Grow­ing debts in util­ity sec­tor threaten Kyiv heat­ing sea­son

Kyiv Post - - National - BY VERONIKA MELKOZEROVA MELKOZEROVA@KYIVPOST.COM Debts to Kyiven­ergo, which sup­plies most of the heat­ing and hot wa­ter to the city, threaten the fi­nan­cial sta­bil­ity of the provider.

Win­ter comes ev­ery year Ukraine — that’s guar­an­teed.

Un­for­tu­nately, there’s no guar­an­tee that when tem­per­a­tures drop, the cen­tral­ized sys­tems will start pump­ing out the heat.

While Kyiven­ergo, the cap­i­tal’s en­ergy and elec­tric­ity sup­ply mo­nop­o­list, and the Kyiv City Coun­cil both as­sured the Kyiv Post that the heat­ing sea­son has started suc­cess­fully, there were more than 800 build­ings in Kyiv without heat­ing and hot wa­ter on Nov. 1.

But it’s not just pipe bursts that stop the heat. Debts on heat­ing bills, and the fact that Kyiven­ergo pays more for the gas it uses to cre­ate heat than what it can charge con­sumers, are big­ger prob­lems, ac­cord­ing to Kyiven­ergo.

“The gas prices and heat­ing tar­iffs for state-owned com­pa­nies, and the con­sumers’ debts are the big­gest threats to the heat­ing sea­son in Kyiv,” the press ser­vice of Kyiven­ergo told the Kyiv Post on Oct. 27.

Ac­cord­ing to Kyiven­ergo, its cus­tomers in Kyiv owed Hr 2.6 bil­lion ($96 mil­lion) in debts for heat­ing and hot wa­ter as of Oct. 1.

The big­gest debtors are the pub­lic (Hr 1.3 bil­lion or $48 mil­lion) and hous­ing man­age­ment as­so­ci­a­tions (Hr 682 mil­lion or $25 mil­lion).

State-fi­nanced or­ga­ni­za­tions owe Hr 34.2 mil­lion ($1.2 mil­lion). The gov­ern­ment has failed to pay Hr 430 mil­lion ($16.2 mil­lion) in com­pen­sa­tion to Kyiven­ergo.

Many peo­ple are not happy with Kyiven­ergo.

In Au­gust, res­i­dents of four hous­ing com­plexes even blocked the Kharkivske High­way in Kyiv, de­mand­ing that a com­pany rep­re­sen­ta­tive re­view their debts for utili- in ties of Hr 3 mil­lion ($113,000), which they said were un­jus­ti­fied.

Even those who pay reg­u­larly and have no debts got no heat in Oc­to­ber. Pavlo Kos­tur, who lives in Svi­atoshyn­skiy Dis­trict, said on Nov. 3 that he was still wait­ing for heat. “They promised to turn the heat­ing on on Nov. 1, but failed to do it for some rea­son,” Kos­tur said. “It was plus 14 de­grees Cel­sius in my flat un­til the day be­fore yes­ter­day."

Author­i­ties also have gripes with the com­pany mostly owned by bil­lion­aire oli­garch Ri­nat Akhme­tov. In fact, the Kyiv City Coun­cil de­cided on June 20 to can­cel the city’s con­tract, although not un­til April.

Pay­ment in­dis­ci­pline?

Kyiven­ergo’s press ser­vice said that the com­pany’s only source of rev­enue is from con­sumers, so un­paid bills make Kyiven­ergo un­able to pay its sup­pli­ers.

While gas bills for the pub­lic have more than dou­bled since 2014, the pub­lic’s in­come hasn’t kept up.

The min­i­mum wage in Ukraine is Hr 3,200 ($118), while the av­er­age util­ity check is be­tween Hr 1,500 ($55) and Hr 2,500 ($92).

The State Sta­tis­tics Ser­vice re­ports that in 2017 util­ity ser­vices around Ukraine had al­ready charged the pub­lic more than Hr 60 mil­lion ($2.26 mil­lion) for ser­vices. As of Septem­ber, Ukraini­ans had paid Hr 56 mil­lion ($2.11 mil­lion) of that amount. In Septem­ber the pub­lic's bill was Hr 3.5 mil­lion, and they paid Hr 3.8 mil­lion — mean­ing that they were pay­ing back debts as well.

