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New Energy Regulator’s decision on the price of connection to electricity network must be cancelled – experts, MPs

Kyiv, February 03, 2017.

The provision of the National Commission for State Regulation of Energy and Public Utilities establishing new prices for connection of a new consumer to electricity networks is absolutely unacceptable and should be revised, as the price is unfounded and too high. This decision poses threat to investment climate and national economy in general, said experts, MPs and representatives of local authorities at a discussion at Ukraine Crisis Media Center.

What’s wrong with the formula and calculation

According to Lev Pidlisetsky, MP from “Samopomich” faction, the Commission arbitrary used the provisions of law related to the formula of price calculation. “No one could imagine that they could assess assets in such way as they did, and no one could suppose they would not use any decreasing coefficients,” he said.

The first problem is the lack of transparency in assessment of assets of “oblenergos”, regional energy supplying companies (assets value is the numerator in the formula). For instance, the value of “Dniprooblenergo” assets was assessed as UAH 6,2 billion in 2015. Then the State Property Fund of Ukraine reassessed it according to a new methodology, and assets value plummeted to UAH 13,4 billion in 2016, but there were no any significant changes inside the enterprise, said Andriy Gerus, former member of the National Regulatory Commission. The second problem is that in several “depressive” regions there are power lines that do not function at all, however, they were also considered as assets in the assessment procedure. As a result, the calculated price for connection to electricity networks in these regions is two times higher than in Kyiv or Dnipro.  “This is contrary to what we actually needed to have: the connection is very expensive in the regions where we should encourage businesses, but it is cheap in Kyiv center where the networks are overloaded,” explained the expert.

In addition, it is strange that formula denominator is not the power of the consumers according to their contracts, but the transformer capacity; that energy producing enterprises will be connected on the same conditions as other consumers, that new public schools and kindergartens will have to pay the same price as businesses.

The established price of connection is now six times bigger than before. Moreover, it doesn’t include the cost of construction of a line connecting the object to the existing line. “This situation looks exactly as if you had to build a shop for the vendor to buy his goods,” noted Oleksiy Orzhel, director of Energy Section at Better Regulation Delivery Office. The experts added that the new tariff looks like an attempt to legalize “corrupt tax” – money which formerly were given to the “oblenergos” as bribes.

“There are both technical and legal inconsistencies in this formula. The Provision has not been published yet, but if it is published, we will take legal action. There are solid grounds” said Andriy Gerus.

A threat for investors and green energy

A sharp increase of cost of connection will have serious negative impact on industry and small-scale power generation enterprises, especially green energy producers. It will lead to suspension of ongoing investment projects and will discourage foreign investors. “Now the cost of connection constitutes up to 30 per cent of the project budget, instead of 10 per cent. Moreover, this money is paid not as a tax to state budget, it is paid into the pocket of another business,” stressed Sergiy Petrov, member of the Union of Urkrainian Entrepreneurs.

“This new price creates an obstacle for investments willing to enter this sector, while Ukraine needs to get rid of these obstacles. It is completely contrary to the principles declared by the Government. If we don’t change it, we will never build a strong economy and will always depend on IMF loans,” stressed Victor Halasiuk, MP from Oleg Lyashko Radical Party. “We will analyze the results of assessment […]. I have already issued a request for this information and we will initiate independent expertize,” he added.

An obstacle for territorial communities development

According to Dmytro Zhyvytsyi, representative of Sumy Regional State Administration, the Provision would thwart development of new-created united communities. For instance, construction of premises for a new-created agricultural cooperative will become much more expensive. As a result, the idea itself becomes less attractive.

Experts and entrepreneur call to review the decision

Experts of the Reanimation Package of Reforms in their official statement express their concerns and call to review the decision, taking into the account concerns of all parties. They also remind that it is necessary to start rotation of Commission members. “If we don’t have independent decisions, there is no sense to talk about further reforms in energy sector and electric energy market,” the statement stresses.

Maksym Sysoev, co-chairman of European Business Association Fuel & Energy Committee, said that the UBA is also deeply concerned with the Commission’s decision and prepares the address to the Prime Ministers and the Commission.

According to Denys Marchuk, representative of agribusiness associations, new rules would create significant obstacles for processing enterprises. Nine associations have already addressed a letter to the President and the head of the Commission.

Participants of the discussion also noted that in the future all the details should be included into the text of the law in order to reduce the risk of malpractices.

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