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Revisiting old and postponed decisions – Gas (U turn on a U turn?)

July 31, 2017

Following on seamlessly from the previous entry relating to (the mostly oligarch owned) electricity infrastructure and the proposal for RAB incentive based investment (or probably not when it comes to actual owner investment), the same energy regulator,  the National Commission for Energy Regulation and Utilities (NCRECU), seems set to revisit an old policy suggestion/regulatory plan relating to gas.

It is a policy it proposed, and submitted regulations for, on 28th March – and promptly withdrew on 1st April 2017.

A particularly swift policy/regulatory U turn even for Ukraine.

That is not to say that the policy was the wrong policy, undoubtedly as unpopular as it would be, but it is suffice to say that independent regulators are not exactly independent in Ukraine.

It took only a few words from President Poroshenko suggesting that the proposed regulations be suspended, for that suggestion to be immediately implemented – “Without dialogue with people, such decisions are not accepted,  I appeal to the government and the NKRECU to find an agreed solution that does not provide for raising tariffs and distributing subsidies for all types of payments for all who need it.

For those readers that may question lawfulness of the political interference by President Poroshenko with an independent regulator, it is fair to say that he exceeds his constitutional parameters, trampling heavily upon the constitutional areas of responsibility of the Verkhovna Rada, judiciary and independent bodies on a frequent basis.  NKRECU is clearly no exception.

That said, a reader might also ponder whether there is an occasional necessity to do so during a time of transition (at the presidential pace).  If accepting that to be the case, there should be few complaints when necessity is replaced by habit – and it is habitual.

Nevertheless it appears that on 4th August that the once proposed, adopted and subsequently canceled/suspended NKRECU regulatory proposal will again resurface.

The prickly issue at hand is the regulator’s proposal to implement a standing charge for the use of the gas distribution system.

A fixed monthly fee.

Except that fixed monthly fee is not the same for everybody.  There is a convoluted system relating to what sort of gas meter a customer has and its associated throughput, also for those without gas meters, and programmed cost differences across the oblasts.  For the purposes of this entry, there is no requirement to go into the specific methodology, suffice to say such schematics exit.

Nevertheless, this billing differentiation step relating to the delivery system is required as part of the energy reform within Ukraine – notwithstanding an EU obligation within the 3rd Energy Package.

It will insure is a reasonable amount of transparency when it comes to funds charged and dedicated to gas distribution networks and maintenance – which  no differently to the electricity grid mentioned in the previous entry, has been allowed to systematically fall into far into disrepair since independence.

As usual the owners are more interested in sucking out the money.  Only begrudgingly spending (rather than investing) when critical repairs involving scotch tape and “make do and mend” are required.  Ergo, the Ukrainian gas distribution and transportation system is more than a little leaky and inefficient.

(As an aside, for those readers who consider the gas transport system (GTS) to be a strategic matter for Ukraine with regard to the revenues it brings in when transporting Russian gas to Europe, and thus that is the cause of intense Ukrainian dislike for the Nord Stream II project, the blog takes a different view.  The GTS is strategically important for Ukraine less so for the revenues, but more so for the fact that Nord Stream II simply makes Ukraine less relevant to the EU if it be bypassed.  That strategic importance is far more important than the $ revenue the GTS provides.)

Returning to the gas distribution networks and the oblast infrastructure, while Odessagaz is owned by mafia Don Alexander Angert and Igor Uchitel, across the nation approximately 70% of the oblast gas distribution systems is owned by Dmitry Firtash (and associates) – oligarch in exile in Vienna pending extradition proceedings to Spain and the USA on corruption charges.

The introduction of the separate line item fee should amount to approximately UAH 15 billion being identified specifically for gas delivery systems.  The regulator expects that 38% will go toward wages, another 38% toward production and technology costs, and 6% toward capitol investment (and other things).  The remainder, presumably, is profit before tax.

However, as stated in the previous entry – “Messrs Kolomoisky, Akhmetov, Grigorishin feature prominently – as does the Russian firm VS Energy, ultimately owned by Alexander Babakov (who is associated with numerous organised crime figures such as the late (assassinated) Maxim Kurochkin, Alexander Lebedev et al).  It therefore follows that scandalous and nefarious acts are to be expectantly anticipated from all involved” – few if any readers would expect the likes of Don Angert and Dmitry Firtash not to enter into scams, schemes, and nefarious acts to defy the regulator and insure that most of the raised sums disappear offshore, or are otherwise put to other use.

What the distribution system owners can be certain of is a steady and predictable income, no longer subject to seasonal peaks and troughs.  Lo, the proceeds of acquisitions financed by original sins/organised crime during decades past become not only legitimate but increasingly and predictably organised – c’est la vie when failing to put people in jail over the preceding decades for their organised criminality.

Nevertheless the average Ukrainian would, in the long term, win on the proviso that the regulator can force the infrastructure owners to invest in their otherwise ignored assets and deliver efficiently for the social good.  Reliable, quality infrastructure naturally has societal benefits.

However, just as the previous entry doubted the ability to force those owning the electricity infrastructure to invest, there must be serious doubts about the ability of the regulator do the same with gas.

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