Following Poland's reform, electricity is cut 7 times less often than in Ukraine – Polish expert

The European recipe is simple: create transparent and competitive market mechanisms

The European recipe is simple: create transparent and competitive market mechanisms

Another reform has been launched in Ukraine, this time in the power market. In just a few years, Ukrainians will be getting electricity in a new way. What should we expect, and how did such reforms in other European countries take place? Maciej Gajewski, an energy consultant with 11 years of experience and the former manager a Polish energy enterprise, answered these questions in an interview with Segodnya.

- The government has begun reforming the energy sector in Ukraine. They promise that it will comply with European standards soon. What constitutes European-style energy?

- First of all, energy accessibility. The average citizen in Europe lacks electricity just two hours a year, and in some areas, there have been no power supply failures for many years. The light doesn't flicker, electronic devices don't get damaged. One can connect a newly built house to the grid rather quickly and easily.
In Europe, energy companies provide the same level of service as in other areas of mass service – for example, banking or mobile communications. The main point is simplicity and comfort for customers, the provision of service online and over the phone.

- So there are no lines at energy companies' offices and no complex forms to be filled out every month?

- In most European countries, people have already forgotten about energy companies in their traditional form. There are no more service centers in industrial areas that are open for only certain hours on weekdays, when everyone is at work or school. Service has shifted to friendlier spaces – for example, malls, mobile applications, and personal accounts on company websites.

- What's their secret? Why do European energy companies operate like this, while many of ours maintain the model they were using 20 years ago?

- The secret is that they have incentives, motivation. With the traditional tariff system and energy sector subsidies that Ukraine inherited from the USSR, there is no reason for energy enterprises to invest in grids, improve service quality, be innovative, or undertake any risks. The energy sector became rigid, investment-starved, concentrated only on itself and its own needs.

The European solution to this problem is simple: transparent and competitive market mechanisms must be established everywhere where it is economically feasible, i.e. in the production and sale of electricity. And in the area of grid infrastructure, which is a natural monopoly, to implement mechanisms that encourage energy enterprises to modernize.

- After the reform, will there be several regional energy companies in each region of Ukraine, as well?

- Let's forget about regional energy companies. As in the rest of Europe, regional energy companies will be divided into two parts: a grid operator involved in energy transportation, and an electricity supplier, which will have to fight for every customer in the competitive market. Customers will have the right to choose which supplier they want to sell them electricity.

- What about the condition of the electric grids? They're our legacy from the Soviet Union. In the private sector and rural areas, power loss isn't rare. Will the situation improve?

- There is a special index in the energy sector – the average time electricity is unavailable to a consumer per year. In Poland, it is 250 minutes, which isn't much. In Ukraine, it's at least seven times higher.
Cutoffs can be decreased by improving energy companies' performance through what are called planned works. However, let's not forget that this takes effort, and attaining a European level is impossible without major investments.

- Are there any power spikes in Polish grids? When fridges and TVs get damaged...

Very rarely. However, if a fridge or another device is damaged, the grid operator bears responsibility and provides compensation. The energy company is interested in ensuring that customers don't experience any inconvenience because of it.

- In your opinion, whose fault is it that the condition of Ukrainian wires is unsatisfactory? Are regional energy companies doing their job badly?

- There is a reason for everything. The kind of system you have determines the results.

Currently, regional energy companies in Ukraine are essentially deprived of the opportunity to invest in the renovation and construction of new grids. The state sets electricity transmission tariffs for them that only cover ongoing expenses. So time goes by and the condition of the grids gets even worse. Our situation is different: the approach to tariff-setting creates incentives for companies that own grids to invest in developing them.

- Are you talking about the RAB tariff? This is being actively discussed in Ukraine right now, but there's no consensus.

- Yes, this issue is very politicized in Ukraine. But RAB regulation works in many countries  and has proven to be effective. True, it allows a company to increase its profit, but it's that money that allows the company to replace wires and equipment. The reinvestment of profits is the only possible way for companies to upgrade their facilities in conditions where it's hardly possible to get a loan.
Of course, the RAB tariff mechanism requires energy companies to increase efficiency and reduce costs – then it will be possible to avoid significant increases in prices for end consumers.

- In Europe, there are solar panels installed on many houses, and even wind turbines near yards. Will the reform enable the same kind of alternative energy development in Ukraine?

Absolutely. One of the innovations of the reform is that everyone can not only buy but also sell electricity. If you install a solar panel on the roof and it produces more electricity than necessary, you can sell it to your neighbor.

- Does this mean earning more?

- Why not? The point of the market is to ensure that a person who has a product is able to sell it, and the one who needs it is able to buy.

- Based on Polish experience, how long will this take to achieve in Ukraine?

- The Ukrainian government plans to implement the reform within two years. This is a very ambitions goal. In Poland and Europe, the reform took much longer. The good thing is that Ukraine can use all of the accumulated experience of many countries and avoid our mistakes. You can trust me when I say that the current situation in the Ukrainian energy sector is very similar to what Poland had 10-15 years ago. But the sooner you implement the reform, the better, both for the state and for citizens. However, it is necessary to remember that the entire system is being changed, and the real effects of these changes won't be visible at the very beginning. This is a real challenge for the entire economy.

- We're used to a situation in which any changes in the electricity or gas sector lead to increased prices. Will tariffs increase after the reform?

- Electricity tariffs for the population in Ukraine will increase no matter what. The reason is that right now the price you're paying is much less than the actual cost. Tariffs were artificially held down by politicians. This is a dead-end, as at present, energy companies are producing and selling electricity using equipment that's 40-50 years old. Its service life is coming to an end. If nothing is done in the next 5-10 years, the consequences could be catastrophic.

The reform will enable people to pay for electricity at its actual cost, due to competition and improved performance of energy companies. And not a ruble more. And at last, high-quality, reliable services will be provided, and dealing with energy companies won't be a nerve-shattering experience.

- But salaries and pensions in Poland are much higher; people can afford to pay the actual cost. In Ukraine, the situation is different.

- This very argument was constantly used in Poland. Even today, people in Western Europe earn much more than they do in Poland. I would also like to mention that in the early 1990s, salaries and the level of well-being among the population in Poland were lower than in Ukraine.

You have to understand one thing: you won't get anything for free. Electricity is an essential product for our civilization. As I've already said, it will not be possible to keep on paying less for electricity than it actually costs. It's just important that consumers' money be used as wisely and transparently as possible, and the reform provides a solid base for this.

- Is it true that there's a culture of saving energy in Europe?

- This is a wider popular trend tied to the popularity of everything environmentally friendly, the consciousness of the population in this area is growing. But honestly, fashion aside, there is another, more important factor affecting people's behavior: saving energy is just a good deal. It's a good deal to insulate houses, to buy energy-saving bulbs, to buy energy-saving devices. If it is possible to save while maintaining the same level of comfort in life, and at the same time reduce the negative impact on the environment – then why not do it?