In the direction of the “main attack”

The sharp rise in gas prices and the poor state of public utilities are forcing the Ukrainian government to tackle this problem at the topmost level. Addressing the National Security and Defense Council (NSDC) last Friday, President Yushchenko said that the current state of Ukraine’s housing and public utilities sector poses a threat to national security. In the head of state’s opinion, this sector is “the nation’s key infrastructure on which rest political stability and security.”

In this connection, Yushchenko suggested finding “agreeable solutions that would enable all levels of the government to map out a joint anti-crisis action plan.”

Despite the exceptional importance of this problem, Prime Minister Viktor Yanukovych demanded that it be taken off the agenda on the grounds that this issue is exclusively under the cabinet’s jurisdiction. President Yushchenko responded by saying that the question could be withdrawn provided the cabinet admits that it is not prepared to report on its performance to this constitutionally-approved body. But when Deputy Prime Minister Volodymyr Rybak, who is in responsible for this sector, said they were prepared to report, the item remained on the agenda.

Ii is likely that the prime minister’s “demarche” was spurred by fears that the president might use the increase in utility fees as an excuse to dismiss him. But from the very outset Yushchenko made it clear that politics do not count here because the NSDC meeting is aimed at “finding a common way of reforming and consolidating Ukraine’s public utilities sector.”

The political nature of this issue stems from the fact that it affects the interests of the entire population, NSDC Secretary Vitalii Haiduk said, commenting on the president’s position. According to Haiduk, the NSDC has also admitted that housing and public utility- related laws are being observed unsatisfactorily. This is why the council has drawn up a list of top- priority tasks for reforming the housing and public utilities sector, such as: applying market principles to housing and public utility services by way of competition, establishing up-to-date forms of public self-organization in this field, gradually replacing exemptions and subsidies by target-oriented monetary benefits, compensating for the cost of these services, and bringing rent and utility charges to an economically sound level.

The Day asked political scientist Andrii YERMOLAIEV, director of the Sofia Social Research Center, to comment on the situation in this sector:

“There are two factors that link the problems of housing and public utilities to those of national security. The first is the social factor. Ukraine is a highly industrialized country with a well-developed housing and public utilities sector. This is manifested, first and foremost, in a high level of centralization, particularly in centralized and developed communications that require hi-tech servicing of the entire complex.

“In addition, we have quite a large number of densely-populated urban neighborhoods that depend directly on the monopolistic organization of this sector.

“All this objectively compels the state to seek economic and administrative instruments to keep the sector constantly stable and commercially viable, because any crisis in this field, caused either by an aging infrastructure or by some economic troubles, may bring it down. Financial bankruptcy or refusal to offer services to the populace may spark widespread social unrest.

“We have already seen residents of many cities and villages blocking roads — so far spontaneously and impulsively — in protest against water and heating supply cuts. Therefore, a crisis in the housing and public utilities sector can very soon lead to active social protests that can instantly take on political coloring and stir up widespread social agitation.

“The second factor is linked to possible economic risks in the housing and public utilities sector. This is a potentially profitable and stable sector of the economy because it receives payments from citizens on quite a steady basis. So if these facilities are properly organized and equipped, they are cost-effective. This is why, in my opinion, reforms in this sphere have been hindered deliberately as part of a medium-term business strategy and orientation of Ukrainian capital. One of the elements of this strategy was the expected bankruptcy of this sector. Weak and poor self-government and an outdated, Soviet-style, organizational system of public-utility facilities greatly increased the threat of such bankruptcy.

“As a result, no reforms were carried out on either the legislative or the executive levels of government. And now we are seeing that a fluctuation in fuel prices can trigger a domino effect and increase public utility fees.

“This raises another problem. I do not rule out great interest in public utilities on the part of not only Ukrainian but also foreign capital. And, taking into account the high level of centralization and participation of large monopolists in the privatization of urban public-utility facilities, this is not just an economic problem. So in one or two years’ time we may well see the all-out bankruptcy of public-utility facilities, and Ukraine will be surrounded by potential investors from national businesses as well as businesses from neighboring countries.

“This may not be a problem, as we are striving to find investors and to work with foreign partners. But in the case of public utilities, I think the state should focus its attention on forming strong communes that could make use of the public-utility facilities’ profits, thereby strengthening themselves. Such a competitive economy would be an economic buttress for the commune.

“The situation will be entirely different if foreign monopolists acquire public utilities. In that case, this will be not only an economic tool but a political one.

“So this may be a very acute problem — if not now then in two or three years, especially since there have already been examples of this. For instance, Russian companies have already arrived in some eastern and southern Ukrainian cities: they are ready to invest in local public-utility facilities. Obviously, this is not just a purely economic enterprise.”