained gas pipelines here are with high and medium pressure, which increases the cost of work. In other oblasts, Vitalii Shatylo says, the situation is opposite: 70% of low pressure and 30% – of medium and high. Vitalii Shatylo also said that in the territory of Zakarpattia, the density of population is lower compared to other oblasts. And the number of rural residents is higher than that of urban residents. Therefore, an average length of gas pipelines per one consumer is higher than in other regions. At the same time, as Mr. Shatylo emphasized, 90% of gas consumers are households and not companies. "In the territory of Zakarpattia oblast, there are no powerful industrial enterprises that would take away and pay for the part of connected capacity, and there are no district heating companies", the head of Zakarpatgaz said.

Is super profit possible for a gas company? "De jure, super profits are not possible since this is a regulated business. For each regional gas company, the NCREU approves a tariff with the profit norm. In the decision on a subscription fee, the average profit level was limited to 3.1%, which is not much", DiXi Group expert, Roman Nitsovych, commented on the situation. "At the same time, in practice there is a risk that regional gas companies would add further, insufficiently justified expenses related to certain activities, which offer a possibility of 'optimization' or even fictitious transactions that can bring additional profits".

So, how much money would Zakarpatgaz receive if Ukrainians had to pay the subscription fee starting April 1? That could be approximately calculated on the basis of information about the number of meters and their capacity in Zakarpattia residents' homes. However, the regional gas company strongly refuses to provide information about the number of meters and their capacity. Answering the author's request, the company said that they do not believe this is public information. Furthermore, regional gas companies do not provide these data even to the state-owned company Naftogaz of Ukraine NJSC. According to Naftogaz, in 2016 eight regional gas companies, including Zakarpatgaz strongly refused to provide information about installation of meters. Therefore, according to Naftogaz of Ukraine NJSC, they had to stop monthly publication of statistic information about changes in the number of installed household meters. By the way, according to the Law “On Ensuring Commercial Metering of Natural Gas”, metering devices are to be installed for all household consumers in Ukraine by the end of this year. With regard to Zakarpattia, according to the regional gas supply company, 99% consumers here have meters installed in their households.

In response to the information request, Zakarpattia regional gas company clarified to the author that as of June they still had 1,756 consumers without meters.

We can do our own calculations – since for such subscribers the fixed payment was planned on the basis of the G2,5 meter capacity – 140 hryvnias, a monthly fee for consumers without metering devices would be nearly 246,000 hryvnias – in addition to the cubic meters counted in accordance with the standard consumption norm.

And in general, as can be seen from the NCREU materials, if the subscription fee had been introduced in April, the planned profit of Zakarpatgaz PJSC was expected to be about 645,544,000 hryvnias – for three quarters of 2017.

Which price do the gas distributors themselves believe to be acceptable for normal operation of gas pipelines? "The share of gas distribution company (for services related to fuel distribution Author), in this case it is Zakarpatgaz PJSC, in the gas price totals 12.27%, which is not enough for carrying out the complete range of production and economic activities as well as for ensuring trouble-free and uninterrupted gas delivery in Zakarpattia oblast", said Yurii Lomakin, the spokesperson of Zakarpatgaz PJSC. According to him, with the current tariff, the company cannot be profitable.

Let us remind you that it totals approximately 88 kopecks per one sold cubic meter, which includes 28 kopecks for transportation (received by Ukrtransgaz PJSC) and 61.64 kopecks (VAT included) received by regional gas companies for services related to distribution. Zakarpatgaz claims that this tariff is 2.5 lower than economically justified.

Energy specialist, DiXi Group representative Roman Nitsovych with regard to the current tariff on gas networks maintenance says, "The issue is the justification of expenses that regional gas companies include in the investment program and reimbursement of production and technological expenses. The amount of these expenses causes doubts since their implementation so far is not checked carefully enough. In general, in view of the sad condition of the networks and insufficient reporting, investments are necessary. However, since they come only from the tariff, it is necessary to strengthen the control of regional gas companies both by the NCREU and by the public as well as with regard to transparency of the work of gas distribution companies in general."

A categorical refusal of Zakarpatgaz to provide the public with information about the number of installed meters and their capacity only confirms the suspicions about resistance to transparency in the gas market of the oblast. At least because today there are households that have only a kitchen oven but the installed meter has a higher capacity than G1,6.

