Energy tariffs should be discussed jointly by local governments, regulators, experts



The expert community speaks of ways to explain the rationale behind energy tariffs for a wide audience as the current system is very complicated.

Kyiv, October 19, 2016. To understand the situation with tariffs for heating and hot water in Kyiv, it is necessary to organize a public dialogue between the National Commission for State Regulation of Energy (NKREKP), “Kyivenergo” and representatives of Kyiv administration – that is, all parties responsible for setting tariffs. This was stated by representatives of the civic network OPORA and NKREKP at a discussion held at Ukraine Crisis Media Center.


80 percent of Ukrainians consider the tariff to be non-transparent – opinion poll

Tetyana Boyko, civil network “OPORA” coordinator for housing, communal services and energy programs, noted that the public demand for greater transparency and substantive debate on tariffs is very high. This is proved by a survey conducted by the National Environmental Centre with the support of Friedrich Ebert Foundation. “80 percent of respondents said they did not trust the tariff and saw a corruption component in it. This means that people do not have enough information about what is happening,” said the expert. She added that lack of information creates favorable conditions for populists who speculate on this issue.

It is almost impossible to explain the structure of the tariff to the average consumer in detail – NKREKP

Ruslan Mashliakivskiy, member of the NKREKP, stated that it is extremely difficult to explain the structure of tariffs for heating to the average consumer in detail – and this is a common task. “Tariff is a reimbursement of outlay of a particular enterprise which is calculated by the enterprise itself and then the documents are sent to the National Commission. This is a huge amount of information and we cannot check each component of the tariff on the grounds,” he explained.


Expert findings: malversation can take cover behind the difference between planned and actual spending amounts

Tetyana Boyko said that experts of OPORA, Ukraine Crisis Media Center and regional activists, a total of 46 experts, analyzed the open information on the work of heat and water supply companies in different regions. “There are many indicators hard to compare and it is difficult to draw conclusions about the openness based on them. Meaning what they pay for as part of the heating tariff, how and where a particular enterprise spends money,” she noted.

The difference between planned and actual spending amounts requires special attention. According to Boyko, it is hard to identify the exact spending on producing 1 Gcal of heat. “If there are no metering devices, the calculation is based on the norms that are often overstated. In the warm winter, planned and actual figures may differ significantly,” she said. There are questions to the costs spent on repair works. “Analyzing the Kyivenergo plan, we failed to find the exact expenditures and on which types of repair works. Next – investment program. We have general information on the amount of money used, but unfortunately, we could not see what was changed as a result, how much money and resources it saved,” explained the expert.

To increase transparency, the experts recommend, firstly, unifed reporting forms and forms that are submitted for approval of tariffs to clearly understand planned and actual costs. Now they are different. Secondly, enterprises must use ProZorro e-procurement system, and introduce a more thorough control over the use of funds. “There must be a detailed itemized plan for the use of investment programs, with specific data, how much money and resources are saved and how local communities will benefit from it,” stressed Tetyana Boyko.


NKREKP sets tariffs only for 200 enterprises

“Today, there are about 200 licensees of the Commission – that is, those enterprises for which we set rates. Setting tariff structure and investment programs for all other heating, water supply and sewage companies relate to the powers of local authorities,” stated Ruslan Mashliakivsky. He reminded that over the last two years NKREKP had significantly changed the regulatory framework to engage local governments in setting tariffs as much as possible. “Local executive authorities are citizens as well, so they must become key players in the formation of tariffs,” he noted.

In actual practice, it turned out that currently neither the population, nor the local authorities themselves knew anything about it. “When there was a wave of moratoriums in June-August, we analyzed appeals of hundreds of city and district councils, and only a fifth of them concerned enterprises within the control areas of the Commission. That is, mayors of some cities criticized the National Commission for the tariffs that they had set by themselves,” said Ruslan Mashliakivsky.


Tariff formula denominator is ​​responsibility of local governments

“When the local governments say they do not affect the tariff rates, they are insincere because they are authorized to coordinate the planned production volumes,” stated Svitlana Chernykh, Director of NKREKP heat supply tariff policy department. She explained in detail the principle of formation and approval procedure using the tariff rates of “Novohrad-Volynskyi Teploenergo” as an example [see below the presentation; on video – fragment 26:06 – 53: 07- UCMC note].

Svitlana Chernykh focused on the fact that the lower are the costs of the company (the formula numerator) and the greater are the heat energy sales (the formula denominator) [see Slide 11], the lower is the rate. “The formula denominator is a 100% ​​responsibility of local governments,” she stressed. These figures are given in the annual plan of heat energy production, transportation and supply, in which the local government approves expenditures, gas and electricity consumption rates for production of one gigacalorie, the volume of heat energy required for heating one square meter. The tariffs submitted by enterprises-licensees for approval to NKREKP are the figures which have already been agreed with the local authorities and correspond to the values specified by them. Besides, NKREKP approves tariffs during open meetings and only in the presence of mayors or their deputies.

Tetyana Boyko proposed to return to the “Novohrad-Volynskyi Teploenergo” case at the end of the year. “We should make the same presentation based on the results and not on the plan to see the actual amount spent by “Novohrad-Volynskyi Teploenergo.” Then we will have a substantive discussion,” she noted.


Further steps to address systemic problems include unblocking of accounts of heat and power enterprises, switching to the stimulating tariff setting and modernization

During the discussion, the experts and NKREKP representatives noted that despite the increase in tariffs, the quality of municipal services de facto remains unsatisfactory. We will not succeed in achieving the adequate correlation between the tariff and quality of services without addressing a number of systemic problems.

One of the sore issues is where to get money for upgrading and mounting the meters, given the situation with debts of heat and power enterprises to “Naftogaz”. Tetyana Boyko noted that as of today 65% ​​of heating systems are actually worn-out. It is impossible to reduce losses in the systems without their modernization. “To lay 1 km of heating main costs 8-12 million hryvnias. But this is only one kilometer,” added Svitlana Chernykh.

Ruslan Mashliakivskiy noted that the first step to solving the problem of heat and power enterprises has been made. The Cabinet of Ministers has approved a draft law on restructuring the debts of heat and power enterprises. The adoption of this law will make it possible to unblock their accounts.

The next step should be switching to the stimulating tariff setting: tariff formation at cost price does not provide enough funds to restore the equipment. Ruslan Mashliakivskiy noted that NKREKP has already signed a plan of actions in cooperation with the Institute for Regional Development and the USAID project manager. They also cooperate with the State Property Fund and MEDT. A pilot project involving three heat enterprises and three water supply and discharge enterprises will be launched on July 1, 2017. “This will provide an opportunity to attract investment in utilities, to restore equipment that is in poor condition and to avoid the problems arising every year before the heating season. When we calculate the cost of repairs, it is 10% of the cost of a facility, – he explained. – I am not sure whether investors come, but we have to move somewhere.”

“We believe that the monopolist, city government, regulator and experts have to talk to each other, and this conversation should be open to people,” – said Roman Vybranovskyy, the expert of Ukraine Crisis Media Center. He noted that UCMC is ready for open discussion of the expert recommendations given in the analysis of prices for heating developed in cooperation with OPORA