How did it arise and how to overcome multi-billion dollar debt? The government has solutions, but they are not very popular. The Ukrainian natural gas market is in a situation of debt. In October, more than UAH 200 billion was owed to dozens of large and small companies, and this amount continues to grow every day.
As in the case of the electricity market, the list of debtors and those who are to blame includes almost all industry participants: “Naftogaz”, “GTS Operator”, “Ukrtransgaz”, utility companies Teplokommunenergo (TKE), combined heat and power plants (CHP), oblgazy, gas sales and population.
In general, the problem of having debts in payments for blue fuel is not new for Ukraine, but after the start of the big war it acquired unprecedented proportions. What to do about it?
The minimum task is to stop the build-up of debts, and subsequently try to solve the problem. Ideally, to prevent a recurrence of the crisis. The latter will become possible only after complete liberalization of the market and transition to a market economy, for which neither the government nor the population seems to be ready.
What are the debts for?
At numerous meetings in government offices to resolve the debt crisis in the gas market, different figures are heard. Thus, according to estimates by the US Agency for International Development (USAID), in early September the total level of unsettled debts in the blue fuel market exceeded UAH 190 billion. At the same time, according to NEURC data, which the editors have, the total amount of debt on October 1 exceeded UAH 200 billion.
There is no way to repay or restructure at least part of the amount specified by NEURC for objective reasons. The fact is that a number of debtors are in the battle zone or in temporarily occupied territory. To better understand the situation, current debts should be divided into several key categories.
Thermal workers' debts
Historically, the largest debtors for natural gas were heating and power utilities and combined heat and power plants that produce heat and hot water, and to a lesser extent electricity. Of the total debt of non-domestic consumers, UAH 129.7 billion, these producers account for UAH 90.4 billion.
Another 38.9 billion UAH will go to industrial enterprises, including thermal power plants and thermal power plants that produce electricity from gas. It is clear that in conditions of constant shelling of energy facilities and possible blackouts, it is impossible to stop fuel supplies to such enterprises for debts.
Gas supply for heat production has always been problematic. State and municipal heating and energy companies complain that heat tariffs do not cover the costs of purchasing blue fuel, and the population is never fully paid for the gas consumed.
However, after the outbreak of the Great War, the situation in the industry deteriorated significantly. Two factors influenced this. Firstly, from the summer of 2022 until the end of martial law, a moratorium was introduced on increasing heat tariffs for the population (the law was adopted in the summer, and the moratorium has been in effect since February 24, 2022), which does not allow them to be revised to be economically justified. Secondly, the cost of blue fuel is more expensive during certain supply periods, and the current tariff does not allow covering this price.
The situation was aggravated by large-scale shelling of critical infrastructure, due to which enterprises are forced to use part of the money that could be used to cover debts to repair damaged equipment.
As a result, DH companies have accumulated multibillion-dollar debts to Naftogaz, the sources of coverage of which have not yet been determined. In this regard, consultations between the Ministry of Reconstruction, the Ministry of Finance and Naftogaz continue in coordination with the International Monetary Fund.
Debts of the population
The gas debts of the population have also increased to a large scale. According to NEURC, at the beginning of October, the debt of household consumers for blue fuel to suppliers amounted to UAH 29 billion.
“We are talking, among other things, about old debts to the so-called gas supply companies (controlled by the structures of Dmitry Firtash - EP), which no longer supply gas, as well as consumers in the territories that were occupied by the Russians after the start of the big war. This is Mariupol, Melitopol, part of the Zaporozhye, Kherson, Lugansk and Donetsk regions,” explains the EP’s interlocutor at the market.
At the same time, debts for gas distribution services, for which the population pays regional gas companies, amounted to UAH 2.7 billion. According to the State Statistics Service, Ukrainians owe 23.3 billion UAH for centralized heating and hot water.
The amounts of debts for other services that are not directly related to gas consumption are as follows: for the management of apartment buildings - 5.6 billion UAH, centralized supplies of cold water and drainage - 6.4 billion UAH, removal of household waste - 1.3 billion UAH, electricity supply - UAH 6.9 billion.
There have always been debts for utilities, but after the start of the war the situation worsened. One of the reasons is the ban on disconnecting the population in case of non-payment of bills for housing and communal services.
“The most effective mechanism for stimulating consumers to pay is not information policy, but disconnection. If the consumer knows that he will be disconnected, he will not create debt. We currently have a shutdown order. Even so, the level of payment is high, but it is far from 100%,” says a gas market participant.
Debts of regional gas companies and gas sales companies
Gas distribution companies owe UAH 21.3 billion to Naftogaz for so-called technical gas. Blue fuel is distributed by gas distribution network operators (regional gas companies), of which there are more than 40 in Ukraine. Previously, about 70% of gas distribution in the country was controlled by Firtash’s structures. Now this business is being transferred to the Neftegaz group.
Also, regional gas companies owe UAH 15.2 billion to the Ukrainian GTS Operator for the daily negative imbalance. In simple terms, this is gas that has been withdrawn from the system without payment.
There are also old debts formed by 2020. In particular, these are the debts of regional gas companies to Ukrtransgaz, which exceed UAH 20 billion, and the debts of gas supply companies - about UAH 24 billion. “Basically, the debt of the regional gas companies is from previous long periods (before the transition to the Naftogaz structure), now they, in principle, regularly pay,” says the source’s interlocutor on the gas market.
These are historical debts that have accumulated over the years. It is clear that the war had a negative impact, because many objects remained in the occupied territories. The problem existed before, when distribution tariffs were not revised for a long time, and they did not allow covering all costs, including process gas. That is, the lion’s share of debts was due to shortcomings in government regulation,” says the ED’s interlocutor in the government.
What to do
Experts and market participants interviewed by ED note that, as in the case of debts in the electricity market, there is no simple solution to solve all the accumulated problems. “We need a systematic approach, including unpopular measures,” says a representative of one of the state-owned companies in the sector.
“It is necessary to lift the ban on disconnecting consumers (except for areas where fighting continues - EP) in order to raise the level of payment discipline. There is no need to count on the total consciousness of consumers,” says the ED’s interlocutor in the government.
You should also gradually move to balanced tariffs, that is, increase them. “Our goal under the Facility Plan is to gradually move to economically feasible energy tariffs by the fourth quarter of 2025 and cancel all PSOs. This should be done in conjunction with the systematic settlement of debts in the gas and heating market,” says Deputy Minister of Development of Communities, Territories and Infrastructure Alexander Butenko.
According to the ex-head of GTS Operator Sergei Makogon, only market tariffs can encourage people to spend energy resources more responsibly.
Ukraine should abandon regulated gas prices for the population. International partners also talk about this. We have a system of monetized subsidies, so protected segments of the population will not feel the introduction of market prices, and everyone else must pay the market price of gas (12-13 UAH),” Makogon believes.
“When we take such tough measures to stabilize the situation on the market, we must not forget about the existence of vulnerable sections of the population,” agrees the ED’s interlocutor in the government.
The problem of some of the existing debts could be solved. In 2022, Law No. 1639 was adopted, but it was not implemented, although everything was ready for this. This was a unique chance to at least partially resolve multi-billion dollar debts. Now the situation is not significantly different from last year, with the exception of an increase in the volume of debt for gas from TKE and a significant increase in the difference in tariffs to UAH 37 billion,” says Butenko.
“These factors aggravate the problems in the gas market, heat generating and heat supply enterprises. We are sliding into a systemic debt crisis. If the problem is not gradually solved, then one day the heating season may not begin in many regions,” sums up the ED’s interlocutor in the government.
