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Fair gas tariffs: myth or reality?

17 March 2021
Fair gas tariffs: myth or reality?

Beginning from April, government regulation of the gas price that was in effect in February and March will be discontinued. It means that the price cap of 6.99 hryvnias per cubic meter will be lifted

The tariffs of gas suppliers will again depend on the market, which was launched for households on 1 August 2020. The intervening uneasy period (from August to February) has revealed numerous problems in the retail gas market, which turned into a tariff crisis.

This situation caused a significant resonance in the society, and therefore, Ukrainian Energy decided to address the most painful issues for consumers: gas prices and gas distribution tariffs. For example, did the government have the right to cap prices in the free market? If a tariff was lowered, does it mean that the tariff was unfair? Since the reduced bills will arrive only in March, would it not result in another crisis of non-payments and other adverse consequences following from it?

 

A fair tariff

 

After the free gas market for household consumers was launched in August, the uniform regulated gas price disappeared and beginning from October, supplier prices began to climb, mostly because of growing prices in Europe and the coming of cold season. December bills forced Ukrainians to come out for protest rallies, but January bills turned out to be even larger. Many gazzbut companies decided to take full advantage of the free gas market. As a result, the average gas price for household consumers went 10-20% up versus the previous month, and exceeded 9.6 hryvnias per cubic meter. Some gazzbut companies charged as high as almost 11 hryvnias per cubic meter, while the average gas delivery (distribution) price rose from 1.2 to 2 hryvnias per cubic meter, or 1.6 times, since 1 January. Fearing the growing social tensions and more “tariff” protests, the government intervened in the market and capped, beginning from February, the gas price for households by 6.99 hryvnias per cubic meter.

The new bills outraged Ukrainians. Consumers consider them unfair. But what tariffs and prices could be considered fair, then?

“First of all, let’s decide on terminology,” Razumkov Center expert Maksym Biliavskyi says. “A tariff is the price set by the regulatory or another authority (for example, body of local self-government) for a service provided by a natural monopoly. Say, for gas distribution, or for production and supply of heat. A price is the cost of a resource. Fixed (or floating fixed) prices for gas are set by the Cabinet of Ministers of Ukraine in its resolution placing special obligations in the gas market.”

“A fair tariff is a popular saying of sort,” DiXi Group Research Director Roman Nitsovych believes.

He says that most ordinary citizens believe that it’s a tariff that corresponds to their income level the most and which does not significantly affect their expenses.

“A fair tariff is a consensus that must simultaneously ensure the loss-free operation of a natural monopoly and the consumer’s ability to pay the going tariff,” Maksym Biliavskyi believes. “If we’re talking about a fair price, only the market can decide it.”

“Generally speaking, there is no such thing in the market as fairness,” the DiXi Group expert maintains. “It’s a matter of reflecting the costs borne by network operators. Surely, we are not talking about absolutely all expenses, but only about the actual and reasonable ones. The regulator’s job is to check the calculations provided by the operators and agree or disagree with their arguments and set certain goals and criteria which the particular operators must achieve in order to get the desired tariff.”

Still, Ahiya Zahrebelska, ex-public commissioner of the Antimonopoly Committee of Ukraine, believes that the tariff must be fair. However, it could be achieved only under certain conditions.

“If we are talking about government-regulated tariffs, the government’s, the regulator’s job in this case is to set tariffs at the level where a compromise will be achieved in the interests of all parties to this process, i.e., the state, citizens and businesses,” she says. “If we are talking about tariffs not regulated by the government, i.e., market tariffs, in the conditions of ideal competition these tariffs will be fair in any event. That’s what the objective of competition is: reaching by itself, without government intervention, the stage where tariffs are set at a fair level.”

 

Components of a tariff and its reasonability

 

Obviously, in order to decide whether a tariff is fair, one needs to know where these figures come from.

