On the evening of April 25th, the National Power Company, Ukrenergo, halted the power supply to the Luhansk region. "Tonight the power supply to the temporarily uncontrolled territories of the Luhansk region was completely stopped," the head of the company, Vsevolod Kovalchuk, said.
The suspension of electric service to the separatist-held territories of the Luhansk region was confirmed on Channel 5 by the head of the Luhansk regional military and civil administration, Yuriy Garbuz. "Indeed, at 00:00 the power supply to the temporarily uncontrolled territories of the Luhansk region was cut due to a debt of nearly 5.6 billion hryvnia (211 million USD)."
As a result of Cabinet's Resolution №263 and №368, the Luhansk Energy Association has been forced to use the money paid by consumers that reside in the Ukraine-controlled Luhansk region to provide free electricity to the separatist-held territories (about 300 million hryvnia (11 million USD) per month), leading to the company's debt to the Energorynok State Enterprise. According to the press service of the Luhansk Energy Association, consumers in general owe the company around 5.5 billion hryvnia (207 million USD), of which 4.9 billion hryvnia (184 million USD) is from consumers in the uncontrolled territories.
Since 2015, the General Director of the Luhansk Energy Association, Volodymyr Gritsay, has repeatedly raised the issue of terminating or limiting power to the uncontrolled areas based on the level of payments. In December 2016, as a result of the mounting debt, the company temporarily stopped electric service to the Popasnjansky district water utility which supplies water to some areas of the Donetsk and Luhansk regions that are temporarily beyond the control of the Ukrainian government. As of December 2nd the amount owed by the water utility company to the Luhansk Energy Association was about 124 million hryvnia (4.7 million USD).
Notably, according to the power generating company, Donbasenergo, in 2016, the average tariff for thermal power plants (TPP) in the temporarily uncontrolled territories of the Donetsk and Luhansk regions was 958.94 hryvnia (36 USD) per MWh, which is 22.8% lower than the average rate of TPP across the national power grid of Ukraine (1 242.29 hryvnia (46.7 USD) / MWh), however the level of payments to the energy generating company on the separatist-held territories was only 2.2% of this total.
It should be noted that in December 2016 the temporarily uncontrolled territories of the Luhansk region received power worth 275 million hryvnia (10.3 million USD), in January 2017 about 275 million hryvnia, in February, 225 million hryvnia (8.5 million USD), and in March (according to latest data) it is nearly 210 million hryvnia (7.9 million USD).
However, the reasons behind the disconnection by the Luhansk Energy Association are not only economic, but also political.
In particular, the analytical department of the Prava Sprava public initiative raised the question in the media as to why supposedly "nationalized" enterprises in the uncontrolled territories, which, according to President Poroshenko and their owners, are under full control of the separatists government continue to be supplied by Ukrainian electricity, water, and gas.
On March 15th, President Petro Poroshenko announced the economic blockade of the uncontrolled territories as Ukrainian companies there were allegedly being seized by the separatists and fell under their full control.
After the decision on the economic blockade of the temporarily uncontrolled territories was made at the state level, statements were repeatedly made by government officials as well as the owners of the "nationalized" enterprises that they are monitoring the situation and further, will act as the initiators of targeted economic sanctions against businesses and individuals that support an economic relationship with these companies.
"Cooperation with the unrecognized republics and any individuals connected or controlled by them and their enterprises is a violation of the international economic sanctions policy. Regarding companies that cooperate with those included in the "black" lists, there will be penalties, including criminal liability of officials, and sanctions in the form of asset seizures and restrictions on economic activity," the message from the Metinvest Group read.
However, surprisingly, despite the so-called "nationalization" and loss of control over Ukrainian enterprises situated on the separatist-held territories, Ukraine continued to supply power to the uncontrolled territories. In addition, gas and water were also provided. Then the logical question arose, what kind of control over enterprises and the economic blockade is there if the Ukrainian government actually continues to support their production.
The value of just power supplied to the "nationalized" companies in the so-called LPR amounts to about 300 million hryvnia (11.2 million USD) per month. The fact that the electric supply was not decreased was evidenced by data from the Luhansk Energy Association itself. There was a small decrease, which proves that it is a seasonal one, that the population's use of heating appliances declined with the end of heating season.
A clear indication that the government is not going to change the rules of the game regarding the free supply of power to the uncontrolled territories, despite the announcement of the blockade by the government itself is the decision made on April 5, 2017, by the National Commission for State Regulation of Energy and Public Utilities (NKREKU) which rejected the issuance of a new license for the Luhansk Energy Association to operate only in the part of the Luhansk region that is controlled by Ukraine. The Luhansk Energy Association is currently licensed to operate in the uncontrolled areas as well, payments from which the company does not receive. "Yesterday it was reported that our appeal was rejected by the NKREKU. Supplies to the uncontrolled territories will continue, and the debt is growing, why we are continuing to supply them is unclear," the General Director of Luhansk Energy Association, Gritsay, said, commenting on the decision of NKREKU.
It should be noted that only after criticisms by the analytical department of Prava Sprava, which pushed the authorities against the wall with the facts showing the ongoing free power supply, did they make the decision to terminate the delivery of the electricity to the separatist-held territories. It is noteworthy that this decision was made under pressure from the public, and not based on any rational considerations.
The views expressed in this article are the author's own and do not necessarily reflect those of UAWire. The article has been published with the permission of the author.