Starting in April, we'll be paying the "market" price for gas, and starting in May, a new tariff will be introduced.
Starting next month, state regulation of gas tariffs for households in Ukraine will end, and all consumers will be forcibly transferred to a new annual tariff, which could be higher than the market rate. We explored how much people will have to pay for gas next month and why the annual tariff looks more like another attempt to pocket Ukrainians' money. "Vesti".
What will happen to the price of gas?
The state regulation of the maximum gas price for households, set at 6,99 UAH/cubic meter, expires this month. Starting April 1, market-driven pricing will once again be determined.
For ordinary consumers, this situation may even be beneficial in the short term. However, as Gennady Ryabtsev, energy expert and director of special programs at the Psycheya Scientific and Technical Center, told Vesti, gas prices could nearly double in the next heating season.
"Gas prices are seasonal and begin to decline in April, and this trend continues until August. Then there's a gradual increase, peaking in February-March. This pattern repeats itself annually. This means we'll only notice a rise in gas prices at the start of the next heating season, when gas prices will no longer be capped. Then, it won't cost UAH 6,99, but somewhere around UAH 10-11 per cubic meter. Again, that's unless the government intervenes in the market again and does the public a favor by imposing some restrictions," Gennady Ryabtsev explained to Vesti.
Considering the seasonal factor and last year's experience, it can be assumed that gas prices will drop quite significantly as early as April. For example, according to the Ukrainian Energy Exchange, the average gas price in April last year was 4,7 UAH/thousand cubic meters, and in May 2020, it dropped even lower, to 3,7 UAH/thousand cubic meters.
At the same time, Ryabtsev says there's no point in hoping for a repeat of last year's scenario. "April and May of last year aren't indicative. The coronavirus crisis significantly altered the price picture back then. But prices will definitely decline," Ryabtsev told Vesti.
At the same time, Yuriy Korolchuk, Chairman of the Supervisory Board of the Institute of Energy Strategies, told Vesti that the price could still remain at up to 7 UAH in April. "In April, and perhaps part of May, the price could still be at 6-7 UAH. But by June, it should drop to 4,5-5 UAH/cubic meter. At least, that's the expectation on the exchanges," Korolchuk explained to Vesti.
Annual tariff: savings or bondage
But Ukrainians may not see low summer rates this year. To mitigate the potential impact that Ukraine will experience again at the beginning of next winter, the government has decided to introduce annual tariffs for all gas suppliers. Consumers who choose these tariffs will pay the same price for gas all year round, regardless of market fluctuations. Naftogaz, for example, introduced such a tariff last year as an alternative to monthly payments. All suppliers must determine the tariff and offer it to their customers by April 25. And from May 1, they will automatically switch their customers to the new tariffs.
Meanwhile, as Oleh Popenko, head of the Housing and Utilities Committee of the Kyiv City State Administration's Public Council, tells Vesti, from a consumer perspective, the scheme appears rather dubious. "The fact is that suppliers are required to set an annual price during the period when gas is sold at its highest price of the year. This means that for at least six months, Ukrainians will be paying much more for gas than it actually sells for on the market. Setting annual contracts primarily benefits Naftogaz, which will be able to continue selling Ukrainian gas at exorbitant prices to ordinary Ukrainians, forcing them into bondage. It also benefits regional gas distribution companies, which can pump cheap gas into storage facilities in the summer and sell it to Ukrainians at the highest price of the year," Popenko tells Vesti. He adds that if the annual tariff is set on April 25, it could very well be around 6-7 UAH. After all, this is the tariff Ukrainians lived with during the coldest months of 2021. It is also possible that suppliers will want to factor their risks into the annual price.
Meanwhile, the government assures that the monthly tariff will remain in place. "If someone wants to gamble with gas prices, they will, of course, have the option to switch to a monthly product," stated Prime Minister Denys Shmyhal. However, switching back to an annual tariff will be problematic. This will be possible after at least 12 months. And the annual tariff itself will be different for new subscribers each month. Therefore, paying a low monthly tariff in the summer and then switching to an annual tariff closer to winter is unlikely. Saving money on this option is also unlikely for those living in apartment buildings. The savings may be noticeable only for those using gas to heat private homes. And even then, they will still have to pay more in winter due to increased fuel consumption.
Overall, according to Korolchuk, the future of gas tariffs will be determined by the government's chosen strategy. "Experts are discussing various possible scenarios. First, there could be an attempt to use administrative means to force as many consumers as possible to Naftogaz, which, for example, offers the best annual price on the market. Let's say, 5 UAH/m3, both in winter and summer. People might like that. But in that case, the market will remain a monopoly. The remaining suppliers will have to buy gas on exchanges, where prices will be significantly higher in winter. Consequently, some consumers will pay significantly more. Another scenario is a level playing field for all suppliers. That is, Ukrgazvydobuvannya would sell Ukrainian-produced gas through bilateral agreements. In that case, even in winter, the gas price should not exceed 6,000 UAH/m3," Korolchuk told Vesti.
The light remains unchanged.
Regarding electricity prices, which are currently also regulated by special obligations, no final decision has been made yet. The National Commission for State Regulation of Energy and Public Utilities (NKREKU) stated that the residential electricity tariff will likely remain at 1,68 UAH starting April 1. "It is not yet ruled out that the PSO will be extended into April," stated the regulator's head, Valeriy Tarasyuk.
But Ukrainians won't have long to rejoice. "In any case, the electricity forecast is unfavorable for the population. If we calculate the full cost of supplying electricity to a residential consumer, the price comes out to 3,5 UAH/kWh. Give or take 20 kopecks. This means the electricity tariff will increase. This is already as clear as day. The only question is the timing," economic expert Dmytro Marunich told Vesti.
As a reminder, officials had previously considered increasing the tariff to 3,42 UAH/kWh starting April 1 for anyone consuming over 300 kWh of electricity per month. However, as Popenko told Vesti, the Cabinet of Ministers has now decided to maintain the current price of 1,68 UAH for consumption of up to 500 kWh.
Nevertheless, the tariff increase remains on track, to some extent. "I think this issue will be postponed until sometime in the summer. Although plans were already underway to raise it in May. I think the increase will be gradual. And 3,42 UAH/kWh is a very realistic electricity price for 2022," Korolchuk told Vesti.
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