Re­bal­anc­ing prices

Nev­er­the­less, Kyiven­ergo’s util­ity debts are grow­ing not just be­cause of the pub­lic, but be­cause of the way that gas prices have been fixed by the gov­ern­ment. It loses money on the gas it sells to some con­sumers, the com­pany con­tends.

Naftogaz Ukraine, the state-owned oil and gas com­pany, told the Kyiv Post on Oct. 28 that the com­pany sells gas for res­i­den­tial use to Kyiven­ergo for Hr 4,940 per 1,000 cu­bic me­ters. Kyiven­ergo charges the same when cal­cu­lat­ing bills. “So there are no prob­lems there,” Naftogaz's press ser­vice said.

How­ever, the Ukrainian gov­ern­ment set an­other price for the gas Kyiven­ergo needs to pro­vide heat­ing to state-fi­nanced or­ga­ni­za­tions — Hr 7,900 per 1,000 cu­bic me­ters, ac­cord­ing to a cabi­net reg­u­la­tion (No. 187) adopted in March.

Mean­while, the Na­tional Reg­u­la­tion Com­mis­sion has or­dered the com­pany to use a gas price of around Hr 7,000 per 1,000 cu­bic me­ters when cal­cu­lat­ing its gas bills for state-fi­nanced or­ga­ni­za­tions.

“Be­cause of that, the heat­ing pro­duc­ers had an in­creas­ing gap be­tween ex­pen­di­tures and prof­its, as they buy the raw ma­te­rial (gas) for more than they sell the heat­ing,” Naftogaz’s press ser­vice said. “This sit­u­a­tion is also un­prof­itable for us, as we un­der­stand that the heat­ing pro­duc­ers just won’t have enough money to pay for our ser­vices, and their debts will grow.”

Due to the gap be­tween prices, Kyiven­ergo suf­fers Hr 1.2 mil­lion in losses daily from sell­ing gas to gov­ern­ment-funded en­ter­prises.

Gas sup­ply com­pa­nies are al­ready tak­ing ac­tion in re­sponse to Kyiven­ergo’s grow­ing debts. In sum­mer, na­tional gas sup­ply com­pany Ukr­transgaz shut off sup­plies to Cen­tral Heat­ing and Power Plant 6 in Kyiv, leav­ing three districts of Kyiv without hot wa­ter for a month be­cause Kyiven­ergo had run up a Hr 61 mil­lion ($2.2 mil­lion) debt. Ukr­transgaz re­con­nected Cen­tral Heat­ing and Power Plant 6 un­der pres­sure from lo­cal gov­ern­ment.

After ap­peals from Kyiven­ergo, the cabi­net on Oct. 25 de­creased the gas price for the com­pany to Hr 7,400 per 1,000 cu­bic me­ters. But the changes still need to be ap­proved by the Fi­nance Min­istry, and the com­pany will still pay more for gas than it can charge for heat.

Break up the monopoly

City author­i­ties have de­cided to in­tro­duce mar­ket forces. To cre­ate a com­pet­i­tive mar­ket in Kyiv, the coun­cil this year cre­ated a com­peti­tor to Kyiven­ergo — the pub­lic com­pany Kyivteploen­ergo.

It has ob­tained a heat­ing sup­plier li­cense from the Na­tional Reg­u­la­tion Com­mis­sion and has been op­er­at­ing since June. Kyivteploen­rgo sup­plies heat­ing to con­sumers in the Dniprovskiy and Darnyt­skiy districts.

Kyiv City Coun­cil’s press ser­vice also told the Kyiv Post on Oct. 31 that in 2017 the coun­cil had not only can­celled its con­tract with Kyiven­ergo, but was also work­ing to re­turn its as­sets to state own­er­ship.

From the state, Akhme­tov’s com­pany bought Kyiv’s two gi­ant cen­tral heat­ing and power plants, the 2,600-kilo­me­ter heat dis­tri­bu­tion net­work, 200 boiler sta­tions, and a waste in­cin­er­a­tion plant.

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