12:00 23.05.2020


From serfdom to lordship: how to make life better for Ukrainian gas customer

4 min read
From serfdom to lordship: how to make life better for Ukrainian gas customer

Otto Waterlander, Naftogaz Group Chief Executive Officer - Chief Transformation Officer

The Ukrainian gas market has changed dramatically over the past six years: demonopolized access to the gas transmission system, dozens of Ukrainian and international traders importing gas from Europe, hundreds of suppliers competing in prices and services for Ukrainian customer. However, only the industrial sector and business are enjoying it now.

Meanwhile, Ukrainian households are still enslaved by incumbent regional gas suppliers. Because of several inconsistencies in gas supply regulations, Ukrainians find it very complicated to change their gas supplier.

We believe that it should be the other way round, with Ukrainian customer put in the focus of the gas market. They should be barraged with letters offering better conditions, additional options and discounts, rather than haunt offices of gas suppliers and the regulator in order to terminate or conclude a contract.

The liberalized gas market should protect Ukrainians through encouraging effective competition among suppliers offering best price to their customers.

Instead of a consistent solution to the problem, we continue to hear criticisms about further liberalization of the gas market for households. Something like Ukrainians will stop paying their gas bills if they change their supplier; or new suppliers may happen to be mala fide.

International practices show that these problems are solved by the free market with freedom of supplier choice, competition and better services for customers. For Ukrainians to enjoy fair  and market pricing, there should be competition among gas suppliers like in any other product or service market. This is the only way to make suppliers most flexible, efficient, innovative and consumer friendly.

Naftogaz group participated in each stage of the gas market liberalization for the industrial sector, including successful GTS unbundling, reverse gas flow from Europe and contribution to the liquidity of the market.   Thanks to the integration in the European market, gas prices for industrial users have almost halved over the past three years.

Naftogaz is ready to be a driver of the gas market reform for households as well. We can play the most difficult part of a last resort supplier at the initial stage of the market, ensuring gas supply to any customer who is left without a supplier.

Meanwhile, we want to participate in growing competition among suppliers. Currently, Naftogaz is supplying gas directly to just 2% of its household customers, while due to the PSO regime, we cannot compete with intermediaries that are reselling our gas to Ukrainians. The market liberalization for households will enable our Naftogaz of Ukraine Gas Supply Company to provide services to Ukrainians in any region of the country.

To cope with the rest of difficulties, we need support from the government, parliament and regulator.

Customers need to be enabled to switch to a new supplier freely and quickly (with a single click). All transactions should be performed by operators of gas transmission and distribution systems as well as new and previous suppliers without consumer’s personal attendance. Like an industrial customer, a household should be able to switch by providing EIC code to a new supplier.

To introduce effective influence on mala fide customers, the utility legislation needs to be amended to include civilized international collection practices.

Suppliers and customers should be free to decide on payment conditions and procedures, as the new market enables to mix products, for example, to provide service packages including gas and electricity or gas and Internet.

Why do we suggest that the market reform be accelerated and completed this year? Because now is the best time to shift from government control to transparent market pricing. Prices in both European and Ukrainian gas markets are exceptionally favorable this year. They are more than 50% lower against the previous year and continue to go down. These market conditions encourage competition among suppliers and clearly demonstrate the advantages of the market to customers.

This shift will release the government from constant political risks of being blamed for “unfair” pricing or covering up someone’s abuse. The market will set price and conditions while customer will get the best offer.