Without water and electricity: Consumers will suffer due to water debts
24 July, 2020
Oleksandr Visir

Prior to the reform of the electricity market, the debts of water utilities for electricity amounted to approximately UAH 3.8 billion. With the launch of a new electricity market in Ukraine, this problem has become even more acute – Vodokanals continue to accumulate debts for electricity distribution to distribution system operators (former oblenergos).

Due to neglect of calculations, distribution system operators are in an extremely difficult financial situation. After all, in fact, the problem of managing one industry is solved at the expense of another.

The very fact of the existence of debts and their rapid increase worsens the financial and technical condition of energy distribution companies (oblenergos), which leads to a lack of funds for payments by contractors and payment of wages.

Consumers suffer from this in the first place: on the one hand, the debts of water utilities are the reason for their power outages, on the other – oblenergos do not receive funds to be allocated for the elimination of accidents, repairs, replacement of old equipment.

This problem is especially relevant for such regions as Luhansk, Dnipropetrovsk, Chernihiv, Kyiv and Kharkiv regions.

For understanding of scales of a problem – the Kharkivvodokanal municipal enterprise owed JSC Kharkivoblenergo (65% of which shares belong to the state) over 1 billion hryvnias! And the debt of water utilities of Dnipropetrovsk region for electricity distribution is UAH 484 million.

It is important to note that these debts did not arise recently or as a result of quarantine, but were formed before the start of the new electricity market, ie before July 1, 2019.

 The reasons for this critical situation are three:

1. Inefficiency of water supply management, which does not cope with ensuring stable operation of enterprises.

2. Manual appointment of mayors of cities who are unable to ensure the effective operation of their enterprises, and then ignoring control over such managers.

3. Tariff regulation of the National Commission for Regulation of Economic Competition, which does not meet market requirements.

Where did these debts come from?

Both Vodokanals and distribution system operators are licenses of the National Commission for Regulation of Economic Competition.

The regulator sets the tariff for the electricity distribution service and for centralized water supply and sewerage on the basis of the tariff methodology “Costs +”. Moreover, according to the Regulator, tariffs for water utilities and SRFs are economically justified. But – only on condition of 100% payment of consumers.

If consumers do not pay for water supply, Vodokanal cannot pay its debts and upgrade its water supply.

Non-payment of electricity distribution services by consumers such as water utilities, in turn, makes it impossible for the SRF to implement the planned measures provided for in the tariff structure – from paying salaries to SRF employees, taxes and other mandatory payments to repairing basic energy equipment.

At the end of the reporting period, a SRF that does not adhere to the tariff structure will be held accountable to its regulator, despite the fact that it was impossible to meet these conditions due to lack of funds.

This situation has not changed for years (in the old model of the electricity market, Vodokanals did not pay oblenergos for the consumed electricity) and in the confrontation between Vodokanal and SRF, the distribution system operator has a weaker position.

Non-payment by water utilities of the cost of electricity distribution also leads to the leaching of working capital from the SRF and is often used by water utilities as free (for them, of course) lending.

However, it should be understood that the source for ensuring the “free provision” of electricity distribution services to utilities is actually the consumer. Because “lending” to water utilities is a means of SRF. The consumer pays for everything as part of the payment for the service, instead risking not receiving the relevant services.

Non-payments for consumed electricity, and from 2019 for the distribution of electricity utilities explained and explain the inconsistency of actual costs with the established tariffs for water supply and sewerage. Although the tariffs of water utilities were formed on the basis of such data submitted by them and the structure of such tariffs provides for the payment of the cost of electricity distribution.

However, drinking water supply and sewerage utilities do not pay SRFs for electricity distribution, even in the amount provided for in the tariff.

Therefore, of course, the Regulator should not stand aside from this issue.

Consumers risk being left without water and without light

Non-payment by Vodokanals for the consumed electricity, actual crediting by SRCs of Vodokanals leads to the fact that as a result the ordinary household consumer suffers.

