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Subsidies monetization is necessary, but first we must eliminate drawbacks of the subsidies system – experts

Київ, November 09, 2016.

 

To motivate recipients of subsidies to save and implement energy efficiency measures, it is necessary to introduce monetization of subsidies. But first of all the major drawbacks of the system, such as the lack of verification of recipients and excessive standards of consumption should be eliminated. Besides, financial responsibility for the overdue payment of utility bills should be introduced. This was stated by experts at the discussion at Ukraine Crisis Media Center.

Yana Bugrimova, director of Reforms Office, Ministry of Finances of Ukraine, noted that the government plans to decide on the model of monetization and adopt the necessary regulations by the end of the heating season, but a solution has not yet been found.

 

Drawbacks of the current system

 

Some of the key drawbacks of the current system include the lack of incentive for saving and excessive consumption standards. Oleksiy Khabatiuk, deputy head of department at the state oil and gas company “Naftogaz Ukraine,” noted that according to State Commission for Utilities Regulation (NKREKP), the actual gas consumption for households of 120 m² is 4 cubic meters per square meter on average for the season, while the standard value is 5.5 cubic meters. Moreover, a change in volume consumption depending on the month is not considered in the standard values.

Another serious problem is the lack of effective preventive mechanisms system against fraud: “dead souls,” underdeclaration of income, concealment of property status, unemployment registration, etc.
According to Yana Bugrimova and public experts, among the drawbacks are also the lacks of a space for other gas traders and clearing system in accordance with the Resolution of the Cabinet of Ministers No.20. “No matter how the government tries to structure it, any clearing results in abuses, especially with our system of commercial account,” she noted. Oleksiy Khabatiuk, in his turn, stated that the abolition of the clearing will cause an increase in price which will approach or even exceed the market price. In consequence of this the end user will not benefit from it. “But we support the retreat from the clearing in the future, not because of the fact that it interferes with the market, but because this mechanism is not sufficiently market and transparent,” he added.

 

What does monetization mean?
Today, two models of subsidies monetization are being considered. The first one involves subsidizing at the level of heating companies. “This is a retreat from the clearing system, when the state pays subsidies to heating companies with the money instead of existing mutual settlement system,” explained Yana Bugrimova. The second model involves monetization at the level of households. It means that people will receive subsidies in monetary form. One option provides that consumers will receive the remainder in monetary form. Another option provides that they will receive the whole subsidy, some funds from which will be paid for utilities. It should also be decided whether to impose the requirement of targeted use of monetized funds.

 

Options for solutions
According to Yana Bugrimova, in the end it should be a step-by-step complete monetization of subsidies: at first it is required to cancel clearing and introduce monetization at the level of heating companies, and then – at the level of households, but with a targeted use of funds – for utilities or energy efficiency measures. This will ensure a smooth transition and reduce risks. “It is possible to implement the first stage at the level of heating companies in 2017, and to prepare for monetization at the level of households in 2018. Perhaps, the pilot projects should be implemented before,” she noted. “This is really the best option for better reconciling of consumer behavior after complete or partial monetization,” added Marianna Onufryk.
Preparatory steps
Firstly, the monitoring of actual consumption should be provided, because current standard values are excessive. “This will allow the adequate standards to be set, and they will allow monetization,” noted Yana Bugrimova. Simultaneously a commercial accounting of public services should be introduced and financial sanctions should be imposed on all consumers for late payment of utility bills.

Secondly, those who actually do not need subsidies should be identified and rejected. “The first step has been made: due to the increase in the minimum wage part of subsidy recipients will drop out from the next heating period,”  noted Marianna Onufryk, social policy expert, Institute of Social & Economic Studies. Besides, the clearer criteria than the income and residence certificates should be established. However, she said, to end the practice of concealing income the state should first recognize the real minimum subsistence level.

The experts are divided in opinions on the necessity to separate the energy efficiency and subsidy programs. According to Yana Bugrimova, they should complement each other so as to motivate people to reduce consumption. According to Oleksiy Khabatiuk, the programs should be separated, and energy efficiency should be stimulated through the gradual reduction and unification of social standard norms.

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