Volodymyr Demchyshyn: main purpose of energy sector reform in Ukraine is creating market environment where electricity producers are competing for end consumers


Kyiv, November 9, 2015. The main purpose of energy sector reform in Ukraine is creating a market environment where electricity producers are competing for end consumers. It will make them maintain high quality of services and lower prices, supporting modernization and attracting investment. Moreover, competition in the market will solve the problem of debts for consumed electricity, said the Minister of Energy and Coal Industry of Ukraine Volodymyr Demchyshyn at a press briefing in Ukraine Crisis Media Center as a part of Ukraine Communications Taskforce project.

According to Demchyshyn, there are a number of problems slowing down energy industry development at present. First of all, regional power distribution companies hold an absolute monopoly in energy supply, thus having no inventive to improve the quality and efficiency of their services, optimize production expenses or lower prices. The next serious problem is an endless circle of ‘no payments – no modernization’, i.e. electricity consumers’ debts result in a standstill in investment into modernization and innovation of stations and networks. Industry subsidizes households, which results in a slowdown of economic progress industrial tariffs for electricity exceeding European tariffs. “This tariff is overstated for several reasons, one of them being line losses which exceed European by 5-6%, and the other one is industry subsidizing households. There are 40 billion hryvnias of subsidies in the market at present. Considering the total amount of market as 160 billion, it makes approximately 25%,” said Demchyshyn.


The minister emphasized that the absence of direct contact between energy producers and consumers is a key problem. “If there is no intermediary, suppliers will get a chance to purchase energy from energy generators, and payment conditions will be formed independently,” said the minister, adding that it will instantly solve the problem of non-payment, stimulating an increase in efficiency and service quality.

Energy market reform envisages simultaneous existence of five different markets: bilateral agreements market (long-term contract), short-term contracts market ‘24 hours in advance’, internal hourly market; ‘balancing’ market, envisaging financial responsibility for divergence of consumption from predicted consumption, and a supplementary services market, a ‘last hope supplier’ securing reliable functioning of the system. Moreover, supply and transportation functions will be separated to demonopolize the industry.

“These changes in the market fully comply with the EU Third Energy Package,” said Demchyshyn. The minister explained these steps will solve the majority of problems in the electricity sector of Ukraine. First of all, separate markets will provide for the balance of demand and consumption of electricity in different periods of time, as it is impossible to store this commodity at present. Moreover, the market itself and not the state regulator will set the price, making electricity producers modernize and optimize expenses, raising their efficiency. In this new system suppliers will benefit if they purchase for a longer period. They will pay less if they deviate from predicted consumption. In their turn, the consumers will be able to predict their expenses and choose a pricing package meeting their demands. Moreover, all consumers will subsidize thermal power stations and renewable sources of energy equally, at the expense of power transmission tariffs.