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New Rates On Getting Electricity: Greed Generates Poverty

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Instead of the evaluation of the real costs of getting 1kWh we are proposed an abstract tariff, CASE Ukraine`s CEO Dmytro Boyarchuk in an article for the ‘Ekonomichna Pravda’ (‘Economic Truth’) writes.  The purpose of such changes is to put in a ‘tip’ in the getting electricity cost.National Commission for State Regulation of Energy and Public Utilities (NCSREPU) has published the new rates of getting electricity. The figures shocked. What was discussed in private for a long time, came into the public realm.

What happened?

Getting electricity is not a new problem. There were over the years several attempts to reform the sector, but nothing has changed. The technical complexity of the problems and conflicts of interest is the main reason why all remains without any changes.

Finally, it was agreed that the best option is the introduction of the ‘Liakh method’ (Volodymy Liakh has been directing ‘Ukrsilenerhoproekt’ state enterprise in 1990-2011).

The technique consists in the fact, that getting 1 kWh electricity for every power supply region is determined by the voltage and network workload. Also the cost of construction of 1 km transmission line is determined.

In total, the cost of getting electricity is a rate of 1 kWh, multiplied by the ordered power capacity, and 1 km transmission line rate, multiplied by the distance to the point of connection.

With this approach, all are satisfied: the customer pays only for himself, and the power companies receive sufficient funds to execute the order. Also the critical issues for foreign investors are resolved: getting electricity cost as well as work time is already known at the time of booking.

However, it only seemed like that. ‘The Liakh method’ has been passed through a working team, where it gets a status of NCSREPU method. But an approach for estimating the cost of getting 1 kWh electricity has been mutated.

Instead of the real costs of getting 1 kWh electricity an abstract tariff is proposed, which depends on the value of assets of regional power distribution companies with regard to its depreciation. The purpose of such changes is to put in a ‘tip’ in the getting electricity cost.

The method in this form is approved in November by the NCSREPU, and now the public knows about the rates of getting electricity with the ‘tips’.

What is the problem of this approach? The solution provides an instantaneous response to a question about the cost of accession and the period of work – investors should be happy. NKREKP also legalized ‘shadow’ payments, because the rates made public are about what was paid for getting electricity in the ‘cash’ form.

The only problem that rates with the ‘tips’ may be interesting for a few people. In neighboring countries, this service looks more attractive, and we relentlessly lose the competition. Greed again generates poverty. Although we may not know everything. And it can be cheaper to do all work ‘on the site’. Using ‘cash’, of course.

Read the full article [in ukrainian]

February 14, 2017