Government should announce monetization models of subsidies till the end of December – officials, experts


Monetization of subsidies shall allow cutting down the amount of citizensm unlawfully receiving financial aid from the state to cover the utilities, however certain state insitutions prefer not rush into monetization until there is no clear mechanism for the transfer.

The government should inform the population about the monetization models of subsidies till the end of December. This was stressed by public experts and officials at a discussion held at Ukraine Crisis Media Center. Monetization of subsidies is likely to be launched at the household level, but technically it can start in at least a year. There are plans to cancel clearing with “Naftogaz” first and introduce monetization at the level of heating companies during a transition period. As to the level of consumers, there will be at most monetization of residues this heating season – if they manage to work out a clear mechanism for it.

Decisions for a transition period
“The first thing to do is monetizing at the enterprise level, the second – to promote monetization of residues at the end of this season. The third – to work together to ensure that energy efficiency measures are must do, because there are long-term incentives to decrease and suggestions for people how to do it,” said Dmytro Vovk, head of the National Commission for state regulation in the energy and utilities (NKREKP).

Representatives of the Ministry of Finance and NKREKP noted that the abolition of clearing may disclose a number of old problems, particularly with the timely and full subsidy payments. However, according to Dmytro Vovk and Yana Bukhrimova, head of project office for reforms of the Ministry of Finance of Ukraine, it is still an absolutely necessary step, so we need to analyze the risks and consider the optimal solution. Dmytro Vovk said that the Commission will protect licensees if there are no timely subsidy payments.

If a decision on monetization of residues is made this season, it should be announced at least till the end of December so that customers should have an incentive to save.

Heating companies should ensure 100 percent of heat metering. As of today, only 61 percent are equipped with meters.

Position of the Ministry of Social Policy
According to the Ministry of Social Policy of Ukraine, the monetization of subsidies at the household level is out of the question until there is a mechanism for how to do it. “We do not consider it possible to monetize all subsidies in the short term; it is unrealistic from both physical and technological point of view. It may take at least a year,” stated Vitaliy Muzychenko, director of the Department of Social Assistance at the Ministry of Social Policy of Ukraine. Now over 6.5 million households receive subsidies and it takes time, technical tools, financial and human resources to open these 6.5 million special accounts. Meanwhile, the ministry supports the idea of monetization of subsidies residues – again, if the system is ready.

Position of the Ministry of Finance
“The system has to encourage energy efficiency. If it performs this function, the target model must be monetization at the consumer level,” said Yana Bukhrimova. If it retains only a social function, then it is appropriate to speak only about monetization at the level of heating companies.

Yana Bukhrimova reminded that subsidies are calculated by excessive standards, so the question is whether it is good to monetize residues this season and to what extent. In addition, she noted, the distribution of funds is not a function of heating companies and they do not have a mechanism and experience of how to do it. “If there is a right but no mechanism of how it should be done, it can lead to conflicts,” she said.

Position of “Naftogaz”
National oil and gas company “Naftogaz” supports the idea of transition from clearing to cash settlements, stated Oleksiy Khabatiuk, deputy head of department at PJSC “Naftogaz Ukraine.” “We are in favor of monetization at the level of consumers because this function is untypical of suppliers during monetization of residues to be paid to consumers,” he noted. Besides, it will cause excess liquidity at the level of heating companies. According to him, “Naftogaz” sees no possibility of implementing monetization this season because there is neither ready legal framework, nor coordinated mechanism.

He added that later, when the system becomes effective, it is necessary to consider the mechanism of resolving a conflict of interests between a consumer who wants to save and a heating company that wants to overcharge for its services.

Position of experts
“The most useful to consumers model should be chosen, which will make it possible to control  how the money received by people are used and how much the monetization reduced consumption by recipients of subsidies,” noted Taras Tkachuk, analyst of DiXi Group. According to Tetyana Boyko, coordinator of utility programs of the social network “OPORA,” to considerably reduce the consumption a saved share of the subsidy should be allocated exclusively for payment for utility services and the thermo modernization measures.

The public experts noted that there is no problem to open special accounts for recipients of subsidies, because many of them already have accounts in the biggest state-owned bank – the “Oschadbank” – for other social benefits.

Tetyana Boyko reminded that it is also necessary to solve the problem of the subsidy share to be paid to managing companies and condominiums for managing the residential buildings.  Now this share is not returned. “I propose to monetize the housing subsidies this heating season – to compensate the condominiums for management or for fees to managers. Otherwise we will not start the housing stock management market because business will not enter into the existing settlement system,” she noted.

Preliminary steps – setting realistic standards and verification
Monetization at the household level should be preceded by setting realistic standards and verification of recipients of subsidies. This was unanimously stressed by all panelists. “There should be additional criteria – not just an aggregate income. There are recipients of subsidies who drive Mercedeses,” noted Tetyana Boyko. Marianna Onufryk, director of social programs of the Institute of Social and Economic Research, added that there are many cases when people consciously ask to give them salaries in envelopes, work in the shadow, are registered as unemployed, etc. for them to receive subsidies.

Dmytro Vovk and Oleksiy Khabatiuk noted that the current norm of 5.5 cubic meters is too high. According NKREKP, the average volume of actual consumption is 4 cubic meters per square meter.

Experts and officials agreed that a major incentive for savings and thermo modernization would be a long-term plan for reducing the norms. “Citizens should be given a long-term horizon and informed of the norms for the next season. Then people will realize that they have no option other than saving or energy efficiency.” stated Dmytro Vovk.