Power Politics

The decision does not apply to electricity payments by individuals and agricultural facilities which had fixed rates imposed on January 1. Hence, at least a third of all customers are being excluded from the market principle. Moreover, it is completely unclear whether the new prices will entail new rules for selling electricity to other consumers. For what has been happening with electricity up to now? Everything (i.e., its production, delivery, and sale) was actually in the hands of two types of structures - government institutions and commercial intermediaries. The former would mainly identify who was to receive so much energy when, while the latter (in league with the former, of course) would pay, wherever possible, for the production of a portion of the electricity. As a result, electrical power has never been a market commodity in Ukraine and its price has never been determined by effective demand. The price had the following formula: cost price, including by far all expenses, plus a certain, usually 20%-30%, profit margin. But nobody would actually buy electric power at this price, because, after all, it simply did not cost so much.

Last summer the government, lured by the World Bank loan bait, accepted the need to simultaneously liberalize electricity prices and deregulate the electrical power industry. In particular, one of the principal market liberalization conditions was to have been the state's obligation to force into bankruptcy inefficient and loss-making energy consumers (i.e., every second enterprise) instead of the current practice of coercing the electric company to provide them with free energy. However, judging by the aforesaid decision, the monopolist may have his prices liberalized, while deregulation will hardly materialize. Consequently, the real motives behind the decision must be quite different.

Interestingly, two suitors are vying for the hand of Poltavaoblenerho. In 1998 the State Property Fund held an investment competition to sell a 36% share of company stock won by Contrast Holding Ltd. Later the Prime Minister of Ukraine received a letter laying claim to this packet by the Investment Pool Co. formed by a group of offshore companies owning, according to Interfax-Ukraine, large blocks of shares in at least eight oblast power suppliers (there is word that even some rather influential politicians on the President's team are worried by the offshore interests). Pool has also announced that it owns another 23% stake in the Poltavaoblenerho. Let us note that, in connection with ever more frequent instances of energy company shares being bought by anonymous offshore representatives, the Anti-Monopoly Committee refuses to register the purchase of shares unless the buyer's true name is revealed.

Another circumstance always to be taken account in such a subtle thing as granting exclusive price making powers is the current practice of relationships in the electrical energy industry (for all other regional power suppliers the National Electricity Regulation Commission has imposed uniform maximum rates). For this is one of the most criminalized spheres of business. Electricity in Ukraine is in fact a kind of capital, as is grain, coal, hryvnias, etc. Electrical power is used for loan and payment purposes, it is being stolen and exported (by being converting into metal, mineral fertilizers, etc.). Thus, when somebody is granted the right to set market prices but told nothing about the other components of this "market," even in one isolated region, all this looks odd, to say the least.

By Iryna KLYMENKO, The Day