Zakarpatgaz PJSC confirmed to the author that the meter can be replaced with a lower capacity meter. This is provided for in the Code of Gas Distribution Systems, which, among other things, specifies: "If the actual maximum expenditure of the gas meter is 1.6 times higher/lower than the maximum expenditure of the gas consuming equipment, it is deemed that the meter capacity was selected improperly, therefore there is a need for revision and installation of another gas meter with the corresponding type and size." As Zakarpatgaz commented, if a meter has been installed by the operator in violation of requirements of the Code of Gas Distribution Systems regarding the capacity, the operator has to replace the metering device – a gas distribution company has three months to do this from the moment of receiving the consumer's application for meter replacement.

So, theoretically, at least for three months those consumers in Zakarpattia that have only a kitchen oven and more powerful meters would have to pay not 87 hryvnias but 140 hryvnias as the subscription fee. In this case, a gas distribution company would receive from the subscriber more than required.

In general, according to the information provided in spring to journalists by the the Chair of the Board of ZakarpatgazPJSC” V. Shatylo, 85% consumers in the oblast have G4 meters. For these consumers, as we know, the planned subscriber fee was 210 hryvnias per month.

LOSS-MAKING ZAKARPATGAZ: CHARITY FROM FIRTASH?

As already pointed out, Zakarpatgaz representative emphasized that with the current tariff for its services, the company cannot be profitable. Indeed, in the auditing conclusion published on the company's web-site, losses are reported as financial results.

According to the document, the consolidated financial reports also include the data of financial report of Zakarpatgaz Zbut LLC, a subsidiary company which is responsible today for selling gas to the households.

Therefore, as shown in the report with the net profit from sales of products and services as of December 31, 2016 being 2,000,382,227 hryvnias, the company finished the year with a net financial loss of 56,747,000 hryvnias. However, it is better than the results for 2015, when the loss was several times higher – 173,636,000 hryvnias. The report emphasizes that there were no dividends to be paid to the shareholders as of December 31, 2016.

So, on paper it looks like losses, but in general Zakarpatgaz PJSC does not seem to be a loss-making company. For instance, as mentioned in the same auditor report, the key managerial staff comprised of 11 individuals received in 2016 remuneration totaling 3,000,960 hryvnias. This means that if the remuneration was paid equally to everyone, each of these 11 individuals received 360,000 hryvnias. Not bad as for a loss-making company. Let's not forget that it receives its share from each cubic meter of gas we burn – according to the meter or to the consumption norm.

Also, one should not forget about the real owner of Zakarpatgaz PJSC – the person who today is forced to stay in Austria, since he is on a wanted list of law enforcement bodies in the US and Spain; the person for whom the police has questions in Ukraine as well. This is an oligarch in disfavor Dmytro Firtash, who in 2007 established international holding company Group DF in order to unite his assets.

According to the Analytical Platform YouControl, the major shareholders ofZakarpatgaz today are Gaztek PJSC, Transit-Invest LLC, and Omega-Capital LLC. The gas distribution company, according to YouControl, belongs to Group DF. Therefore, Zakarpatgaz, like the majority of regional gas companies in Ukraine, works under the brand of the Regional Gas Company, which combines the gas distribution assets of Group DF. All of these regional gas companies have the same symbols, which we can see on the service vehicles and on the web-sites of these companies.

The author was informed in the State Property Fund of Ukraine that privatization of the gas company started in 1998 – at that time, 93.66% shares were sold on preferential terms to the company employees. In 2012 – in the times of Yanukovych presidency – 6.34% of the state-owned shares were sold. By doing so, the gas monopolist of Zakarpattia became completely private.

As we can see, today, the monopolist is not owned by its employees, but is controlled by the disgraced oligarch. We have already mentioned above that law enforcement bodies in the US, Spain, and Ukraine, have questions for him. At the same time, Mr. Firtash is known for his successful winning payouts in courts from the companies that are totally or partly owned by the state. For instance, this year, the Yuzhnyi Town Court of Odesa Oblast recognized the Stockholm arbitration decision, according to which the state-owned Odesa Port Plant is obliged to pay over 250,000,000 dollars as a result of a failure to repay the debt for gas supply to a company owned by Firtash. This brought the state-owned company to the verge of bankruptcy. In 2010, the Stockholm court obliged the state-ownedNaftogaz of Ukraineto repay to RosUkrEnergo, which is affiliated with D. Firtash, 12.1 billion cubic meters of gas. At that time – the period when Yanukovych was in power, this court decision was implemented very quickly – all the gas was returned to Firtash. In 2015, The Prosecutor General Office of Ukraine lost this case in court.

