Growing debts in utility sector threaten Kyiv heating season
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.
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.
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.