Experts: Only heat generation can benefit from “Rotterdam +” but not state-owned mines


Great confusion in actors setting price for energy and gas results in shady schemes with undisclosed beneficiaries.

Kyiv, October 31, 2016. Starting May 1 electricity prices in Ukraine are calculated according to “Rotterdam +” formula. As a result, the new price increased by 60 percent and the price of coal – only by 10-15 percent. As to miners’ wages, they have not increased at all. Besides, procurement of coal from the territories involved in the armed conflict continues. This was stated by Andriy Gerus, expert on energy issues, at a briefing held at Ukraine Crisis Media Center. To prevent this, a legal action to cancel calculation of energy price according to “Rotterdam +” formula” was initiated. Parliamentarian Lev Pidlisetskyi, member of the Verkovna Rada Fuel and Energy committee, stated that the main purpose is to cancel tariff increase and overpayment to heat generation, and also not just cancel but set the right, correct formula, separately for coal G and A as they are not interchangeable.

“In October, the rate of heat generation is UAH 1.66 – it covers the price for coal at UAH 2,200-2,300. However, nobody buys at this price. One thing is that the rate covers something, and another – that those who receive this rate use it the way the rate can cover. State-owned mines sell at UAH 1,330. If the real cost of coal was equal to that covered by the rate, state-owned mines could get UAH 250-300 million per month,” noted Mr. Gerus. He explained that by 2016 there had been a unified price for mines at which they were selling coal, and which was covered by the heat generation rate. “Rotterdam +” caused a gap: State Commission on Energy and Utilities uses this formula, but the Ministry of Energy does not recognize it and sets the Ukrainian price. This imbalance leads to negative consequences.

According to Dmytro Boyarchuk, director of Case Ukraine, the increase of prices for electric power is not caused by any requirements of international lenders. The innovation was meant to eradicate cross subsidies through avoiding imbalance between the prices for households and non-domestic consumers. “Today cross subsidies have not disappeared; in fact, they have increased from UAH 35 billion to UAH 54 billion. This is additional UAH 1,200 for your spending. This is laid down in prices by definition,” he explained.

Lev Pidlisetskyy believes that “Rotterdam +” has been developed specifically for the energy company DTEK. “DTEK is controlling 70 percent of thermal generation. Obviously, this solution has a specific beneficiary. The company will receive big dividends. However, it will not affect miners who are working in the state-owned coal mines,” he explained. According to him, “Rotterdam +” does not affect the strategic development of the industry. The budget for 2017 includes money to compensate for the difference in prices for the coal industry. There is also a discrepancy in the fact that State Commission on Energy and Utilities sets the price for thermal power generation, but the Ministry of Energy determines the amount of coal to buy. “The electricity price includes the price set by the State Commission on Energy and Utilities according to “Rotterdam +”, but the Ministry of Energy sets the price of UAH 1,300 for coal,” noted Pidlesetskyi.

Oleksiy Mushak, member of parliament, also added that the beneficiaries of this “scheme” are the owners of bonds or debts of DTEK. “Before the introduction of this scheme, the shares were listed at 40-50 percent of the face value, after the introduction at the rate of 70-80 percent. In fact, this is the legalization of income. They buy Eurobonds of DTEK, which pulls out additional money of all of us, and then at the end of the term, this amount is fully paid. If someone bought Eurobonds for USD 300 million, then will legally receive another USD 300 million,” he explained. According to the MP, they are initiating a Commission of Inquiry, which would investigate the situation.

Vasyl Pradid, head of the independent trade union of miners, mine No.10 SE “Volynvuhillya,” emphasized that wages for miners have not been increased. Besides, there are huge wage arrears. “We are organizing protests and blocking roads to force them to pay us at least some part of our wages for certain months,” he informed.