Instead of “reform” – legalized games with tenders and degradation? In the third year of the war, the domestic electricity market was under the threat of a total blackout, and Energoatom reported 17 billion in debt. And the reason for this is not only in enemy shelling of infrastructure, but also in banal “schematics” and “stillbirth” of legislative innovations, experts say.
How has the energy market in Ukraine been declining for years under the “screen” of a pandemic and war? And where do the billions in debts of the population and large companies for electricity come from? These and other nuances of the market were highlighted in an interview with StopCor journalist Igor Khmury by the head of the Association of Energy Efficiency and Energy Saving, Alexander Vizir.
On the structure of distribution networks and management of oblenergos.
The state enterprise “Regional Electric Networks” (SE “REM”) is the parent company for state-owned oblenergos. The idea of this design was as follows: the state currently owns a majority stake, that is, more than 50 percent, in six oblenergos. These are Ternopil, Khmelnitsky, Nikolaev, Cherkasy, Kharkov, Zaporozhye, Porechie. And the logic was as follows: until 2021, they were under the management of the State Property Fund, and were gradually transferred to the Ministry of Energy so that the Ministry of Energy did not directly influence their activities for two reasons.
Firstly, because the Ministry of Energy should primarily be concerned with politics, and not with the management of state-owned assets. And secondly, because of the inability of the Ministry of Energy to administer this process, because physically the ministry does not have specialists capable of properly performing the function of the parent company. The idea was proposed to create management companies for public registries for these six companies.
This idea really began to emerge and be implemented at the end of 2021. And really the most interesting thing is that the EKU company, now widely known among power engineers, should be used in the role of this parent company. Considering that it was once historically, until 2014, the management company for many state energy assets, it was decided that it would be advisable to use it, because the procedure for returning these stakes to it in the state register is much simpler. This idea began to gain momentum little by little. But a full-scale invasion interrupted the entire process.
So, we decided to simply create a RES, a new company from scratch.
Mr. Butenko is accordingly appointed as the Director of the Distribution Zone. This is all transferred to the Ministry of Economy, because the Ministry of Energy cannot be the governing body of the electricity supplier. The Ministry of Energy cannot be the governing body of either the generation or supply of electrical energy, or the trading of electrical energy. Accordingly, this entity was transferred to the Ministry of Economy, and then transferred to the State Property Fund. Draft decisions of the Cabinet of Ministers on the creation of the corresponding joint stock company were agreed upon. And then a certain story began.
The story actually began with who will lead and how to lead. Then he was appointed head, that is, acting. the head of the newly legal entity, Mikhail Onisko. At that moment he was the chairman of the board of Chernigovoblenergo. This is the Energy Standard group. That is, the choice, frankly speaking, is a little strange from the point of view of the fact that if the Ministry of Energy believes that its existing portfolio of management assets seems to be inadequate, then the question arises why it did not change it.
Although in fact, the Ministry of Energy replaced the director of Nikolaevoblenergo before the war and during the war at the end of 2022 replaced the director of Zaporozhyeoblenergo. And here they invite, relatively speaking, a manager from another group. Which should lead the state government assets available there.
The Ministry took over the entire management function of these assets. In public asset management there are always two questions: who is he and where did he come from? And these risks are always mitigated by holding competitions. That is, please hold a competition, determine that this gentleman will head this structure, and then similar stories can pass. The key point is this: this is a very significant asset.
In fact, it has a monopoly on the distribution of electricity to six regions.
Absolutely true. That is, this group is currently second only to the DTEK group in tariff income. That is, not the West Energy group, not the Energy Standard group. They can't even compete with this group together. That is, this is the second holding of monopoly companies in Ukraine in the distribution sector. This is a very expensive asset, the assets of companies that are under management are approximately 30 billion hryvnia in value. And their tariff income is about 14 billion hryvnia. And, accordingly, approaches to its management must be responsible; this is not, relatively speaking, a cafe around the corner or something where you can appoint someone here and there. This is an important thing.
And in addition, additionally, these six oblenergos, five of these six oblenergos, while holding supplies, did not fulfill their banking obligations, and they must fulfill them. This is an additional stage of monopolization of work in a certain region. And an additional layer of work. Among them there are successful, less successful, unsuccessful. We can talk about this for a long time, but conceptually the Government should have done with these companies the same thing that private traders did with their own. That is, maximum unification of structures, unification of procurement, unification of personnel approaches, unification of logistics approaches, etc. This should have been done back in 2022, but now it’s 2024. That is, no forward movements occurred in 2023.
