Ukraine should start real reform, not just another heating season
Every year, with the advent of autumn, the drop in air temperature is accompanied by an increased number of official statements on the level of the country’s readiness for another start of the heating season. But as always, the colds come unexpectedly, and we again hear the same old song about some school, hospital, office or even a whole town meeting the cold without central heating launched. And the people lash out at careless officials and sloppy thermal company bosses.
At the same time, officials keep convening meetings of so-called "energy headquarters", spending hours to discuss the start of the heating season in the style of planning some kind of a military operation. Some report on their readiness to launch an offensive, they apologize and vow that the heating season will start soon, while the others just silently nod their heads, hinting at the idea that the whole process is under their vigilant control. Then all together, they search for those who hinder the heating offensive, while some big bosses threaten to punish their subordinates. But even military discipline does not save equipment from breakdowns, heating mains from leaks and negligence of staff of power supply companies. It also fails to prevent more systemic problems that have piled up over the decadeds in the domestic fuel and energy sphere and the housing and communal services sector.
The thermal power industry sector remains far from the concept of market competition
Let's take regional thermal energy companies, which owe the supplier of natural gas, Naftogaz of Ukraine, more than two tens of billions of hryvnias. No wonder that given such debts, no one will be in a rush to supply gas. But we shouldn’t blame the debtors alone – this problem is also related to the debts of previous years, the state's outstanding obligations to thermal energy companies, and many other factors.
The sector remains far from the concept of market competition. The Soviet style of management still firmly dominates the field, giving the monopoly the opportunity to dictate its terms to cities, towns and neighborhoods. Only recently has the Verkhovna Rada passed laws that will promote the emergence of new players in the regional thermal energy markets - companies that produce heat from the burning of pellets, sawdust, straw, and the use of other bio raw materials.
The similar situation is witnessed in the natural gas sector. The government simply does not wish to take steps to destroy the monopoly of regional gas suppliers and implement a mechanism that will give new suppliers a real opportunity to enter this market. It seems that the Cabinet is afraid to even think about market prices for gas for the population and ignores a tough stance on the issue of Ukraine's key lender, the International Monetary Fund. Instead, officials cherish the mechanism of special obligations, which strengthens the monopoly of regional gas suppliers, and in fact deprives the end user of the choice of supplier.
Meanwhile, the government much more actively discusses and offers options for monetization of subsidies - issuing to consumers or energy supply companies some "live" money, instead of making mutual settlements for housing and communal services. This reform is extremely important, since the multi-billion state budget spending on subsidies is in fact the money that, if given to consumers, will protect them against rising prices, help form a competitive gas market, or can be aimed at energy efficiency goals.
Energy efficiency is worth paying special attention to, since the frequency of these words by the Ukrainian government officials seems to be inversely proportional to the amount of real money allocated for energy efficiency measures. A striking testimony to this is the constant shortage of funds for financing a successful state program for "warm" loans, which costs twice less than payments for subsidies.
We need to move along the path that ultimately expands for the consumer a range of different options for choosing a provider of heat and power supply services. And there should be a choice available to all of the country’s citizens, not just the capital residents
Besides money, there is also an institutional aspect. Simply put, the country clearly lacks financial organizations ready to compete for financing energy efficiency projects. Although the state is launching the Energy Efficiency Fund, while state-owned banks are contributing as well, I believe that additional tools are required that will attract more private capital. By stimulating the entry of new financial institutions into this market, the state will see an emerging market and move away from the constant issue of where to get more money, while the consumer will receive a source of funds for energy modernization of their homes.
Another area that is clearly lagging behind with reform is electricity production. The thing is that with the rise in prices for thermal energy, residents of many cities began to refuse to connect their houses to centralized heating supply and decided to switch to electric heating. This option did not become a panacea, since regional or intra-house networks are not ready for such workloads. As a result, maintenance teams of energy companies had to switch off the entire buildings, repair wiring, and replace out-of-service equipment. Thus, the problems of the energy sector quickly turned into the problems another one. At the same time, the common Achilles' heel became the sluggish advancement of market reform, and sometimes their total absence.
Of course, there are few people who believe that the prices for gas or heat will liberalize in the process of market liberalization. The majority pragmatically understands that these resources will not become cheaper. What can soften the price increase for the consumer? Is it another campaign to prepare for the heating season by military rules or the creation of an efficient competitive market? Despite all the acuteness of the current problems, we need to move along the path that ultimately expands for the consumer a range of different options for choosing a provider of heat and power supply services. And there should be a choice available to all of the country’s citizens, not just the capital residents. It is a well-thought-out market approach that will enable every Ukrainian to escape from an expensive supplier to a more efficient and cheap one, replace an energy source, reduce heat losses in their homes and offices, increase consumption efficiency, and thereby bring Ukraine to energy independence.