If you decide to visit Ukraine during the summer months you will find yourself under threat of bathing with cold water only: the country’s aging and inefficient heating system experiences regular hot water cut-offs to allow for pipe and equipment check-ups as the systems struggle to cope. For residents of Kyiv’s more remote districts, a two-week check-up normally turns into an entire season of cold showers, while most of the country’s provinces have long since grown accustomed to surviving without any hot water supply at all.
Even this system of regular checks and preventive measures does not succeed in guaranteeing a reasonable service, and frequent failures in the heating systems as a result of outdated equipment and poor funding are still common throughout the country.
Discomfort and disaster
With the whole network still centrally run and working along Soviet lines of inefficiency, an overhaul would require huge investment and political will. Until that happens, the discomforts and disasters caused by this outdated system look set to continue.
Last winter, a massive breakdown cut off heating supplies to Alchevsk in Ukraine’s eastern Luhansk region, plunging some 60,000 people into what they referred to at the time as ‘The Ice Age’ after one of the main pipes pumping hot water from a central boiler into apartment houses, schools and other municipal buildings froze and broke down.
Earlier this month, a huge natural gas explosion tore through a residential building in Dnipropetrovsk, killing 23 people and damaging other buildings. This was the deadliest in a series of gas blasts that resulted from leaks in poorly maintained infrastructure or problems with canisters in a country where gas is often used for heating and cooking.
Understandably, many Ukrainians prefer their own autonomous heating solutions in the shape of water heaters and individual gas supplies. This allows them to break free of dependency on the existing centralised heating and hot water supply systems and gives them the option to regulate the temperature in their apartments, which has the added benefit of cost savings to the consumer.
Such a personalised approach provides relief from the seasonal headache of overheating in spring and freezing in early winter. However, many apartments simply don’t have enough space to allow owners to install a boiler, while many Ukrainians cannot afford the initial outlay required to take the step away from communal heating dependence towards a private approach. Technical and bureaucratic obstacles are also often prodigious.
Soviet-era system at breaking point
Oleksandr Popov, Minister of Housing and Public Utilities, has admitted that the sector is currently at the breaking point. “Some 25% of domestic heating networks, water pipes and electricity supply networks are in need of emergency repairs. Boiler equipment is 35% worn-out, and this figure rises to 60% to 70% in Kyiv alone,” Popov comments.
Any plans for reform are mired in the sheer scale of the task. Ukraine has 36,700 km of heating networks and as much as 5,400 km of this network is thought to be in critical condition. Some 80% of the network has been in use for decades. Of the country’s 65,400 operating water boilers, around 16,400 are in need of urgent replacement.
Oleg Khusnutdinov, head of the international relations department with the Housing and Public Utilities Ministry, estimates that it would require over USD 1 billion in foreign investment to help reform the sector, while the government is currently planning to try and attract at least USD 200 million.
The World Bank has already pledged up to USD 300 million to help finance projects designed to upgrade existing heating systems as part of the bank’s 2007-2011 country partnership strategy plan in Ukraine, but this is far short of the staggering sums that would be needed for a complete overhaul. Popov claims that it would take nearly USD 20 billion to reform the sector completely.
Low tariffs, debts, and corruption
With huge amounts of capital required to begin massive infrastructure reform projects, the opaque investment climate surrounding energy supplies is particularly damaging. At present, an unclear pricing policy, unregulated management and ownership relations mired in allegations of massive corruption and incompetence together with the accumulated debts of heat producers are hampering investment inflow.
In Soviet times, public utilities, including the natural gas used for heating apartments, were very cheap. At the time Ukraine was in a position to be generous as it produced 30.9% of the total gas output in the Soviet Union in 1960, although this share dropped to 12.4% in 1980.
While Ukraine’s own gas industry gradually dwindled away, the country became increasingly dependent on Russian gas, and at the same time its industries became more gas-intensive.
The arrival in 1991 of independence did not release the country from its heavy dependence on Ukraine’s energy-rich neighbour. This relationship has taken on an increasingly overt political aspect as Ukraine attempts to assert itself on the international stage and steer an independent policy of Euro-Atlantic integration.
