How NCSREU is destroying the energy industry

The energy regulator in Ukraine, the National Commission for State Regulation in Energy and Utilities (NCSREU), plans to raise the tariff for thermal generation once again. This time – by almost 25%. If such a decision is adopted, the tariffs of thermal power stations will grow by as much as 120% from the beginning of 2016. This calls into question not only the independence and professionalism of the under-reformed Commission, but also its common sense.

Following the adoption of the scandalous “Rotterdam+” formula, NCSREU decided to make a gift for thermal power stations, which will be paid for by all residents of Ukraine from their own pockets. Therefore, I would like to once again show our citizens how biased and ungrounded such decisions of the energy regulator are.

Four lies

It is necessary to recall what Dmytro Vovk – NCSREU Chairman – promised in his presentation in June 2016, when the “Rotterdam+”, introduced in April 2016, was presented. Let me remind you that this formula, which still operates, provides for the inclusion into the coal cost of the non-existent costs for its transportation from the port in the city of Rotterdam. This allowed accumulating significant funds for the thermal generation industry, three-quarters of which is controlled by Rinat Akhmetov’s DTEK corporation.

The gold mountains for the energy security of the country promised by the tariff proved to be just shocking.

First: independence in deliveries from the ATO zone.

It is no secret to anyone that from April 2016 until January 2017, the supply of anthracite actually came exclusively from the ATO zone; that is, there was no independence whatsoever. This was proved during the search at the premises of NCSREU held by NABU on August 17, 2017, when the latter revealed the documents, according to which, only 3% of coal was imported in Ukraine. And this is despite the fact that the tariff was applied to all 100%. There is a lie #1.

The second lie is the absence of coal accumulation problems.

As of November 1 this year, the actual coal reserves in warehouses are less than 50% of the plan approved by the Ministry of Energy.

That is, there are problems – and there is a lie #2.

The third one is the absence of a manual control mode.

What does the Regulator do to average the effect of the high tariff of heat power stations on the average wholesale price? NCSREU simply reduces the tariffs of Ukrhidroenerho and Enerhoatom.

I would like to remind you that our tariff for Enerhoatom is already more than 3 times lower than the tariff for thermal generation. And this is despite the fact that the tariff understatement jeopardizes the safe operation. After all, the investment component is at a record low 7.7% level. This has never been so in the history of Ukrainian energy until the period of activity of this underreformed independent regulator. Moreover, the tariffs for nuclear power were reduced, but the final price for the consumers was not proportionally reduced. Thus, there is some spare money, which, however, additionally goes to thermal generation as a “payment for capacity”. That means that in addition to the established tariff in accordance with the “Rotterdam+” formula, the thermal generation will receive 650 million hryvnias, of which 500 million hryvnias will become a profit of Rinat Akhmetov’s DTEK.

This is a lie #3, because the manual regulation is still preserved. And I will certainly appeal to the relevant authorities about this.

The fourth lie – Dmytro Vovk promised that the “Rotterdam+” formula will allow to balance the work of state mines and to allocate fewer budget funds for the closure of non-profit mines.

And this turned out to be a lie. First of all, the budget still has about 2 billion hryvnias provisioned for the support of the coal industry, and the Minister recently asked for an additional billion, because it is not enough.

Secondly, the output of state mines is only 10% of the total amount, but it has also decreased by 15% this year. This is how the work of state mines was “balanced”?

Thirdly, almost every month miners of some of the state mines are on strike because of non-payment of salaries. Debt to employees in many cases was 2-3-month long. Even at “Pavlohradvuhilia” – DTEK’s private mine – salaries for miners increased by only 9.7% in 2016, which is less than the inflation rate. And this is despite the fact that the tariffs for electricity for thermal generation have grown by as much as 41%!

So when we will again hear stories about unfortunate miners who work in extremely difficult conditions – hence the stories about the need to raise the tariff – we must clearly understand that the well-being of miners is far from being a priority for such “agitators” for high tariffs. After all, these additional funds will, in fact, end up in the hand of the far from being poor leadership and owners of corporations who exploit the hard work of miners for next to nothing.

A compromised regulator

As you can see, the energy regulator is piling lies upon lies. For none of the things promised in favour of the “Rotterdam+” formula correspond to reality. Where did the money from “Rotterdam+” really go? Why is the use of tariffs not monitored? How to explain such a significant gap in tariffs for the nuclear industry and heat power stations? Why do we have problems with the accumulation of coal? And the main question: where are the real reasons for increasing the tariff for generation?

Thus, one of the arguments of NCSREU in favour of tariff increase is the revision of the price for freight (transportation by sea and transshipment in the port) of coal from the port of Rotterdam to Ukraine. In accordance with it, the Regulator plans to increase the price by 28.5% to almost 19 dollars per ton. And this is despite the fact that not a single ton of coal was transported to Ukraine from Rotterdam. That is, some non-existent costs will be laid down in the tariffs and the price of electricity will be artificially increased. Thus, another decision to increase the tariff for generation will mean an increase in social tension due to a rise in prices for goods, for services, where the cost of electricity is included – in particular, for water tariffs.

That is why we can state that the regulator’s mission of independent regulation of the country’s energy sector is not properly implemented. Constant uncontrolled increase in tariffs; preferences to individual industries owned by oligarchs; no tracking of the tariffs’ means – al  this eventually results in the regulator’s losing the credibility of the market participants and into the fact that the legitimacy of its decisions is significantly undermined.

Starting from November 26, NCSREU will have no quorum (not least because of delays by the President in delegating the members of the competitive commission for the selection of new members of NCSREU according to his quota). Many important technical decisions have not been adopted, so this delay can be used as a formal reason for initiating changes to the law on NCSREU in order to either reduce the quorum from four members to three (with the total number of seven commissioners) or to abolish the principle of rotation of the NCSREU members.

Such decisions will definitely weaken the independent positions of the regulator. However, the lobbyists of raising the tariffs for heat power stations, who dreadfully need beneficial to them decision of a half-dead regulator, do not bother to think about such abstract for them things.

Viktoriya Vojtsitska
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