Winter and Ukraine: which one is stronger?

Five days ago, Petro Poroshenko promised that centralized heat supply will reach every apartment in Ukraine at least on Friday. It hasn’t happened. At least, in four regions of Ukraine radiators are cold even at schools. Ukraine imports gas but from EU, which means that by far not everyone in the country can afford gas and heating. Debts have reached 25 bln UAH (62.5bln UAH). As a result, Naftogaz of Ukraine does not supply gas to the regions. Besides, Ukraine may lack coal of any type this season. Unfortunately, the country will again become a hostage to IMF loans and weather. Winter and Ukraine: which one is stronger?

700 days without Russian gas

The heating season has just started and there are already problems in Dnepropetrovsk, Odessa, Lvov and Kiev regions. For instance, cold radiators in Pavlograd made schools hold shorter lessons. In Novomoskovsk, school holidays were announced five days earlier, on October 25. Heating has not been supplied to residential buildings in those cities yet. Nor they have supplied heating to Slavutich, the city of nuclear experts. They are planning to declare emergency in the city in case of frosts. In Odessa, it is still not cold outside, but when it gets cold, the city center will have no heating. According to Lvovgaz, five districts in Lvov may not receive heating. Only half of the residential areas in Kiev have been supplied heating within the last two weeks.

The reason is still the same – the population fails to pay utility bills and utility services fail to redeem their debts to Naftogaz of Ukraine. A local thermal power plant in Odessa has been declared bankrupt.

Ukrtransgaz, operator of gas and transport system of Ukraine, has made a statement today saying the country has not been supplied with Russian gas for 700 days. The reserves in gasholders for this year total 17bln cubic meters. Kiev stopped importing gas directly from Russia in November 2015. Instead, as EADaily reported earlier, Ukraine buys it from European mediators at a higher price. Alexey Grivach, deputy director of the National Energy Security Fund (FNEB), says Kiev paid extra $440mln for gas for the last heating season alone.

Since internal gas price is linked to imported fuel price under IMF lending terms for Ukraine, the gas price for the population and thermal power generating enterprises has increased 8-fold during the last three years. For instance, heating a two-room apartment in Kiev or Dnepropetrovsk costs about 2,000 UAH (nearly 5,000 rubles). Gas costs account for about 67%-75% of the heating rate. Average salary in Ukraine is 6.7 thousand UAH (16.75 thousand rubles), according to the State Committee of Statistics.

“All thermal power generating enterprises have debts and their debts keep growing as the population have no funds to pay for the new rates,” says Dmitry Marunich, co-chairman of the Energy Strategy Fund. These enterprises owe more than 12bln UAH (30bln RUR) to Naftogaz of Ukraine, though the government provides subsidies to the population. “They save the situation,” the expert says.

“So far,” elaborates Valentin Zemlyansky, Energy Programs Manager at the Center for World Economy and International Relations of Ukraine’s National Academy of Sciences. According to his data, the difference between the budgetary subsidies and the necessary amounts will reach at least 10bln UAH by the end of the year. This is an optimistic forecast, he says. Besides, the local governments have been “entrusted” to provide subsidies. By data of the Association of Ukrainian Cities, this will cost them another 7bln UAH and they lack money. This means that Naftogaz will not receive that money and can feel free to halt gas supply to entire regions.

“Do you remember how Kievtransgaz halted gas supply to Kiev TPP-6 for Kievenergo’s debts and Kiev was left without hot water supply and was surprised to learn that the entire Ukraine had been living in such situation for a long time already? It appears that entire Ukraine together with Kiev will soon get to know how does it feel to stay in a cold apartment in winter,” Zemlyansky told RIA Novosti-Ukraine. The expert is sure that the government should amend the state budget for the current year and revise the subsidies for the next year, otherwise a collapse of the energy sector will remove the last boundary between urban and rural areas where water pipelines, central heating and sewage had been regarded as luxury that only “rich” urban residents can afford.

Coal? Any type…

This year, 12 thermal power plants (TPP) that generate up to one-third of the total electric power generated in the country may lack coal, any type of it. Ukrainian Liga newspaper obtained an Energy Ministry’s explanatory note to the government order to provide a 2bln UAH loan to “Energorinok” government-run enterprise. Signed by Minister Igor Nasalik, the document says the country is entering the heating season with minimum coal reserves for the first time in four years and the power generating enterprises have no money to buy it. Consequently, Ukraine may face power cuts as early as this winter.

“For lack of anthracite, TPPs actively shifted to coal of the gas group. Internal recovery fell by 10%. As a result, Ukraine lacks any type of coal,” Marunich says. According to the State Committee of Statistics of Ukraine, as of October 1, coal reserves in the country proved by 30% less than last year – 2.75mln tons.

“We have just 400,000 tons of reserves before we will reach the critical level of deficit. Fuel burning rate is 250,000 tons per month,” Vsevolod Kovalchuk, acting director of Ukrenergo National Power Company, said earlier this week. In his words, the situation is not just worrisome, in fact, the country is in permanent crisis.

Today, Minister of Energy Igor Nasalik tried to assure the people that there is no threat of coal deficit. “All generating companies have made contracts for coal supply for up to March 2018. Coal reserves at TPP warehouses will be growing in the period from November up to January 1, 2018,” the minister said.

According to the co-chairman of the Energy Strategy Fund, the problem is in delivery of coal. “Ukrainian ports can transship up to 400,000 tons of coal per month and it is uncertain if they will manage to transship even the necessary volume of anthracite,” the expert says. Valentin Zemlyansky, Energy Programs Manager at the Center for World Economy and International Relations of Ukraine’s National Academy of Sciences, told EADaily earlier that coal warehousing for the heating season is behind the schedule for more than 1mln tons. “Coal deficit is expected to total 4mln tons after the heating season, of which 3mln tons is of A class (anthracite – editor’s note),” the expert said.

“Therefore, much depends on logistics,” Marunich says. “If they fail to deliver coal and weather gets really cold, we will have to appeal to Russia. There is no other option left!”

Unlike anthracite, Ukraine imports coal of the gas group from Russia and it accounted for 54% of total fuel supplies this year. Nevertheless, at present Ukraine can rely on the coal from U.S. only, Tatyana Boyko, Coordinator of Houses and Utility Programs, told a local Espresso TV. “We import 44% of the coal we need. The tragedy is that the entire cheap coal has been purchased already, and there is only the American one left,” she said.

Earlier, experts told EADaily that the difference between the Russian and American anthracite coal inclusive of delivery costs will total at least $40 per ton.