Speaking about the structure of the retail gas price, its components include, according to Roman Nitsovych, the price of gas purchased in the wholesale market, the tariff for transmission via trunk gas pipelines, the supplier company’s markup, and value added tax.

However, how reasonable are these components and, in the end, the tariff itself?

Back in late December of the previous year, when the gas prices surged to almost 11 hryvnias per cubic meter from some suppliers, Prime Minister Denys Shmyhal tasked the Energy Ministry and the Antimonopoly Committee with checking how reasonable gas prices are.

“The tariffing procedure must be audited, and the tariff’s components which are unfair and unjustifiable from the viewpoint of market and market conditions must be lowered,” he said. “You (the Energy Ministry and the Antimonopoly Committee – editor’s note) have all levers to resolve these issues.”

“Speaking about the gas distribution (delivery) tariff, it covers the following major expenses: technological losses of gas (approximately 50%); labor costs, including emergency repairs (almost 30%); materiel (approximately 10%); network development and repair program (almost 5%); plus taxes,” NEURC member Oksana Kryvenko says.

She further emphasized that the natural gas distribution tariff has to do solely with operation and maintenance of networks, and it is not a payment for use of gas networks.

In 2020, the regulatory agency changed the procedure of payment by consumers for natural gas distribution (delivery) services. Consumers are now paying for gas delivery depending on consumption volume in the previous year, and this payment is made in equal installments during the year. It is the so-called ordered annual capacity.

“When we switched from the “expense plus” system to the system called “ordered capacity” for the purpose of tariffing the distribution service, we changed only the lower part of equation, i.e., the denominator, while the numerator – the costs and the regulated profit margin included to the tariff – did not change,” Roman Nitsovych says. “So, the question is how reasonable the costs which the operators (oblgaz companies) calculate and submit for the regulator’s approval are.”

The expert points out that in principle, the regulator “slices off” a portion of costs. In most cases, costs are approved in a lower amount than what was submitted.

Therefore, making some averaging would be inappropriate, the expert thinks. The structure of networks and the nature of expenses differ depending on the length of networks and the number of various (household, industrial) consumers. So, since the nonindustrial sphere contains more household consumers, the bulk of costs will obviously be borne by them. In order for gas distribution tariffs not to become skyrocketing, the operators must be stimulated to cut costs, Acting Energy Minister Yuri Vitrenko points out.

“The today’s system is not sufficiently stimulating,” Roman Nitsovych notes. “The operators say that they need that and that much money to cover their costs with the tariff, but they don’t say how they saved, or can save the next year. Therefore, the question of cutting costs did not take the front stage. At the same time, it is worth noting that the networks were designed to handle certain gas distribution volumes, but today, this volume is different. There is certain extra capacity for distribution, which must be maintained at the expense of consumers who do not fully utilize it. The question is also about development plans and investment programs, in particular: what the operators have to do now and in what they should be permitted to invest money in order to optimize, i.e., reduce these costs in the future. On the other hand, we cannot allow the situation when we’ll cut the expenses and won’t be able to call for a repair crew in the event of suspected gas leaks. One must understand what services are covered by the tariff and what must be paid for from one’s own pocket. People must know what services they have the right to demand to be provided free of charge, and what they don’t.”

On the other hand, some experts believe that the gas distribution tariffs were too low, and that affects the safety of gas networks.

“The systemic undercharging (not economically reasoned by the regulator) of gas distribution tariffs resulted in the networks becoming largely worn, in the lack of information about the condition of critical infrastructure facilities, insufficient staffing and the outflow of skilled specialists because of low salaries. Surely, this situation made the system prone to breakdowns,” Maksym Biliavskyi says.

