In 2010, for the first time in recent years, not a penny was planned in the national budget to compensate the gap between the current and economically substantiated tariffs for services of housing utility authorities in local budgets. Starting from July 1 when the local budgets are planned to be finalized, the subsidizing will be suspended. This was supposed to force local councils to raise tariffs. However, the councils will probably take a different path
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| PHÎÒÎ: PHL |
The absence of subsidizing from the national budget will further aggravate the already sad condition in the utilities sector. According to the calculations of the Housing Utilities Ministry, the debts of municipal heating and energy companies for gas supplied exceed UAH 7 bn. Other service providers owe their counteragents another UAH 4 bn. Furthermore, only in 12 of 600 cities does the cost of housing utilities fully covers the expenses of heating and energy companies for heating and water supply.
Leader of the Komunalniy Front (Utility Front) NGO Vitaliy Yakovenko says none of the cities have enough financial reserves to cover the difference. Moreover, not all local budgets, including that of the nation’s capital, have planned allocations to cover the difference in tariffs.
Executive Director of the New Energy of Ukraine alliance Pavlo Kachur explained that the level of coverage of the production cost of services by tariffs is critically low only in certain cities. “The level of coverage is around 80-90% of costs, which means that the difference that needs to be compensated is not large enough to cause problems for housing utilities companies. The main problem is the routine works to prepare for the winter season. In this particular case, there may be insufficient funds. The second issue is debts that have accumulated over the past years. Today, these debts have hit UAH 4 bn. Before cancelling the subsidization of local budgets, unpaid debts must be restructured in order to cover the difference in tariffs,” says the expert.
So far the government has not announced similar initiatives, so raising tariffs seems to be the only solution to help utility companies stay afloat. However, local councils will hardly boost tariffs on the eve of the local elections set for October 31. The government will support the local councils on this decision.
The government intends to strip the local councils of the right to set utility tariffs. These powers are planned to be conveyed to a special body that will be formed under the Housing Utilities Ministry. By gaining control over the setting of tariffs, the government will fulfill one of the key IMF requirements i.e. ensuring a stage-by-stage leveling of the cost of utility services to economically substantiated norms.
The legislative amendments that will not only make this body responsible for tariff setting legitimate, but also simplify its operation, have already been drafted. In particular, the ministry made public the draft bill aimed to simplify the procedure of revision of utility services in case of a change in prices of energy sources and the minimum wage.
However, as representatives of the ministry assure, reforming the system of tariff setting will begin no earlier than this fall. It is also worth noting that in connection with this the authorities will have to solve another problem, i.e. raising the liability for failure to pay for utility services, because according to numerous sociological studies, if tariffs are raised by 30%, half the people that pay for utilities today will simply refuse to do so.
The possible hike in tariffs, however, will hit not only the people’s pockets, but also the national budget, particularly if the new rules of providing subsidies initiated by the Housing Utilities Ministry are approved.
At the moment, citizens that spend 20% of their incomes on housing utilities have the right to apply for government subsidies. The ministry is proposing to lower this subsidy to 15% in order to increase the number of people that can be eligible for receiving subsidies.
According to the calculations of the Komunalniy Front, instead of UAH 4 mn, which the government will now save on covering the difference in tariffs, it will have to come up with an additional UAH 15 bn to cover new subsidies.
However, this issue can only be resolved in the future. At the moment, the process of hidden privatization of municipal heating and energy companies either through fictitious bankruptcies or through concession agreements is what local elites and their patrons at the central government level are mostly interested in. The key investment condition in this case will be repayment or rescheduling of debts. Moreover, the networks will remained in municipal ownership and the city will do repairs, while private owners will receive profits from their use.
“Serious investors will not put their money into this business. After all, nobody is interested in the tariffs the city councils are currently proposing. For this reason, we are likely to witness a repetition of the situation of 12 years ago with the privatization of oblenergo companies. Private owners seemingly expressed their interest, but the oblenergos were not modernized and no new technologies were introduced. In fact, the concession and rental of municipal enterprises must happen right before the elections. This will allow investors to secure guarantees of gaining control over these companies from the acting city councils as well. In their turn, the councils will be able to announce that they have pulled these companies out of the crisis,” predicted former Housing Utility Minister Oleksiy Kucherenko.
Sources in the regions confirm that concession is the most likely variant. “We have been approached by a number of investors from Italy, Israel and other countries. For the moment, we have not received acceptable offers on tariffs. They want the same tariff that we offer in hryvnia, but in euro, which basically means 10 times higher. At that, the maximum profit margin we agree to is not higher than 4%. At the moment, it is not clear how it will be covered, by the city budget or by the tariff, but we will not agree to a higher profit margin in exchange for a concession. Although, in this case we cannot say that radical modernization of the infrastructure and networks will be done. We can only ensure replacement of totally outdated equipment,” Deputy Mayor of Khmelnytskiy on Issues of Housing Utilities Iryna Kovalchuk.
Experts name the companies that already manage oblenergos, oblgas and other objects of infrastructure in the cities as the most probable concessionaries.
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