Prime Minister Mykola Azarov has instructed to deal with the issue of unjustified increase in utility tariffs in the regions, down to dismissal of officials.

"Some officials in the region used summer lull to try to raise utility rates. Such attempts took place in several cities and towns of the seven regions," PM said during a Cabinet’s meeting.

He instructed vice Prime Minister Oleksandr Vilkul and regional development minister Hennady Temnyk to immediately analyze every attempt of unjustified increase in tariffs. "Use all legal options possible to stop such attempts, including dismissals," the Prime Minister instructed.

Azarov also focused attention of Vilkul on the fact that gas and electricity tariffs formation, as well as the size of official salaries in the sector are under the authority of the department of state regulation. Accordingly, it is possible to ensure that people understand the mechanism of tariff setting.

In addition, Prime Minister instructed the Economy Ministry, the Regional Development Ministry and the relevant commission to analyze the cost of tariffs specific to the region and create a basic utility costs grid in the country.

In his view, it is important to do so because the country prepares for the heating season. "People need to be sure that there are no grounds for raising tariffs.

ForUm talked to specialists of the industry to learn about possible effects of Premier's task and ways to solve current problems in the housing and utility sector.

Vadym Glamazdin, deputy director general of the Center for energy research:

- Tariffs for energy and utility services cover only 40% of real costs. Sooner or later tariffs will grow by 100%, but for our country it is a political matter. On one hand, the state should containing spending of the population, but on the other hand, the worn-out system require immediate repair. Common sense says we cannot increase tariffs sharply, but gradual rise should start already now.
Tetyana Montyan, lawyer:

- There is no such notion as utility tariffs. There are such notions as house maintenance, costs for a cubic meter of water, gigacalorie of heat, kilowatt of energy. Tariffs for water, heat and energy are set by national regulators, and regions cannot increase anything, only the National commission on state regulations in the sphere of power industry. As for houses and nearby territories, there cannot be any common tariffs, as every house require individual maintenance. First of all, residents must learn how much the maintenance of their house cost and what this maintenance include. As for national regulators, they set tariffs for each monopolist separately.

Yuri Odarchenko, member of the parliamentary committee on construction, urban development, housing and utility sector and regional policy:

- We should revive the program of modernization of the housing and utility sector, adopted by the parliament with the majority of votes. It was a turning point for the development of the sector, as the program provided for serious financing in the amount of 6-7 billion hryvnias. There were concrete projects on energy saving and modernization of the housing and utility sector on the whole. Now the Committee should estimate the scope and realization of the program, which was frozen due to preparations to Euro-2012. Now we finally have time, and we should focus not on "reformation" but modernization and effectiveness.

Ivan Kolotilo, economist:

- In order not to repeat past mistakes and to escape speculations on the issue, we should set once and for all justified tariffs for every city and town, considering local conditions. In the following, tariffs must change taking into account price rise for energy sources and average pay countrywide.
Expenses of housing enterprises for secondary materials do not make a big share in total spending. Price rise for these materials under unchangeable tariffs will incite enterprises to their stretch-out. Basic tariffs also should not include expenses for modernization and development of housing enterprises.

After the adoption of such basic tariffs, many paragraphs of the law on local self-government will not longer be needed. Local self-governments will no longer have the function of tariff revising to compensate the gap and will have no right to interfere with economic activity of housing and utility sector. At the same time, housing enterprises will no longer be able to justify their inactivity and receive unearned budget assistance.

Mykhailo Kulik, director of the Institute of general power system:

- Technical re-equipment and optimization of supply schemes require investments, but the majority of acting tariffs for population do not cover even the prime cost of services, let alone investment component. Moreover, the majority of housing enterprises cannot afford to carry our modernization at own expenses, and partial reconstruction of separate facilities does not solve the problem in whole.

Potential sources of investments include means of the state and local budgets, as well as private investments, but poor management, poor tariffs base, absence of economic and material motivation  make these sources unusable. At the same time, local self-governments and utility enterprises have a huge investment reserve they do not use. I speak about energy saving projects, and realization of this reserve as "exchanged goods" (in exchange for investments) almost does not require additional financing from budgets. And absence of necessary and proper legal and regulation system is the only obstacle.

Markets of housing and utility services are monopolistic by nature, thus industrial regulation must provide improvement of consumers' welfare, fair income for participants of the market and protection of consumers from abuse of monopolistic position. Moreover, prices and tariffs set by the regulators should attract investments into the sphere. Regulators should not allow economically unjustified price rise and worsening of quality or amount of provided services. If social policy of the government or a local self-government provides for tariffs, which do not include economically feasible expenses, regulators must compensate the difference. The regulation system must clearly determine the rules of the game, reducing the risks for private investments. 

Economic regulation under the conditions of market-based economy is not a step back or return to administrative methods of centralized distribution of resources and planning of economic activities. Necessity of state interference may occur in any market with high share of monopolization. However, state control of the housing and utility sector must include three basic interrelated processes: 1 - legislative support and division of controlling powers (with possible appeal of any decision in court); 2 - implementation of regulation decisions into practice; 3 - deregulation if needed. 

Volodymyr Vecherko, first deputy chairman of the parliamentary committee on construction, urban development, housing and utility sector and regional policy:

- Tariff increase does not solve the problems of the industry. What we need is to reduce expenses in the sphere of housing and utility sector and to attract investments for its modernization. Cabinet's policy is aimed not at tariff increase, but at reduction of expenses and more rational use of means. The key tasks include fund-raising and modernization of utility enterprise and housing. Fulfilling this task will enable to meet consumers' needs and improve the quality of provided services, at the same time reducing the prime cost and keeping tariffs stable.

Anatoliy Blyzniuk, former minister for regional development, member of the parliamentary committee on state construction and local self-governments:

Patching holes is a waste of money, but this is exactly what housing enterprises and local authorities spend the industry's money for. We should adopt the ideology of modern effective legislative base and adapt relevant European legislation in this sphere. For example, not having sufficient resources we still use 200 kW to heat 1 sq m, but according to the European standards it must be 30-50 kW maximum. Following the euro-integration course we will have to adopt these standards sooner or later, and sooner is better. Moreover, IMF also demands certain optimization: Ukraine is offered to adopt the scheme, under which the population (the biggest consumer) will pay the most, and industrial enterprises - the least. It may not sound very "social", but it would be beneficial for the country in general and for its citizens in particular.

As of today, 30% of state construction norms have already been brought in line with European requirements.

Myroslav Pitsyk, vice president of the Association of cities of Ukraine:

- I want to remind what all the fuss is about. Sharp tariff rise for housing and utility services has been registered in nine settlements of seven regions.  For example, 70% rise for water supply and 98% rise for draining service have been registered in Russkaya-Lozovaya village of Kharkiv region, 66.7% rise for water supply in Mazynka village of Kyiv region, 209.7% rise for maintenance of house and nearby territories in Tarasovka village of Kyiv region. The Cabinet could not ignore such dynamics and the Premier has ordered to analyze the situation.

However, this order is rather emotional than legal. According to the Constitution and norms of the law "On local self-governments", officials of local authorities (city and town chiefs, deputies) are elected by members of a territorial community and do not belong to the vertical structure of executive power. However, considering the fact that Azarov's order is binding for relevant ministries, chiefs of towns and villages will "take the heat" and will have to answer for certain decisions. I want to point out, though, that the majority of decisions have been made following legally grounded arguments and proofs.  


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