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Expert: electricity underpricing will boomerang on Ukrainians with consumer prices

09 September 2021

Supporting consumers by artificially underpricing electricity is duplicity, because this policy boomerangs on consumers in the form of growing prices for consumer goods, DiXi Group expert Bohdan Serebrennikov pointed out during an interview on ICTV channel.

“Developed markets do not use mechanisms like that. Obviously, the prices [for electricity for household consumers in Ukraine] are artificially low. But if the government needs to provide support to vulnerable consumers, that’s absolutely the right thing to do – that’s a social function of the government; a normal, civilized method of doing it is not by making price too low absolutely for all consumers – some of them do not need this kind of support. It’s nothing but duplicity. This way, we simply take away a chunk of revenues from producers [by placing on them the difference in electricity costs]. In the end, these prices come back to consumers not via electricity prices but via the goods whose cost price includes electricity price,” the expert emphasized.

He stressed that today, the prices are unreasonable not only for household consumers who consume less than 250 kWh [effective 1 October, the electricity price for this category of consumers will be additionally lowered to 1.44 UAH/kWh] but for the rest of household consumers in Ukraine as well.

“They are unreasonable market-wise. These decisions aren’t based on economic considerations. The average economically reasonable price in Ukraine is about 3.50 hryvnias per kWh. And region-wise, the prices should’ve varied approximately between 3 and 4 hryvnias. The reason is that one of the components of the electricity price for households is the transmission cost: the oblenergo company’s tariff, which is region-specific and could be quite different for different regions,” the expert said.

According to Bohdan Serebrennikov, the number of households consuming less than 250 kWh per month in Ukraine is over 80%. After the price for them is lowered by 0.24 hryvnias, the market will face an additional shortfall of almost UAH 8 billion.

“And the aggregate amount of debt in the market today is already close to UAH 50 billion,” the expert pointed out.

Bohdan Serebrennikov emphasized that the government should have developed a phased tariff raise plan to avoid the shock therapy for consumers and still bring the price to market level.

It is worth reminding that the first step toward bringing tariffs to market level was taken on 1 January 2021, when the Cabinet of Ministers abolished the threshold of 100 kWh and, therefore, the lower rate of 0.90 UAH/kWh. After that, a uniform tariff was set for all households at 1.68 UAH/kWh.

Effective 1 October, the price will be lowered. Ukrainians consuming less than 250 kWh per month will pay for electricity the price of 1.44 UAH/kWh. According to a resolution of the Cabinet of Ministers, the revised electricity price will remain in effect until 1 May of the next year.


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