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Former U.S.S.R.: Energy Arrears Pose Problems

Washington, 28 January 1997 (RFE/RL) - Energy arrears -- overdue payments for the delivery of electricity, oil, gas, coal, heating and hot water -- in the countries of the former Soviet Union are still a serious problem, according to the International Monetary Fund, with some running as high as six percent of gross domestic product.

In an article in its official publication "IMF Survey," the fund says Latvia had the worst arrears in mid-1996 of six percent of its measured economy (GDP), although the situation is improving. Russia, with energy arrears of more than four percent of GDP, saw over half accounted for in the electric power sector. Turkmenistan avoided the problem by heavily subsidizing gas and electric use while Kazakhstan and the Kyrgyz Republic have both experienced Iacute energy payments problems" as have Belarus, Moldova and Ukraine.

The article, prepared by Emine Gurgen, head of the IMF division dealing with the Central Asian and Caucusus countries, says that linked to these energy arrears, but even larger, are the energy sector's "overdue payments of taxes, wages, and suppliers' bills."

There are no "clear-cut causes" of the energy arrears, says the IMF article, but there are "common patterns" discernible amongst all the former Soviet countries.

First, an "inability or unwillingness to adjust to new economic circumstances," especially with incomes and profitability declining and prices rising sharply, consumers are unable or unwilling to pay for energy supplies.

Secondly, it says, there is no payments discipline -- suppliers have failed to cut off deliveries to nonpaying customers, particularly where the government views the customer as strategic, In addition, penalties for late payments are rarely enforced and customers have come to expect arrears to be written off by the government.

In addition, the article says, collection efforts have been "weak" and government interference, including its own "bad example" failure to pay its own energy bills, has made the situation worse.

Energy arrears have a "ripple effect in an economy," weakening the energy producing and delivery enterprises' ability to pay wages, bills and taxes. The arrears promote the inefficient use of energy, disrupt supplies and skew income distribution because non-enforcement of bills "disproportionably subsidizes higher-income groups."

The fund says this has particularly been the case in Turkmenistan.

The Baltic countries have been taking what the article calls "important steps to improve revenue collection and tackle weak energy sector financings." All three have started to cut off supplies to delinguent consumers, set up repayment schedules for those who owe money and are strengthening their billing and collection situations.

It says that progress has been "more limited" in Russia. The federal program to supply fuel to agriculture by providing tax breaks to oil companies, for example, was undertaken outside the budget and without consulting with tax collection authorities.

Failure to collect taxes has been a serious problem for Russia, getting so bad last year that the fund delayed releasing two monthly traunches of Moscow's three-year loan.

In Ukraine, says the IMF article, payments difficulties in the domestic energy sector have for the most part translated into large external arrears to the country's two major gas suppliers -- Russia and Turkmenistan. Kyiv has already had to reschedule payments to spread out what it owes to its two neighbors, but they regularly threaten to reduce supplies when payments fall too far behind.

Armenia, Georgia and Moldova, says the fund, are focusing on increasing energy prices and improving the payments discipline by cutting of delinquent customers. The IMF says these countries have also ended government payment guarantees for energy imports and Armenia and Georgia intend to begin privatizing some energy sector activities this year.

The IMF article says Kazakhstan plans to begin cutting off nonpaying customers this year while Kyrgyzstan is cutting off supplies to delinquent customers while modernizing its billing and collection system and initiating restructuring and privatization of the national energy company.

Among this group, adds the article, "Belarus stands out as a country that has failed to make a serious attempt to address its energy arrears."

The IMF article says it is "essential" for all former Soviet countries to phase out energy subsidies and more closely align domestic prices with world prices, but adds that the periodic large increases in energy prices has tended to aggravate payments difficulties.