What does this mean? Control and coordination of actions are not debugged?
It's no longer a question of less control or more control. The key story here is the total hidden income. Just imagine the story: if six regional power companies, for example, order cable and wire products as a single entity, the cost of these products will definitely be cheaper than if each of them orders it separately. This is the first one.
Second, unified states lead to unified procedures. But in fact, we have a private RES company owned by the state, and there are its, let’s say, branches that are not similar to each other. And their approaches are different. And this raises the problem of not using the group effect, because the group effect is always an important story. Moreover, the group is monopoly. This is a natural monopoly, and all the more easily you can carry out your monopoly function in a certain region. Moreover, you will, relatively speaking, save within the framework of your annual, four-year or five-year tariff cycle. If we are talking about incentive tariff setting.
That is, instead of centralization and strict hierarchies of authority, we actually have a kind of vassal system, when there are simply six regional power companies that send money up and do their own thing.
How does this threaten the budget of Ukraine and the population of Ukraine as the final consumer?
If tomorrow this company has a shortage of money... My partial battles with the current minister to some extent began because of his reluctance to change the management of Kharkovoblenergo JSC. If you look at its statements, this company is bankrupt. The only thing that allows him not to go bankrupt is that there is a war in the country. Ukrenergo, as its main creditor, has a conscience and does not apply for debt collection, and this is approximately 3.5 billion hryvnia, with the capitalization of this company being 7-8 million. That is, we understand that about 50% of the company’s capitalization is debt.
NEC also understands that this is the bankruptcy of a company operating in a city where there are huge front-line regions, and they approach this with a certain reverence. But the lack of qualifications of the management of these companies can lead to problems in specific cases and leads to problems in specific cases.
You see, if the staff is not paid, people run away, they go somewhere else to work. Unfortunately, we now have a huge problem with personnel in general. If they go somewhere, they are unlikely to return there. Let's take the same Kharkov for example. If electricians leave from there, they will find work in another city - Dnieper, Poltava, and they will not return to Kharkov in the near future. The situation in Kharkov is indeed quite problematic.
The question again is who will lend a shoulder, who will be ready to leave? There were examples when brigades from other regions and Dnieper brigades traveled to both Nikolaev and Kherson. There were also Khmelnytsky and Ternopil brigades. . Many went and helped Kherson after his dismissal in restoring power supply. But again, this is will.
On conflicts of interest in electricity distribution and influence on public policy.
A certain note of curious situations arises. That is, you came to auction with me, understanding that I would definitely sell together cheaper than I would sell at retail. But in fact, the situation turns out that Energoatom sells the retail volume much cheaper than it sold at the wholesale price.
What does this lead to? What did someone not buy anyway? He comes to the market and Energoatom begins to reduce the price in order, God forbid, to prevent imbalances in order to sell everything. In fact, in a balanced market, he would have made a lot more money for the amount he sold. Sometimes it is more expedient to sell 30% of the goods for 100 hryvnia than to sell 100% of the goods for 10 hryvnia. And, secondly, this is completely unethical and uneconomically expedient behavior towards one’s counterparties. Your counterparty understands that if you are an adult company with an adult trading position, you will definitely not sell at retail cheaper than in the wholesale segment.
In fact, Energoatom is causing damage to itself through such actions.
A huge item of Energoatom’s expenses is precisely subsidizing the cheap price of electrical energy for the population. That is, when officials said that the tariff was being raised and this was necessary in order to restore the networks, then in fact this was not true. Because most of this money came online.
Energoatom's debt to the guaranteed buyer, and the guaranteed buyer's debt to suppliers, amounts to 17 billion. And it turns out that Energoatom will simply underpay the guaranteed buyer. So, with these subsidies, he brought himself to the point where he owes 17 billion. But electricity was still supplied to the population. Accordingly, where did its suppliers get this electrical energy from? So, they took it from where they underpaid grid companies, didn’t pay regional energy companies extra, and didn’t pay extra to Ukrenergo.
And they removed the Cabinet resolution that prohibited disconnection due to debts. So it turns out that someone can be forgiven 17 billion?
In the case of Energoatom, this is a matter of managerial responsibility. Management of a state company. Maybe they didn’t violate anything on the market. But is there any logic in the actions of such management, such a large company and its presence in its positions? This is the story that the state as the owner must understand. Because there are already a lot of such pinpoint problems that are not being solved.
