Open response of the “Samopomich” MPs to “Ukrenergo” National Energy Company

Dear leadership of “Ukrenergo” National Energy Company,

First of all, thank you for your openness to public debate on the need and feasibility of a large-scale replacement of transformer equipment. In response to your questions we wish to state the following:

1. In accordance with GOST (state standard) 11677-85, which operates in Ukraine, there are no performance standards of 25 years for transformers. This GOST indicates the performance standards of AT LEAST 25 years.

Moreover, according to the US Energy Department report in April 2014, the average age of transformers even in this very rich, advanced and high-tech country is 38-40 years, and 70% of the operating transformers are older than 25 years. Some of the operating transformers are more than 70 years old! And this is despite the fact that in the US production and consumption of electricity, and thus the load on transformers, has not been falling. While in Ukraine production of electric power has decreased from 300 billion kWh in 1990 to 180 billion kWh in 2014. And for 6 months in 2015 production of electric power has reduced by 14%.

2. Generally, under the current legislation the state enterprises that are natural monopolists have to buy what is approved in the financial plan of the company, for what there are appropriate supporting documents (project documentation, expertise and so on), as well as the relevant Orders of the Cabinet of Ministers or the Ministry of Fuel and Energy. In the Financial Plan of “Ukrenergo” for 2015, approved by the Cabinet of Ministers in May 2015, there was no such number of transformers. Why have not they been included in the case of critical need?

Also for such purchases there were not all the supporting documents, which indicates that the Investment Program was approved by the National Commission for State Regulation in Energy and Utilities with serious violations.

3. If the system of “Ukrenergo” really needs transformers, why at the “Mukachevo” substation a new conserved transformer has not been installed and connected for several years? And why at the “Kremenchuk” substation the installed transformer has not been connected. After all, we our task is to technically strengthen the system, not just to buy transformers.

4. The replacement should be balanced and comprehensive, to improve the efficiency of the substation as a whole, that is together with the infrastructure of a substation (switches, circuit breakers, relay protection, etc.). When “Ukrenergo” replaces transformer only, leaving other equipment worn out, that raises questions. The actual lifetime of the other equipment is even greater than the actual lifetime of transformers. For example, according to the “Sectoral development program of the main and interstate power networks of the United Energy System of Ukraine for the period by 2023”, as of 01.01.14 there are more than 90% of overhead power lines in operation for more than 25 years, and 56% of overhead power lines are in operation for more than 40 years. Also, 2961 switches, 999 switch-disconnectors, 87 fuses and other equipment needed to be replaced/installed. Unfortunately, the new investment program primarily provides for the replacement of transformers only.

5. “Ukrenergo” has repeatedly drawn attention to the fact that there is the power shortage and the critical shortage of coal in the country. We think this should be considered when planning the resources for the United Energy System of Ukraine. Because since summer Ukraine has been paying in currency for electricity to the aggressor-state due to the forced import.

Also, critical is the issue of connection to energy grids in Europe for parallel operation. To solve this issue large investments are required, especially in the area of frequency regulation of powers of generating units and automation of power systems.

6. As for the power output of nuclear power plants, to which you constantly refer. It is true that the issues of completion of construction of the 750 kW line from the Rivne and Khmelnytskyi nuclear power plants and the transfer of power to Kyiv are crucial. But this has nothing to do with the purchase of 36 transformers.

7. A separate but very important issue is prices. We believe that you, as the leader of a state enterprise, are obliged to do everything to make sure that international, European (and not only Russian) manufacturers of such equipment take part in tenders. We cannot provide competitive tenders by means of domestic producers, because this is only one such manufacturer. De facto – it looks like monopoly. Let a domestic producer win, but its prices should not be higher than the import ones. Moreover, domestic producers have all the prerequisites to win a fair competition.

8. With regard to the increase in the tariff for consumers, it is the National Commission for State Regulation in Energy and Utilities that can decide this. And we would like to mention that the National Commission for State Regulation in Energy and Utilities has already raised the tariffs for the population from April 1 by 19% -50%; from September the tariffs will increase by another 25%, and altogether by April 1, 2017 they will increase by 245%!

Despite the additional funds from the households, the National Commission for State Regulation in Energy and Utilities continued raising the tariffs for industrial consumers – by more than 19% this year, which led to weakening of the domestic economy, rising inflation, unprofitableness of utility companies (water utilities), as well as increase of cross subsidization. With such a growth in the tariffs the crystal transparence in use of funds is the №1 priority, though we still see none.

The factors in the calculation of the price change are the following:

2.8 billion hryvnias – an increase in the investment program due to the tariff, suggested by “Ukrenergo” as of June 2015 (eventually the figure decreased because of the principled position of some members of the National Commission for State Regulation in Energy and Utilities and under the public pressure);

0.5 billion hryvnias – an increase in the tariff for maintenance servicing of existing transformers by “ZTZ Service” company, offered by “Ukrenergo” as of June 2015 (in the end, it was not approved under the public pressure);

1.7 billion hryvnias – an increase in the tariff for the purchase of transformers, proposed by “Energoatom” National Nuclear Energy Generating Company (eventually not approved under the public pressure);

70 billion hryvnias – planned trading revenues in August-December 2015 (time span since the adoption of an investment program till the end of the year);

1.4 – a multiplier of growth of the wholesale and retail price in connection with an increase in dotation (cross subsidization).

Thus (1.7 + 0.5 + 2.8) * 1.4 / 70 = 0.1 or 10% would have been the tariff’s increase for end consumers, but for the active position of deputies, journalists and the public. In the end, however, the most important is the following – about 2 billion hryvnias cannot be spent ineffectively in time of war!

Yours faithfully,

Ukrainian MPs

Viktoriia Voitsitska, MP, Secretary of the Committee on Fuel and Energy Complex, Nuclear Policy and Nuclear Safety

Oleksiy Skrypnyk, MP, electric power engineer with 14 years’ experience in the Western system of “Ukrenergo”

Lev Pidlisetskyi, MP, Chairman of the Subcommittee on Electricity and Energy Ttransportation


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