An illusory choice

The National Electricity Regulatory Commission of Ukraine (Ukr. abbr., NKRE) proposes to allow all consumers to choose gas suppliers, reads the draft resolution “On Determining the Degree of Qualification of Natural Gas Consumers” on the NKRE website. This document was worked out in pursuance of the Law of Ukraine “On the Principles of Functioning of the Natural Gas Market” (2010). Under this law 2012 is to mark the first stage of the liberalization of the gas market when private businesses, central-budget-supported organizations, utility companies (TEK), and residents are to be entitled to choose their gas suppliers, depending on the price and other terms and conditions. According to the draft resolution, the industrial enterprises will receive this right as of March 1, 2012; central-budget-sustained ones, in 2013; TEK, a year later; private citizens, in 2015.

The Day asked its experts for comment on the pluses and minuses of this project.

COMMENTARIES

Mykhailo HONCHAR, Nomos Center’s energy programs director:

“This resolution must be implemented as one of the conditions of Ukraine’s Energy Community membership. This is the right step taken in the direction of creating a competitive domestic gas consumers’ market in accordance with European standards. However, the way the EU directives, required for the upgrading of Ukraine’s gas transportation system (GTS), are implemented, it is regrettably safe to assume that this project will remain on paper. Sad but true, the energy ministry and the NKRE are going through the motions of Europeanizing the Ukrainian gas market. In the summer of 2011, Ukraine enacted the law “On the Principles of Functioning of the Natural Gas Market” as part of the Energy Community membership project, along with measures aimed at expanding cooperation with the EU. A number of bylaws had to be adopted to start implementing this law, including the NKRE resolution on access to Ukraine’s uniform gas transportation system and underground storage facilities (in other words, allowing the market operators to access the GTS infrastructure). This was never done. There is no mechanism for the domestic gas consumer to access the supplier(s). Without solving this problem one can kiss good-bye to the idea of a competitive gas consumers’ market in Ukraine. It’s like raising one’s foot to take a step and then stopping. I mean that making public this draft resolution doesn’t mean that it will be adopted and implemented.

“The NKRE proposal is aimed at liquidating the existing gas [supply] monopoly. If and when implemented, Naftohaz Ukrainy, the current monopolist, and other companies will have equal access to Ukraine’s GTS, so that private distribution companies will be able to supply gas to consumers not only in a given region. They will have to compete for customers in terms of gas supply prices. If and when a given consumer accepts the terms and conditions, Naftohaz Ukrainy will be in no position to deny a given [gas distribution] company access to the GTS, and this company will be able to supply gas to consumers practically anywhere in Ukraine. Moreover, Naftohaz Ukrainy will be obliged to keep some capacities in reserve, to provide for potential business entities.”

Yurii KOROLCHUK, expert, Institute of Energy Studies:

“This is one way to liberalize gas sales and form a competitive domestic market. This means that Ukraine’s regional gas distribution companies that are under Russia’s control (through separate businessmen) will be faced up with fresh competitors (other regional distribution companies) that won’t be selling Russian gas. I believe that there will emerge at least 50 such companies, if and when this draft resolution is enacted. However, there will be the risk of the presence of many potential gas suppliers, with a single pipeline. I mean a conflict of interests, considering that the owners of these companies may fail to come to terms. If so, corporate conflicts will be in order. Anyway, the population will have a broader choice of gas suppliers and market prices.”

Bohdan SOKOLOVSKY, former aide to the President of Ukraine in charge of energy security:

“I’m support this idea, although there is little time left to technically rebuild the gas supply system. Also, people and business structures have to adjust to the changes in terms of gas suppliers and gas market conditions. Altering the consumer-supplier algorithm is easier said than done, considering that the consumer, accustomed to lodging complaints about his supplier, addressing the good old authorities, will have to accept the new procedures. This is a difficult and time-consuming process.

“Also, this system will start functioning only in the presence of a variety of alternative gas suppliers. Theoretically, there are many such alternatives, but technically there is only Russian gas. Therefore, the Ukrainian administration should upgrade the existing gas transportation system, synchronize it with the European network, and build the LNG terminal to receive gas from Azerbaijan, Egypt, Qatar, Algeria, and other countries. This takes time and money. My estimates read between five and seven years at least.