Subsidies to be partially reimbursed by the state, further steps unclear – expert discussion

The state is to cover the subsidies paid by municipal heating utilities to final consumers. Experts and officials discuss why the proposed mechanism does not work and what are the ways out.

Currently there is no common approach on how to resolve the situation with the non-payment of reimbursement for the subsidies to municipal heating utilities and to Associations of Apartment Building Co-Owners (OSBB in Ukrainian). Ukraine’s Ministry of Finance is preparing a draft to amend the budget and to disburse additional UAH 15 billion (EUR 510 thousand, or approx. 1,9 per cent of the overall budget expenses) to cover these needs. However, it remains unknown whether this money will resolve the problem. For now, the ministries, experts and representatives of the municipal heating utilities have not found a common ground as to the assessment of the situation and possible ways out of it. These are the results of the discussion held at Ukraine Crisis Media Center.

Reimbursement for subsidies to Associations of Apartment Building Co-Owners and municipal heating utilities are now delayed for three-six months. The subsidies in question are not only for heating but for all kinds of services, said Tetiana Boiko, energy expert at the Civil Network Opora. The receivers therefore have no money to pay their suppliers and get prepared for the heating season. Thus, as of June 1 the amount to be reimbursed to Kyivenergo (Kyiv municipal heating utility) reached UAH 1,470 billion (EUR 50 million), said Tetiana Hriaznova, financial director at the Kyivenergo PJSC. The debt is for the first five months of 2017. Kyivenergo’s debt to Naftogaz PJSC originating from payment benefits and subsidies for heating provided to the final consumers amounts to 42 per cent of the utility’s overall debt to the company. Yet it remains unclear if the reason for the payment delay is the absence or the lack of money. “As of May 29, UAH 35,3 billion of the reimbursement money was paid, while the nationwide amount that was agreed and for which protocols were signed is UAH 56,6 billion. That means there is almost a UAH 10-billion difference between the approved amount and the registered debt,” Hriaznova said.

According to Serhii Dunailo, expert on housing and communal services, the data by the Association of Municipal Heating Utilities suggest that UAH 75-77 billion is required to cover the benefits and subsides in 2017. “UAH 10-15 billion to be introduced now will resolve the situation until October at best. Later the changes will have to be introduced and additional money will need to be allocated. The Association of Municipal Heating Utilities comprises about 90 heating supply companies, neither of them has received complete reimbursement for the subsidies on heating power supplied to consumers. […] Naftogaz PJSC is imposing fines and penalties on each unpaid kopiyka (Ukrainian coin – UCMC), which means the companies are now working to cover the penalties,” the expert said. The situation could be improved should the governmental provision on restructuring of the debts for municipal heating companies have been extended at least until April 2017, however this was not done,” he said.

According to Vitalii Muzychenko of the social benefits department within the Ministry of Social Policy, 7,5 million households have been directly subsidized. Two to five per cent of them will not be getting subsidies in the next heating season following the checks and subsidies redirection.

Yurii Kolbushkin, board member at the Naftogaz PJSC in his turn noted that the municipal heating utilities’ debt to Naftogaz currently amounts to UAH 19,9 billion. “Our ‘margin of safety’ is not unlimited, so we have to work together with the government, commercial companies and regional administrations to make calculations in a tolerant way, balance everything and get prepared for the next heating season,” he said.

Representatives of the Ministry of Finance and the Ministry of Social Policy admit that UAH 47 million budgeted for timely reimbursement of subsidies is not sufficient. When the budget was being planned the sum in question should have been enough in case the number of subsidy recipients stayed at the 2016 level, said Serhii Marchenko, Deputy Finance Minister of Ukraine. It turned out that the money is not sufficient when the heating season was over. However, according to Tetiana Boiko last year the expert forecast suggested the figure of UAH 80-90 billion. “We have been tasked by the government to prepare draft amendments to the budget that would foresee additional budget categories to resolve this critical situation. The budgeted sum – UAH 15 billion is enough to cover the existing need,” he said. “We are doing our best to see these changes adopted in the nearest time.” The Deputy Minister of Finance said the document should be approved by the end of the current parliamentary session.

According to Sviatoslav Pavliuk, expert on energy efficiency, the only way to break away from the “vicious circle” with subsidies and debts would be to increase the energy efficiency of households, as the money is being actually wasted now. “This issue cannot be postponed forever. To resolve the problem with subsidies, two aspects need to be addressed: income of the consumers’ needs to be increased (we cannot affect that), or we need to increase energy efficiency of our consumption – this we can influence upon. I suggest concentrating exactly on this and making it a priority,” he emphasized. The expert is convinced that the state should pursue the policy of monetizing the subsidies.

Serhii Marchenko also emphasized that additional money allocated to subsidies will not resolve the issue. “The question is what the general approach would be and whether the politicians are ready to make unpopular decisions. Maybe it’s worth establishing a procedure according to which all payments will go through the State Treasury. […] It will give us a chance to preserve liquidity, will make all calculations transparent and understandable to all. It will also bring monetization down to the level of economic operators,” the Deputy Minister of Finance said.