ogarenko energy subsides kyiv_25.04.2016_en
TRANSCRIPT
ENERGY SUBSIDIES IN UKRAINE: ESTIMATES AND TRENDS
Round table “Energy subsidies in Ukraine and the Progress of Reform”
25 April 2016, Verkhovna Rada of Ukraine, 5, M. Grushevskogo St.
Yuliya Ogarenko, National Expert of the Project “Inventory of energy subsidies in the EU’s Eastern Partnership Countries”
Methodological approach IEA methodology: • compares average end-user
prices with international reference prices;
• allows to capture overall effect of all government interventions, which influence prices
Top-down approach: IEA
price-gap methodology
Bottom-up inventory:
OECD approach
OECD approach: • detailed analysis of budget
outlays, tax benefits, induced transfers…
• data intensive but more trustworthy
Budget transfers to compensate losses of energy and utility supply companies
0
2
4
6
8
10
12
14
16
18
20
2012 2013 2014 2015 2016p
Subvention (transfer) formthe state budget to localbudets to compensate lossesof energy and utility supplycompanies due to regulatedtariffs
Compensation to NJSC"Naftogaz" for the differencebetween the price ofimported gas and its sale forheat production
Source: prepared based on Treasury reports on budget execution (2013 -2016)
?
billion UAH
Mechanism of Naftogaz recapitalisation
Cabinet of Ministers increases statutory capital of Naftogaz
by issuing additional shares
Ministry of Energy and Coal Industry arranges private
placement of Naftogaz' shares
Ministry of Finance issues
state bonds and sells them in exchange for
shares of Naftogaz
Naftogaz is obliged to use state bonds according to its
statute
Naftogaz sells state bonds and
purchases USD
Naftogaz buys imported gas or pays back loans
Recapitalisation of Naftogaz
Source: resolutions of the Cabinet of Ministers
0
20
40
60
80
100
120
2012 2013 2014 2015 2016p
For 2012-2015 state bonds: • worth UAH 142.1 billion; • 3 to 10 year maturity
period at 9.95% - 14.5% annual interest rate.
?
billion UAH
Regulated prices for state-owned gas producers
Source: NCSREPU reports (2013-2016), Naftogaz report (2015), World bank data on gas prices.
45 45 30
73
405 416
255 267
0
1
2
3
4
5
6
0
50
100
150
200
250
300
350
400
450
2012 2013 2014 2015p
Opportunity cost forUkrainian producers,billion USD (right axis)
Weighted average gaspurchase priceUSD/mcm (left axis)
Average gas price at theEU market USD/mcm(left axis)
Consumer subsidies in the gas sector: comparison of price-gap method with bottom-up analysis
Source: own presentation based on various sources
0
2
4
6
8
10
12
14
2012 2013 2014 2015
Price gap estimate
Bottom-up inventory
?
Budget transfers to state-owned coal mines
0
2
4
6
8
10
12
14
16
18
2012 2013 2014 2015 2016p
construction of coal andpeat mining enterprises,technical re-equipment
Rescue measures
Replenishment of currentcapital to settle the arrearsof wages
partial compensation ofproduction costs of finishedmarketable coal
Restructuring of coal andpeat industry
?
Source: prepared based on Treasury reports on budget execution (2013 -2016)
Cross-subsidisation in the electricity sector
*Note: assumption is made that cross-subsidies in 2016 will be at least at the same level as in 2015. Source: prepared based on NCSREPU reports (2013-2016)
0
5
10
15
20
25
30
35
40
45
50
2012 2013 2014 2015 2016p*
billion UAH 2015: share of cross-subsidies in wholesale electricity tariff – 30.75%, Renewables – 4.9%
Target support programme for low-income households
Source: prepared based on Treasury reports on budget execution (2013 -2016)
0
5
10
15
20
25
30
35
40
2012 2013 2014 2015 2016p
to purchase solidand liquid furnacefuel and LPG
to partially coverutility costs
billion UAH
State support to renewable and energy efficiency
* Note: assumption is made that induced transfer due to feed-in tariff will be at least at the same level as in 2015. Source: prepared based on Treasury reports on budget execution (2013 -2016), NCSREPU and Ministry of Finance data
0
1
2
3
4
5
6
7
8
2012 2013 2014 2015 2016p*
Feed-in tariff forelectricty producersfrom renewables
Revenue forgone
Energy EfficiencyProgramme
billion UAH
Progress of the reform?
Note: planned budget transfers to coal producers and targeted subsidies to low-income households are taken from Treasury report as of February, 2016; for the purpose of indicative estimate an assumption is made that cross-subsidies in electricity sector, opportunity cost to state-owned gas producers and induced transfers (feed-in tariff) to renewables will be at the same level as in 2015. Source: own presentation based on publicly available sources.
0
50
100
150
200
250
2012 2013 2014 2015 2016p
Renewables
Energy efficiency
Revenue foregone
Target subsidies
Electricity consumption
Gas consumption
Coal production
Where government policies should focus
billion UAH
p*
Conclusions
• Support of vulnerable groups is a must for success of the reform;
• Targeted support should be provided in the most efficient way possible (proper means-testing and 100% metering);
• Energy saving incentives should be an essential pillar of the energy subsidy reform;
• Will the Government fulfil its commitments phase-out all subsidies by 2017-2020?
• Let’s learn to count public funds as our own money!