“The gas distribution tariff is not so much an overcharge as the failure to deliver the quality of service we should be receiving,” Ahiya Zahrebelska says. “In any case, the maintenance of gas distribution networks and the service cost money. But today, we do not receive the service of proper quality for the money we pay for distribution of gas. Our gas meters aren’t being replaced, even though their cost for household consumers is included to the gas distribution tariff; breakdowns, gas leaks and other emergencies are very frequent. There are many complaints about the meters being installed, that they do not work properly. But the only thing we definitely can call unfair in the gas distribution tariff is the debts owed by oblgaz companies for past periods. For a long time, oblgaz companies were accumulating debts to Ukrtransgaz (a Naftogaz subsidiary). As a result, this entire debt was de-facto placed on the end consumers today, being included to the gas distribution tariff.”

In order to prevent the aforementioned problems, the tariffs must be comprehensible and transparent.

The main principle of tariffing is transparency,” Roman Nitsovych says. “The system must be comprehensible, relatively simple and predictable; it must not discriminate various consumers. And of course, tariffs should not create distortions, accumulation of debts – in general, certain adverse occurrences we can see in the market.”

 

The effect from pegging to a European hub

 

Some Ukrainians believe that one of the reasons for growing gas prices is the pegging of prices to European hubs.

“A gas hub is a trading point where buyers and sellers exchange the ownership of commodity,” Maksym Biliavskyi explains. “These transactions are effected by making financial (futures) and/or commercial (physical delivery) contracts within one trading platform at a commodity exchange.”

According to our interlocutor, market competition in 25 European countries is driven by gas hubs. The most liquid trading platform is TTF in the Netherlands. A visible progress in hedging was achieved by hubs in France, Belgium, Germany, Austria, Czech Republic, Spain and Italy. High growth rates of spot trading can be observed in Poland, Hungary, Denmark and Sweden. Hubs are being developed in the Baltic States, Slovakia, Romania, Slovenia, Croatia and Greece.

In our country, the gas market is not self-sufficient in terms of meeting demand,” Roman Nitsovych says. “We meet our needs with gas of various origins: domestically produced and brought from other countries. Because of that, our market closes at the price at which the most expensive gas is coming to Ukraine. That’s imported gas. Therefore, the pricing is being pegged to European hubs.”

Like in EU states, price jumps in the liquid wholesale market occur not just every day but even during one day, the expert says. In addition, gas prices are affected by the seasonal factor, and therefore, “winter” gas is more expensive than “summer” one.

“At the same time, suppliers look for the ways to better position themselves. They look for every opportunity to buy cheaper and sell dearer. Therefore, price jumps are inevitable. The only thing we left with is to think how to soften these fluctuations for household and vulnerable consumers,” Roman Nitsovych says.

To reduce the pressure from pegging to European hubs, Yuri Vitrenko proposes to use the “hub minus” formula. According to this formula, the maximum gas price for households must take into account the gas price at a European hub but exclude the transmission cost.

“To be sure, if we use the “European hub without transmission” formula, the maximum gas price should have been, according to calculations by the Razumkov Center, not 6.99 but 6.55 hryvnias per cubic meter,” Maksym Biliavskyi says.

 

An energy exchange as a precondition for the national gas hub

 

Gas procurements at a national hub also can bring the price down. But the path to it runs through the launch of a fully operational energy exchange. The Ukrainian Energy Exchange (UEE) made a memorandum with EBRD, the Energy Community Secretariat, the Energy Ministry and Gas TSO Ukraine on development of a gas hub on the basis of the UEE.

“When the operator of Ukraine’s gas transmission system (Gas TSO Ukraine) receives access to exchange trading, the pricing will become more transparent and we will get a real gas price during liquid trading, not by using additional formulas,” Oleksii Dubovskyi, Chairman of the Exchange Committee at the Ukrainian Energy Exchange, said in his interview to Ukrainian Energy.

We need a commodity exchange, because it is one of the mechanisms of strengthening competition and, overall, lowering the markups charged by both wholesale and retail gas suppliers,” Roman Nitsovych believes. “And also, it is a method of more effective trading in Ukrainian-produced gas. The effectiveness of the retail market largely depends on how effective the wholesale market is. In principle, if the market is liquid, you as a supplier can buy the necessary volume of gas at any time. Also, the commodity exchange means transparency and predictability.”

