Monday, June 27, 2016


Ukraine

Electric Shock: Ukraine Dramatically Raises Utility Rates

Ukrainian consumers will presumably be keeping a close eye on their electricity meters in the future now that low prices for power are a thing of the past. (file photo)
Ukrainian consumers will presumably be keeping a close eye on their electricity meters in the future now that low prices for power are a thing of the past. (file photo)
By Tony Wesolowsky and Olha Komarova

Viktoria Sydorenko makes do with just one light bulb instead of five to light her apartment in the Ukrainian city of Odesa on the Black Sea.

"I used to use at least two for normal lighting," Sydorenko told RFE/RL's Ukrainian Service.

She and millions of other Ukrainians are thinking twice these days about when to flick the switch and when not to.

That's because the country's electricity regulator has just hit them all with a 25 percent rate hike effective March. And it won't stop there. Another rate increase is due in September.

For more than 10 ten years, electricity rates for consumers hardly changed, and costs for power generation and distribution were passed on to industry, small businesses, and government agencies, Vasyl Kotko, the chairman of Ukraine's National Energy Regulatory Commission (NERC), explained to RFE/RL.

Echoing what experts have said in the past, Kotko said that high energy prices have made Ukrainian businesses uncompetitive, while low prices have given consumers little reason to save power.

When it comes to wasting energy, Ukraine is literally at the top of the global charts. The country's energy intensity -- the ratio of energy used relative to economic output -- is twice that of Russia and 10 times that of the Organization for Economic Cooperation and Development (OECD) average. According to the UN, there is no country in the world more energy intensive than Ukraine.

"We are a very poor country that is using energy at much higher rates than other Europeans," said Kotko.

Showdown With Moscow

And energy also looms large in Kyiv's showdown with Moscow. Russia has cut supplies to Ukraine several times in the past over disputes over pricing. To free itself of Russia's energy grip, Kyiv is not only looking for resources abroad, but at ways to save at home.

In 2014, Carl Bildt, then Sweden's foreign minister, said: "If Ukraine improved its energy efficiency to reasonably EU levels, I doubt it would need to import any gas at all."

Some experts say energy conservation makes more sense for Kyiv than increasing energy supplies – particularly supplies of natural gas, which account for about 40 percent of Ukraine's energy pie.

"The same as in Russia, it would be cheaper to work on efficiency than on additional gas production. Bearing in mind that there is huge potential for efficiency in housing, that's the way to go first," explains Christian Cleutinx, a senior associate fellow at the Clingendael International Energy Program in The Hague.

The rate hikes, however, come at a time when Ukraine is facing its most serious challenges since achieving independence in 1991. The conflict with Russia-backed separatists in the southeast forced more than 1 million people to leave their homes.

According to the UN Development Program, the relative poverty rate in Ukraine is 24.3 percent. Some 5.5 million Ukrainians now qualify to receive state subsidies to pay utility bills, according to Ukraine's Ministry for Social Policy.

"For those families receiving subsidies, they will not be affected by the rate increases, whether they are 10, 20, or 30 percent. They will continue to pay a fixed rate, and all increases will be covered by the state budget," Vitaliy Muzhychenko, an official at the ministry.

But for people like Viktoria Sydorenko, who are struggling as it is, the rate hike couldn't come at a worse time.

Sydorenko said she was already paying about 100 hryvnia a month during the winter since she was forced to switch to a boiler after Odesa halted centralized hot water in 2014.

"I tried to lower the temperature of the boiler; tried turning if off after it warms up. That didn't help. It ended up running for a longer time than when I had it switched on all the time," Sydorenko lamented.

But she and the rest of the country of some 44 million will have to get used to higher energy prices. 

Kotko said the energy regulator plans to gradually raise rates until they meet market levels, still a ways off.
 

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