On the basis of this information, we can assume that Dmytro Firtash definitely does not look like a person who would maintain a loss-making company for the residents of Zakarpattia.

GAS SELLERS DID SEE THE IMPROVEMENT – BY 2.5%

Today, the price of 1 cubic meter of gas is 6.96 hryvnias, or, more specifically, – 6.9579 hryvnias. Since 2015, Zakarpatgaz PJSC has not been selling fuel directly to the households but through its subsidiary company – Zakarpatgaz Zbut LLC. Ideally, in accordance with the Law On Natural Gas Market, not only this LLC but any company that is willing to sell gas and receives a respective license may be the supplier for the needs of the population may. By the way, as the author was informed by Zakarpatgaz, at present there are 22 companies in the oblast selling the "blue fuel."

However, only one of them, Zakarpatgaz Zbut, sells gas to households of Zakarpattia residents today. This means 270,000 household consumers. According to Viktoria Tomynets, the LLC Director, Zakarpatgaz Zbut has a special responsibility imposed by the government to supply fuel to household consumers, that is – to the population. She says that private companies have not yet expressed an interest in selling the energy resource to the population since this is the least solvent category of consumers. In fact, according to the data provided by the State Statistics Committee, Zakarpattia oblast has one of the worst indicators of gas payments by the population. For instance, as of the end of 2016 , the level of debt of Zakarpattia residents for the consumed fuel totaled 58.3%.

"This is not the only factor behind the absence of other suppliers for the population in the oblast except for Zakarpatgaz Zbut", DiXi Group representative Denys Nazarenko adds. "Among other things, there is an actual impossibility for the fuel supplier to receive compensation from the budget for the consumers' subsidy quickly and completely. Another reason, surprising as it may seem, is the current combined tariff on gas as commodity and the services related to its delivery. This, in its turn, significantly complicates payments by the fuel seller to the gas networks operator."

The head of Zakarpatgaz Zbut mentioned that the debt for gas consumed by Zakarpattia residents totals 1,470,000,000 hryvnias as of May 1. However, Viktoria Tomynets emphasized that out of that sum, 60%, or 889,000,000 hryvnias, is the debt of the state, which had to pay this money for consumers as subsidies. Therefore, Viktoria Tomynets says, private gas suppliers are willing to work with enterprises and budget-funded institutions. Because they pay more and on time.

The gas price for the population is regulated by the Cabinet of Ministers. And here, according to Viktoria Tomynets, a new amount has been applied for gas suppliers with special responsibilities since April 1 with regard to the component of the tariff per 1 cubic meter of gas. Whereas in the past this component totaled 0.5% – 4 kopecks per cubic meter, today the gas sellers can have their margin, but it should be up to 2.5%. Therefore, at present Zakarpatgaz Zbut LLC receives these 2.5% of the current tariff – 12 kopecks from one sold cubic meter.

Hence, as we can see, the government did improve the tariff for suppliers – those who have to sell gas to the population at regulated prices. De facto, for household consumers these are regional monopolists owned by regional gas companies. Let us remind you that in Zakarpattia, gas is sold by Zakarpatgaz PJSC. Which, in its turn, is affiliated with Dmytro Firtash. In other words, if the gas supplying company increases its profits from the new tariff component, profits of the parent company will grow as well.

Implementation of the subscription fee in Ukraine has been canceled, but one cannot say that it has been closed. Consumers can only hope that the new version of the tariff that is envisaged to ensure normal and safe work of the gas pipelines will be more understandable and fair for all of us. By the way, information about the owners of gas distribution networks, actors of the gas market, and options for regulating many disputable issues can be found in the publicationManaging Gas Distribution Systems. How to Balance Interests.

We will also hope that the gas distribution companies themselves will work in a transparent way and, among other things, will report on every kopeck – how much they receive from us, and how much they invest in the gas network. Kilometers of which, despite all, belong either to the state or to local communities.

Yaroslav Hulan,
for CorruptUA

The investigation was carried out as part of USAID's Transparent Energy project. The author's position may not coincide with the position of the U.S. Agency for International Development and DiXi Group Analytical Center

 


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