Reform of the energy sector cannot be continued until cross-subsidization of household consumers is abolished

19/ 01/ 2021

On January 1, 2021, Ukraine introduced a single electricity tariff for the population given significant changes that have occurred since the last revision of such a tariff in 2017. First is the launch of a new model of the electricity market which requires the abolishment of cross-subsidization of household consumers by industrial ones. After all, such a transfer of financial burden to industrial consumers leads to losses for the economy. With market liberalization, subsidies continue to increase and become unaffordable for the industry. This historical imbalance has led to the shortfall of funding for the development of energy infrastructure, the wear of which has reached 80% by 2020 according to expert estimates. Also, market distortions such as cross-subsidization of household consumers have become one of the causes of the largest energy crisis in Ukraine in 2020. As a result, the size of accumulated debts in the industry has now reached almost UAH 62 billion, which has already led to many negative consequences in the industry. The tariff for household consumers should be brought to the market level over time. Therefore, the European Business Association calls on the CMU to pay attention to this situation and take the necessary measures. After all, without this mechanism, stable operation of the energy market cannot be ensured. Regarding the social aspect of this issue, the mechanism of targeted subsidies should be aimed at vulnerable groups in need of state aid. It should be noted that the issue of tariffs for household consumers is largely politicized. Therefore, setting a market price for households will not only reduce the tariff for industry and, thus, increase the competitiveness of Ukrainian products, but also pay consumers a cheaper price for goods and services. We hope that the voice of business will be heard, and the market and the population will not be driven into an even graver impasse. Be the first to learn about the latest EBA news with our Telegram-channel – EBAUkraine.

On January 1, 2021, Ukraine introduced a single electricity tariff for the population given significant changes that have occurred since the last revision of such a tariff in 2017.

First is the launch of a new model of the electricity market which requires the abolishment of cross-subsidization of household consumers by industrial ones. After all, such a transfer of financial burden to industrial consumers leads to losses for the economy. With market liberalization, subsidies continue to increase and become unaffordable for the industry.

This historical imbalance has led to the shortfall of funding for the development of energy infrastructure, the wear of which has reached 80% by 2020 according to expert estimates. Also, market distortions such as cross-subsidization of household consumers have become one of the causes of the largest energy crisis in Ukraine in 2020. As a result, the size of accumulated debts in the industry has now reached almost UAH 62 billion, which has already led to many negative consequences in the industry.

The tariff for household consumers should be brought to the market level over time. Therefore, the European Business Association calls on the CMU to pay attention to this situation and take the necessary measures. After all, without this mechanism, stable operation of the energy market cannot be ensured. Regarding the social aspect of this issue, the mechanism of targeted subsidies should be aimed at vulnerable groups in need of state aid.

It should be noted that the issue of tariffs for household consumers is largely politicized. Therefore, setting a market price for households will not only reduce the tariff for industry and, thus, increase the competitiveness of Ukrainian products, but also pay consumers a cheaper price for goods and services. We hope that the voice of business will be heard, and the market and the population will not be driven into an even graver impasse.

Be the first to learn about the latest EBA news with our Telegram-channel – EBAUkraine.