Monopolists without control: six months of delays in government decisions resulted in a tariff crisis in the gas market

13-01-2021

The government reported on the cancellation of ISO (imposition of special obligations on natural gas suppliers) and the transition to market pricing for gas for household consumers only in mid-2020.

However, when the ‘unexpected’ winter started, the energy cost has traditionally increased on world exchanges, resulting in higher gas prices in Ukraine. But in our country, the European price level was also influenced by such an internal specificity as the boundless greed of gas oligarchs. Through the ownership of gas utility companies, they increase the price by 30-40% compared to independent traders and do not allow consumers to freely go to other suppliers.

The implementation of the procedure for changing gas suppliers also failed:  

  • citizens are not informed about such a mechanism
  • the procedure is not automatic (it may take a long time and be blocked by current suppliers)
  • suppliers hide EIC codes required to change a supplier from consumers

As a result, instead of engaging in challenging work to regulate and improve market mechanisms, as well as provide targeted assistance to vulnerable social groups, the government decided to resume state regulation of gas prices.

“The sponsors of the decision call it ‘the establishment of fair gas prices’, forgetting that only the market price can be fair, and any artificial regulation leads to market distortions and losses of other market participants (as still occurs in the electricity market). And this is to say nothing of negative consequences for the state in general in terms of probable claims of the IMF and European partners,” the Energy Sector head Anton Zorkin summed up.

BRDO calls on the government to mobilize all efforts to ensure that the reform results are supported, as well as to simplify and speed up the procedure for changing suppliers and prevent the abuse of regional gas distribution companies in this process. It is also important to ensure the provision of targeted subsidies to consumers critically affected by the growth of gas prices.

As gas utility companies abuse the monopoly position, the government’s decision to approve a package of measures to combat the energy emergency by temporarily limiting the profitability of monopolists should be adopted instead of the decision to set fixed gas tariffs.

It should be recalled that BRDO appealed to the AMCU regarding possible competition law violations by regional gas distribution companies.

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