And our country, experts say, has everything necessary to set up an own hub and enjoy all the advantages it offers.

“Ukraine has an advantageous geographic location, boasts sufficient resources of natural gas, and operates a gas transmission system of sufficient technical capacity, which at the same time is the most extensive network in Europe. Given the accomplishment of external and internal tasks, all these factors create preconditions for organization of a hub on the basis of the national gas transmission infrastructure,” Maksym Biliavskyi says.

Considering all the aforementioned points, the question is why wasn’t the energy exchange created before?

“Work in this area is in progress,” Roman Nitsovych says. “In particular, the parliament passed a law allowing operators to buy gas not via ProZorro, by placing long positions there, but using short-term standardized products, i.e., to trade in gas in the intraday and day-ahead markets. That, of course, is better from the viewpoint of price and meeting demand from these operators.”

However, the expert says, besides the aforementioned law, we need a more sophisticated legislation on exchange trading, for example, concerning such instrument as clearing.

Among other steps that need to be taken to organize a gas hub in Ukraine, Maksym Biliavskyi mentioned deregulation of the gas price, relocation of delivery-acceptance points from the western to the eastern border, standardization of the trading rules, transparency of pricing and market volume, establishing price indices, hedging, organization of trading in futures, and long-term forecasting.

The functioning of a Ukrainian gas hub opens up new opportunities to strengthen the national economy by: forming a fair gas price for all consumer categories; preserving the commodity transmission volumes; bringing investments in gas production; opening new orders for enterprises from related sectors; increasing the overall business activity,” our interlocutor believes.

 

Domestically-produced gas and tariffs

 

Politicians and certain experts often tell Ukrainians that consumers may get a cheaper gas if they start using Ukrainian-produced hydrocarbon. Allegedly, its cost price is very low, although no open data about it is available.

“No detailed data concerning the cost price is available, because it is different for different gas wells. We can calculate only the average figures,” Roman Nitsovych explains.

According to Acting Energy Minister Yuri Vitrenko, the cost price of Ukrainian gas is 3 hryvnias per cubic meter.

“Everybody can calculate the cost price of domestically-produced gas themselves. To do that, take the financial statements of a gas production company and divide the company’s total expenses by the production output. Speaking about the cost price of gas from the largest public gas production company, Ukrgazvydobuvannia, it comes to 2600 hryvnias per thousand cubic meters on average,” Maksym Biliavskyi says.

“There is a myth about ultra-cheap Ukrainian gas, and this myth is convenient for certain politicians,” Roman Nitsovych believes. “They can speculate on that. Until recently, we were selling gas at or below the cost price and saw gas production by state companies stagnating. If we want to develop our domestic production, we have to invest the right money in it. And in order for a company to have money for investments, it would obviously have to sell the own-produced gas not at the cost price but at least by including the investment margin to the price. Therefore, there are actually two ways. One: we do like Venezuela does, and sell gas for peanuts, but in that case, we’ll have certain adverse consequences. Another: we do like developed countries do, which sell their gas at market prices or very close to market prices, and in that case, we can count on self-sufficiency and on independence from imports.”

At the same time, experts believe that increasing domestic production and free, transparent sale of Ukrainian gas could somewhat lower the gas prices.

Speaking about the gas tariff, there are two major factors that could bring the cost of gas down,” Ahiya Zahrebelska says. “The first one is the increasing domestic production of gas. Since the foreign, imported resource will always be more expensive, gas would become cheaper if we increase the domestic production output. The second major factor is overcoming corruption. Today, the Ukrainian gas market oriented toward household consumers is monopolized. On the one hand, we see all hallmarks of the monopolistic, dominant position of RGC Group affiliated to Dmytro Firtash. On the other hand, we see some indications that Naftogaz may become the new monopolist in the gas market. It enjoys certain privileges from the government, in particular, because the bulk of domestically-produced gas is extracted by this company. Unfortunately, however, it still doesn’t sell this gas at open, transparent auctions or on the exchange trading platform, which could also drive prices down.”

