May 7, 2020 (12:33)

Ukrainian natural gas distribution companies incur losses by UAH 1.2 billion due to inadequate tariff level

Gas distribution companies in the period from January to April 2020 suffered losses in the amount of UAH 1.2 billion. Unprofitable tariffs for gas distribution (delivery) established by the regulator National Energy and Utilities Regulatory Commission of Ukraine (NERC) for the first half of this year allow financing only 70% of the cost of gas delivery services.


At the end of 2019, NERC approved a two-stage adjustment of gas supply tariffs to an economically feasible level: from January 1 and July 1, 2020. This was done in order to reduce the financial burden on gas consumers in the winter. Therefore, the State regulator established a knowingly unprofitable tariff level for the first half of 2020. Compensation for losses to the gas distribution companies is planned only in the second half of this year.


Tariffs for the delivery (distribution) of gas, valid from January to June 2020, do not cover a third of the current expenses of gas distribution companies operating under the RGK brand. In just four months (January – April) of the current year, this led to losses of gas distribution companies in the amount of UAH 1.2 billion. The situation was aggravated by customer defaults when, under quarantine conditions, the companies received less than UAH 500 million for their services.


All the funds received for the delivery of gas are used by the gas distribution companies for priority areas under quarantine conditions: emergency services 104, emergency repairs, wages and personal protective equipment for employees.


The underestimated tariffs, which were approved by NERC, make inevitable a further increase in non-payments and an increase in debts to the gas TSO. This will lead to a payment crisis in the gas delivery system to consumers, the bankruptcy of gas transmission companies, imbalance of the entire gas system of the country and jeopardizes its safe operation.


Alignment of distribution tariffs to an economically sound level will stop the accumulation of debts in the gas transportation industry. The effect of economically sound tariffs, while maintaining low market gas prices, will allow the gas transportation industry to be brought as close to the breakeven point by the end of the year. In the case of the implementation of this scenario, the financial condition of the timing operators will stabilize and will begin to resolve the debt problems of the gas industry that have accumulated over the past five years.


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