Translated by Ollie Richardson & Angelina Siard
The gas that Ukraine produces would be enough to provide for the country’s own needs. At the same time, for some reason the money received by the companies earning from the Ukrainian subsoil evaporates somewhere. As a result, gas tariffs grow despite the fact that the population isn’t able to pay exorbitant bills any more.
The energy expert Valentin Zemlyansky explained in an exclusive interview to “Glavnovosti” why such a situation developed and why gas prices for Ukrainians grow.
In Ukraine all the subsoil belongs to the people, however today the authorities sell this subsoil to the people at international prices. Where does the money disappear to?
“Well let’s start with logic – how is gas being sold? How is the price being formed? In principle the logic that determines how tariffs are being currently formed was adopted in 2014, when the Association Agreement was signed, and it assumes the following point.
If in your country you lack your own resource for ensuring your own needs, then you need to consider all prices in terms of the import price. If you buy an additional part, then it means that the internal resource must also be considered at the same price.
There is such a liberal economic theory that was used as a basis when the so-called reform of the gas market started. Respectively, when we say that gas prices are formed by the principle of import parity, this means that for the population and for the industry, municipal energy companies don’t mind where gas is extracted.
The price is being formed absolutely without any connection to Ukrainian gas or gas bought abroad. But the problem lies somewhere else – when within the framework of this model a connection is made to the European hub, this led to an additional rise in prices.
When we say that the price for the industry has now risen to 14,000 and the price for the population also should follow suit, this is very conditional. Because if we take as a reference not the European exchange, but the contract that ‘Naftogaz‘ could conclude with a European company, then the gas price under this contract would be much lower than the price that is formed at the exchange.
At least 100 dollars less, instead of 330 – which is the price on the German hub today. It would be about 230-250 and it would respectively be a completely different price both for the industry and for the population. This is if we speak using the logic that our government uses today.
It is possible to change it once again. I already spoke about it. Boyko proposes a mixed price, a mixed option, where it follows this same logic but with a contract: for example, the price of imported gas is taken from Europe and there is the price of gas of your own production, but here minimum profitability is taken into account, and not like how it is now.
In such a case the price will become even lower, this can be applied in relation to the population, and in relation to industry it can be applied according to import parity. I.e., there are many options for how to exit from this situation. And let’s not forget one more very important point — the norms of consumption. Now the government, especially Mr Reva, uses such rhetoric: if there is cheap gas and you live in a big house, then we will subsidise you and watch so that you don’t eat too much and don’t pay too little an amount.
This is absolutely rotten logic, because in most households consumption reached 2,500 cubic meters per year. There isn’t high consumption, despite our rather cold climatic conditions, because in Europe the average volume of consumption is 2,400.
We don’t strongly differ from the warmer Europe. And where the money disappears to is a rather big question. Because in general they ought to concentrate everything in ‘Naftogaz’. Because nobody else from among the market players receives money from this.”
And let’s try to count volumes. How much gas do we extract and how much do we consume?
“We extract about 20 billion cubic meters, from which 15 is ‘UkrGasVydobuvannya‘, 5 billion comes from private companies for which import parity is very favorable – they sell to industry at prices that are lower than ‘Naftogaz’.
And Ukraine also imports another 14 billion more cubes. Here is the balance — 34 billion, from which the population consumes 11.2 billion cubes and 5-5.5 billion more goes for municipal energy companies for the production of heat and hot water.”
Actually, it turns out that Ukrainian gas would be enough and all Ukrainian gas can be sold to the population.
“Currently yes, but once again – our reformers have interesting logic. They want ‘UkrGasVydobuvannya’ to become one of the players of the market, and not an enterprise that ensures social protection and the energy security of Ukrainian citizens.
And ideas like ‘let UkrGasVydobuvannya sell 30% of its resource in the free market’ are already being sounded. This, by the way, concerns the question of why the IMF very much insists on increasing tariffs. Everyone is interested in the resource, and they are interested in the market. They don’t care whatsoever about what socio-economic situation in this case is being formed in the country.”
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