That, experts believe, leads to certain corrupt actions and adverse consequences.

“Some licensed gas supply companies did not receive equal access to the entire volume of domestically-produced gas,” Maksym Biliavskyi explains in greater detail. “It is worth reminding that the annual resource of state company Ukrgazvydobuvannia in, for example, 2019 amounted to 14.9 bcm, which is 0.8 bcm more than the total volume of gas consumption by households and teplokomunenergo companies (TKEs). In turn, the gas price for TKEs, which produce heat for households, remains fixed and is calculated based on the “European hub+” formula. It is worth noting that in the conditions of PSO regime, heat generating enterprises actually use gas mostly from Ukrgazvydobuvannia’s resource.

The expert points out that consumers ran into obstacles when switching to another supplier that has a better offer (because of the dominant position, and specifically, having access to 67% of domestically-produced gas). In addition, most consumers weren’t knowledgeable enough about the new opportunities. There are several reasons for that, our interlocutor believes: in particular, vague responsibility of public authorities for informational support of the reform and deliberate withholding of public information by certain suppliers.

The fact that the market was opened in the conditions when the issue of covering debt (without having the sources of coverage) has not been resolved became, in the opinion of Maksym Biliavskyi, another negative factor.

“There was no constructive dialogue among the stakeholders because of the unwillingness (for different reasons that each of them had) to implement a real natural gas market. It is worth noting here that we’re talking about the market environment that has a single exchange indicator, which forms a price corridor for the truly fair competition,” the expert says.

In his opinion, in order to get rid of these negative factors, Ukrgazvydobuvannia must be obliged, first of all, to sell its entire resource at the commodity exchange to ensure equal access to it by all suppliers.

Recently, the Cabinet of Ministers approved an assignment for the Ministry of Economy to prepare a draft resolution obliging Ukrgazvydobuvannia JSC to sell, starting from April 2021, natural gas to suppliers of gas and producers of heat for households at a fixed price.

But in order to achieve positive changes, DiXi Group experts recommend, in their position paper concerning gas prices for households, to take other important actions as well. In particular, the government and the regulatory agencies concerned (the NEURC and the National Securities and Stock Market Commission) must, the experts believe, expedite development of gas trading in the spot market with transparent pricing of short-term products. Another important step would be the oversight by the NEURC and the Antimonopoly Committee of regular publication of weighted average prices and margin levels. In addition, the experts recommend tightening the requirements to unbundling (separation of gas-DSOs, i.e., oblgaz companies, from suppliers, i.e., gazzbut companies) in the retail market, and ensuring effective control over this process. DiXi Group also believes that the NEURC must open information about the condition of gas distribution networks and tighten control over the use of tariff revenues. And also, the Cabinet of Ministers and the NEURC must establish requirements concerning publication of commercial offers by retail gas suppliers, the experts said in their position paper.

“The rights of consumers and gas suppliers in the context of access to information must also be made a law,” Roman Nitsovych adds. “We have long been discussing the opening of account databases, which would stimulate suppliers themselves solicit business from consumers with their commercial offers. Since this approach envisages access to personal information, consumers themselves may provide consent to the access to their profile in this data hub.”

 

Will subsidies protect against high tariffs?

 

On the one hand, gas prices and gas distribution tariffs must be economically viable, European. On the other hand, incomes of a substantial portion of Ukrainians, to put it mildly, aren’t quite European. So, what’s the way out? Subsidies should have covered the lack of money in vulnerable consumers. That’s a normal international practice. Even developed countries support these consumers using the instrument of subsidies, although it can have a different name. But in Ukraine, the situation is somewhat different.