In January 2006, import prices for Russian gas increased by 53%. This was followed by a further 35% rise in January 2007. Household tariffs for gas and power also rose substantially, which created a significant social challenge for many Ukrainians struggling to make ends meet on some of Europe’s lowest salaries.
In order to prevent these price rises causing a financial crisis, tariffs were kept artificially low. This has resulted in debt accumulation among heating companies. Operators complain that these low tariffs have created conditions in which gas distributors are increasingly failing to service and maintain their networks properly.
This neglect was cited as the reason behind the tragic explosion in Dnipropetrovsk that cost 22 lives, and while that disaster made international headlines, it is thought to be no isolated case.
Bankruptcy as a strategy
Experts said that many of Ukraine’s main gas distributing companies have been deliberately driven to bankruptcy with the express purpose of their later consolidation in the hands of powerful business interests.
“This kind of consolidation was made de-facto by Ukrhazenergo in close cooperation with the governmental structures, using financial pressure, agreements on gas supply and network ownership, withdrawal of licences, as well as other instruments,” reads a recent report by a group of experts with Russia’s Integrated Energy Systems Holding.
Ukrhazenergo was established last year as a joint venture between Ukraine’s largest gas supplier, state-run Naftohaz-Ukrainy, and RosUkrEnergo to supply gas to Ukraine’s consumers with the help of Naftohaz.
Rosukrenergo, a joint venture between Russia’s giant gas monopolist Gazprom and a handful of private individuals, was also created in early 2006 to solve a gas price dispute between Gazprom and Ukraine that led to a temporary reduction in gas supplies to western Europe. It has been described in the Western press as the largest money laundering operation in the world and is the central pillar of corruption allegations surrounding the Ukrainian energy sector.
President Viktor Yushchenko has urged government officials to create an independent national regulator which will be able to set transparent tariffs and define the authorities and responsibilities of the many local and central bodies involved in the energy sector. However, lawmakers must first adopt dozens of respective laws before legislative reform can take place in the sector.
Biomass solutions
The risks and political pitfalls of an over-reliance on Russian gas have been all too clear over the past few years and energy experts are now considering a host of alternative fuel supplies including everything from untapped Black Sea oil deposits to biomass solutions.
Biomass is a renewable energy source derived from the carbonaceous waste produced by different human and natural activities. In energy production vegetable biomass made from the wood, straw and plant bi-products of agricultural production together with the organic parts of solid domestic waste, peat, and so on can be used as bio fuels, while animal biomass made of cow manure and the like can be utilised for heat production.
Some 1 million tonnes of wood fuel is burned annually in Ukraine to heat private houses and wood processing factories, according to Anna Tsarenko, an economist with the Kyiv-based Centre for Social and Economic Research.
A small number of Ukrainian companies are currently engaged in the production of biofuels in the shape of both biodiesel and bioethanol from sunflowers and rapeseed oil, which is now sold at some car filling stations in Kyiv, Dnipropetrovsk, Odessa and Chernivtsi oblasts, Tsarenko said in her 2007 Overview of the Ukrainian Heating Sector report. Meanwhile, a biogas electricity producing facility was reported at a pig farm in the Dnipropetrovsk region.
Although Ukraine has significant potential for developing renewable energy sources and local lawmakers have tried to stimulate biofuels production since mid-1999, the results so far have been modest due to a lack of comprehensive policy and legislation.
Last year, however, Ukraine’s Cabinet approved a USD 1.8 billion programme focusing on biodiesel production development until 2010, and Vice Prime Minister Andriy Klyuyev said that Ukraine may launch industrial production of bioethanol in two years.
Other renewable energy sources include hydro-electric power, which is currently the most developed of all alternative energy sources in Ukraine, plus wind power plants, solar energy and geothermal energy.
There are eight hydro-electric power stations currently functioning on the Dnipro river, with an additional station on the Dnistr river and eight wind power plants in Crimea close to the Azov Sea, in the Donetsk region and in the Carpathians.
Ukraine also has potential for developing solar heating, particularly in the south where solar radiation intensity is particularly high. Solar heating could be attractive in areas with low population density, where Soviet-style centrally organised heating systems are not economically justifiable.
These energy alternatives are both economically attractive and politically expedient, but the task of trying to reorient Ukraine’s domestic heating system away from dependence on centrally supplied Russian gas remains enormous and will take years to implement.