And the losses for him – the lack of water and lack of quality light supply. After all, in this situation, the SRF is forced to stop providing electricity distribution services to water utilities. This causes the pumps and water pipes to stop working. That is, those people who consistently and regularly pay for water supply and sewerage services may be deprived of these services.

However, the SRF is underfunded for the service it has already provided. Accordingly, he has nothing to compensate for the cost of work of workers and repairs of equipment. This leads to a decrease in the quality and reliability of electricity supply.

As a result, consumers who regularly pay for the collar will not receive services of proper quality.

It is worth noting that the problem of water utilities – not only in debt. According to the Dnipropetrovsk mass media, regarding the level of losses in water supply systems, they say that, for example, in the Kamyansk city water supply system of the Dnipropetrovsk region the level of water losses reaches 46%, with the standard set by the National Commission for Water Supply and Sewerage in the tariff 29.1%. Which indicates an extremely unsatisfactory technical condition of the equipment. And the fact that most of the transferred water is not paid by anyone.

The situation is similar for most municipal water utilities in Dnipropetrovsk region.

Electricity distribution system operators also have a number of problems, as there is a crisis in the energy sector and the level of network wear is 60 to 80%, depending on the region. At the same time, the ever-increasing debts for electricity of household consumers and industrial facilities and the current tariff model “Costs +” do not provide the necessary amount of funds for modernization and renewal of networks.

How to solve the problem before it’s too late?

It is obvious that there is an urgent need to implement a mechanism at the level of Dnipropetrovsk and Kharkiv regional councils that will ensure timely payments for electricity distribution by water utilities, as their restriction in electricity supply will lead to water supply disruptions.

That is, any of the proposed options should provide in the future one hundred percent calculation of water utilities for the distribution of electricity.

To solve this problem you need:

First, the Ministry of Community and Territorial Development and the Cabinet of Ministers should introduce accounts with a special regime for the use of water utilities, which are intended for crediting funds for electricity distribution services.

We already have similar successful examples. Thus, a similar procedure has been successfully introduced in the field of heat supply since 2014 with the adoption of the Law “On Amendments to Some Laws of Ukraine on Improving Energy Payments” №1198-UII. Introduced bills with a special regime in heat supply help to improve the calculations and significantly reduce the amount of debt for natural gas consumed by heat companies.

Secondly, it is necessary to “revive” the work and ensure proper implementation of the resolution of the Cabinet of Ministers “Some issues of electricity supply to protected consumers and recognition as invalid of some resolutions of the Cabinet of Ministers of Ukraine” dated 27.12.2018 № 1209. According to which, water utilities or their owners (city and regional councils) must provide the SRCs with appropriate financial guarantees to pay for the cost of electricity distribution services. The implementation of this resolution should be monitored by the Ministry of Community and Territorial Development.

Third, mayors and heads of regional administrations need to “take the lead” and start monitoring this problem on the ground until a comprehensive solution is found.

It should be noted that the Dnipropetrovsk Regional State Administration paid attention to the problem of water supply and decided to take under its direct control all the problematic water supply systems of the region: Aulsky Vodovod, Kamyansky, Pavlogradsky, DniproZakhidnyi Donbas, Kryvbaspromvodopostachannya, KP Marhanets-Vodokanal. Perhaps a similar decision should be made in Kharkiv – to take the solution of the problem under their personal control and control the actions taken by mayors.

This can have a very positive effect, as, on the one hand, SRFs will have financial guarantees for payments for services provided, and on the other hand, utilities and local governments will have financial incentives for proper payment discipline.

Of course, the most effective and appropriate is the simultaneous implementation of all options for solving the problem.

This issue is very complex, so the Verkhovna Rada, the Ministry of Energy, the Ministry of Community and Territorial Development, the National Commission for Regulation of Economic Competition, as well as regional state administrations and regional councils of those regions where the situation has become threatening must be involved.

In addition, the Ministry of Regional Development, city and regional councils should take control of the management of water utilities – key utilities whose activities are important for the livelihood of people and monitor their payment discipline.


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