“You have to understand that for as long as our market remains monopolized, the gas price won’t be fair because of the market monopolization, because certain players may significantly overcharge it,” Ahiya Zahrebelska says. “It means that when the government pays money from the state budget to cover this cost of gas, it de-facto places budget funds into the pocket of monopolists who overprice consumers. And what are budget funds? That’s our money. In other words, we de-facto pay our own money, only via the state budget, without noticing it.”

Another important nuance pointed out by our interlocutor is the absolutely abnormal situation with the number of population who need assistance and who belong to the category of vulnerable consumers. Presently, more than 3 million families receive a housing subsidy.

The budget for this year allocates fewer funds for subsidies than the last year’s budget. At the same time, the tariffs rose. The number of population who need subsidies has also increased. Therefore, this program is absolutely unrealistic, and either the parliament would have to find money for subsidies in another place (although it’s unclear where, because the budget deficit is very high), or public officials on the ground would be denying subsidies on every possible pretext, looking for any formal reasons in order not to exceed the budget allocations,” Ahiya Zahrebelska adds.

To solve this problem, DiXi Group experts recommended the Cabinet of Ministers of Ukraine (in particular, the Ministry of Energy and the Ministry of Social Policy) to develop and adopt the Procedure of Protecting Vulnerable Consumers as required by Article 16 of the Law of Ukraine on the Natural Gas Market.

“This document must define clear criteria for vulnerable consumers, the procedure of registering and monitoring them and controlling their eligibility for this category, and most importantly, envisage support and protection measures. Defining vulnerable categories of household consumers and targeted assistance to these particular groups would be more appropriate than the general reduction of prices for all consumers without exception,” Roman Nitsovych adds.

 

Tariff crisis and manual management

 

When in January people took to the streets, outraged by high tariffs, the maximum price for household consumers was capped by 6.99 hryvnias per cubic meter. In addition, the government signed a memorandum with local authorities, stating that the heat and hot water tariffs will not be raised till the end of the heating season. This intervention caused a mixed reaction. Is it acceptable to cap price fluctuations in a free gas market?

“European practice envisages price capping, but these caps are intended to restrain price surges in force majeure situations,” Maksym Biliavskyi explains. “For example, price hike amid the rapid decline of supply because of an accident in infrastructure. Seasonal price fluctuations in EU states are covered by special commercial offers and social programs for vulnerable consumers.”

“At that time, the situation we had was so neglected that nothing could be done without the government intervention,” Ahiya Zahrebelska believes. “On the one hand, in formal market conditions the government, of course, should not intervene and should not regulate whatsoever the price in a competitive market. But considering that the gas market for household consumers in Ukraine is noncompetitive (all experts, all stakeholders and public officials admit that, and moreover, nobody has doubts that the gas market, gas supply to households is monopolized), the government did intervene. In a monopolized market, during the peak surge of price (and it was a peak surge), there was no other way for the government to quickly do something. In other words, we have already reached the stage when the government was compelled to regulate the price in a potentially competitive market, because the market is monopolized and the government failed the task of demonopolizing it.”

The only question, experts say, is whether the lesson received during this heating season will be learned for the next season. If, first of all, the Antimonopoly Committee as the key authority responsible for protecting competition and demonopolizing the markets won’t accomplish this task before the start of the next heating season and the gas supply market for households will remain monopolized, the government would have to again regulate the prices, our interlocutors maintain.

“Therefore, we will have a potentially competitive market with government regulation,” Ahiya Zahrebelska forecasts. “And that will have consequences, considering that the market is monopolized not just by some company or businessman but by a person we call an oligarch. For one of the most important features of an oligarch is his ability to influence the government policy. It means that an oligarch has the ability to exert influence on government regulators to make sure that the prices set by the government (i.e., regulated prices) will benefit him. Therefore, as we have already seen in recent years, new corrupt schemes will come to life in our country, like the ones with PSO. It means that the losses of the state, and therefore, our losses, will only increase.”

Price regulation, DiXi Group’s position paper says, can “freeze” the market and prolong the market domination of existing players. Consumers won’t have incentives to change a supplier. Since the difference between the market price and the government-regulated one could be substantial (especially over time), it would cause losses in suppliers. These losses would have to be compensated.

