November 24, 2014
For many years Ukraine has wasted huge amounts of energy through exorbitant subsidies on gas consumption, coupled with in-transparent multiple gas prices and large-scale corruption. Due to these factors, Ukraine has become one of the most wasteful energy consuming countries in the world. With household gas prices substantially lower than in any other European country and lower than the wholesale purchase prices, this regime had long become unsustainable.
Under the new political leadership it will finally disappear. There will be a single wholesale gas price which will cover the supply costs and yield a decent profit for the state-owned gas company. The IMF and the EU had conditioned their financial assistance to a profound reform of the Ukrainian gas market.
Gas prices will have to more than double, which cannot happen overnight. This huge rise of prices will induce consumers to a much more economic use of gas and higher energy efficiency. By the same token it will dampen the social impact of the price rise.
The future generated profits will be used to financing improvements of the gas distribution, improving energy efficiency and offering specific assistance to vulnerable groups of society.
This will be a revolution for Ukraine and other the countries still indulging in the luxury of fossil subsidies. It will not be easy to “sell” politically. But Ukrainians, having shown they can be tough, are likely to accept a higher gas price in exchange for security of supply.
If the anticipated increase of energy efficiency happens in the wake of the phasing out of subsidies Ukraine might become an example for other developing and emerging countries to be followed.
Eberhard Rhein, Brussels, 20/11/2014Author : Eberhard Rhein