: Ukraine faces corruption scheme on energy communal tariffs
Politics17:01 Jun. 22, 2016

Ukraine faces corruption scheme on energy communal tariffs

"Rotterdam Plus" mechanism artificially doubles the coal prime cost 

New price alert in Ukraine has started. The deputies, though expected to reduce the gas prices, have all of a sudden approved the decision of National Regulatory Commission rising the energy rates for Ukrainians. Newly established electricity tariffs are closely tied to coal prices.

Solid fuel is surprisingly rated at an average European level despite Ukraine having huge deposits of domestic coal. The so called developed Rotterdam formula allegedly aimed at optimizing the ratings granted the Ukrainians the most expensive coal and electricity.

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This is a usual coal mine in eastern Ukraine. Ukrainian miners desperately strive to extract at least some fuel. Though illegal and unhealthy, this is the only way to earn money, they say. The extracted coal is very cheap, not more than 600 Ukrainian hryvnias for a ton. The prime cost includes a minimal salary for the workers, no more than 4,000 hryvnias monthly, simple equipment and bribes, both for the officials and separatist leaders as well.

After being extracted and sold out, this coal is successfully being burnt at numerous Ukrainian heat electropower stations. According to official statistics, half-legal fuel constitutes nearly 40% of the total amount Ukraine is burning regularly. Paying no attention at first, the officials in Kyiv now allegedly strive for elaborating the tariff formula. Developed mechanism known as "Rotterdam plus", they say, will double the current communal prices.

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'We assume the new method is quite transparent, since it takes into account the marginal price of electricity production,'  Head of National Regulatory Commission Dmytro Vovk said.

This complicated phrase means the following: Ukrainian coal is to be extracted from Ukrainian mines but sold for the Ukrainian citizens at a price settled in Rotterdam port. The new price includes the transportation costs from the Netherlands, as well as reloading the coal in one of the local Ukrainian ports. In other words, we are supposed to pay double or even triple price for our domestic production, that is 1,600 hryvnias for a ton. The experts claim Ukrainian coal has thus turned into the most expensive in the world.

'The average electricity price in Ukraine is 20% higher than in Hungary or Romania, or Poland, or Slovakia. Rotterdam formula means 12 billion hryvnias of additional income for the officials,' Ex-Minister For Regional Development Of Ukraine Oleksiy Kucherenko stated.

The officials instead keep on telling stories about European coal prices, not taking into account the structure of its prime cost. A ton of coal from North America costs 45 dollars, including the miner's salary which is no less than 3,000 U.S. dollars pro month. Ukrainians are happy to earn double as low. Additionally, Ukraine does not provide its miners neither with medical treatment, nor with accidental insurance.

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Anatoliy Muhomedzhanov is the head of the miner trade union in Novovolynsk, that is north-western Ukraine. He came to Kyiv to ask for ministerial financial assistance. The mine where he is currently working has not paid a single hryvnia for dozens of months already. The coal they extract has no demand in their town, whereas selling fuel in retail is forbidden. Rotterdam plus, says Muhomedzhanov, is a scheme of double theft. At first the miners are underpaid, then they have to pay the unpredictably high bills.

New prices on electricity were launched in May. A couple of weeks ago the bills for water supply rose as well, the heating bills are on waiting list. The deputies though claim the tariffs are economically groundless, therefore, people should apply to the court to defend their rights.

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