“In late 2020, Naftogaz received UAH 32.2 billion in compensation from the state budget for performance of special obligations in 2015-2019,” Roman Nitsovych reminds.

In addition, the difference between the prices for households and prices for industrial enterprises creates the risk of corrupt practices by suppliers, the expert adds. We remember the schemes in which gas purchased at a regulated price and intended for households was then resold to industrial consumers at a market price.

“Moreover, regulation of prices at below-market level gives less incentive to households to implement energy efficiency measures,” Roman Nitsovych says.

 

A crisis of non-payments and annual contracts

 

So, beginning from 1 April 2021 the gas prices can be cut loose again. If that happens, they will be regulated by the market. To prevent a possible tariff crisis, the government obliged suppliers to offer consumers the choice of an annual contract.

According to Prime Minister Denys Shmyhal, these contracts with fixed prices may become available already in the second quarter of 2021. In addition, the PM tasked the NEURC Chairman with discussing the mechanisms of launching an annual product for teplokomunenergo companies (TKEs) with representatives of TKEs. And the regulatory agency has already published a draft resolution introducing an annual price of gas. But would it save us from the quite probable crisis of non-payments? The amount of overdue utility bills owed by households is growing. While in 2020 the debt increased by UAH 13 billion and reached UAH 73 billion, how would this figure change after the heating season?

“The very existence of this debt indicates that the pricing model is anti-market and not conformant with the solvent demand,” Maksym Biliavskyi says.

“We have to understand that today’s tariff crisis stems, in a way, from the confluence of several factors: seasonal growth of the gas price, raise of the gas distribution and heat tariffs effective 1 January, and abolition of a portion of electricity benefits,” Roman Nitsovych says. “It is obvious that, when making these decisions, the consequences and the negative public perception had had to be forecasted. If a household consumer does not pay to the supplier (including gazzbut companies, which presently hold the major share of the market), they, in turn, won’t be able to pay to Naftogaz as a wholesale gas seller, or to importers or traders. Therefore, it entails high risks.”

As for the probability of a crisis of non-payments, the expert believes that in our country, a large portion of payments for heat and gas is traditionally made after the end of the heating season. People are used to making more or less equal payments every month, because their incomes are approximately the same over the year.

“That’s why annual contracts offered by suppliers are advantageous for consumers,” our interlocutor maintains. “A consumer can pay either in advance or in equal installments every month for the volume of gas they expect to consume during the season or the year. Therefore, the government now wants to oblige every supplier to have, besides monthly or other offers, an annual offer with a fixed price. It is conformant with European practice, when in some countries people pay for gas once a year or once every six months. It would be a comprehensible and convenient approach, and it would clarify many issues.”

However, the expert points out that a complex of decisions is needed to solve the problem of utility bill payments by households: “Today, we saw certain “emergency” measures, but in order to prevent these situations in the future, the policy must be consistent. We must not move in the direction of the market one day and turn around by 180 degrees and take steps in the reverse direction another day. The same is true about payments. One day, the government says that we have a pandemic and de-facto allows to skip payments, saying that the debtors won’t be charged penalties and late fees. For many, it was a signal to stop paying. As a result, we had a surge of non-payments. Therefore, the government must send clear and unambiguous signals. In addition, people must be informed about various opportunities, like, for example, Gasotheque website does.”

An analysis of the situation with gas tariffs shows that it needs comprehensive attention, especially from the government, and a complex of decisions. Otherwise, the country would be exposed to another wave of tariff protests and a crisis of non-payments. That, in turn, would affect the entire housing and utilities sector. Tariffs must be economically reasonable, transparent and comprehensible. And in order for them to be fair, the government must ensure the functioning of a fair, competitive gas market that has clear rules of the game and offers equal opportunities to every participant.

Svitlana Oliinyk, writing for Ukrainian Energy


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