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Kozlova Ekaterina

Ekaterina Kozlova

Teaching and Research Institute, Graduate School of Economy and Management

Faculty of economics

Speciality: Economy of the enterprise (Marketing)

Scientific adviser: Amelnitskaya Elena  


Abstract of the qualification master’s work

Forming an effective mechanism for pricing utilities

A theme urgency

Rising fuel prices to world levels, the disparity of tariffs for thermal energy real operating costs and insufficient collection of payments for services rendered considerably worsened the financial condition of district heating companies. After all, the annual consumption of fuel in this area is 8,7-10,4 million tons of oil equivalent (60 - 80% of the cost structure), and electricity - 1,4-1,7 billion kW • h (10-25% ). The situation is complicated and not efficient use of energy resources due to the fact that the basic technological equipment has exhausted its resources. In the boiler lost 8 - 10% of the heat produced in heating systems - 13 - 20% of consumers, this figure rises to 25 - 40% [5]. Despite the fact that tariffs for heat are constantly growing, and service quality decreases, the branch of the District Heating Ukraine is characterized by a loss that is 4-5 times higher than income, and negative growth dynamics of losses.

The current methodology is based on the principle of expensive, outdated and rightly criticized by experts. Indeed, the formation rates for the new reporting period is based on the prevailing costs, which include non-production costs, and they are calculated on the basis of the old regulatory framework does not allow for the use of modern materials, machines, equipment, machinery and technology. Apply the old regulations the number of workers who developed under the principles of consumables (number of staff was formed so as to then take a part-time). Public utilities, by manipulating an outdated regulatory framework, provide for the approval of tariffs, which are not economically justified.

Disadvantages previous pricing mechanism makes the task of forming the methodological approaches to the pricing mechanism one of the most serious and urgent for the industry.

The purpose the research

Is to review the current pricing system in the heat of Ukraine (on the example of the utility of PU «Kramatorskmezhrayteploset «), identifying the most important factors influencing the pricing of thermal energy, and evaluate opportunities to improve the mechanism of tariff policy in the field of heat supply.

Analysis of recent researches

Indicates that the problems about the formation and regulation of pricing in the field of heating, study their characteristics and specifics raised in the papers Alexandrova IG, Achkasov AE, Bazilevitch VD, Buzyreva VV, Wasylyk, DA , Vysotsky, G., Kirillov AN, Kovalevsky, GV, Saw VI, Silaeva ED Semchuk GM, Strokan / Kachala / TM, Shevchuk LT , EB Bennett, N. Roger, P. Gidman, I. Blore, J. Lorentzen, P. Schuttenbelt, P. Brook Cowen, G. Roth, E.S. Savas [6].

Study of research papers and legal acts concerning the order and the pricing mechanism in the field of district heating systems have revealed that in the modern context, many questions about the objectivity of the approval and preparation of tariffs for heat are not setled and require additions and analytical basis for its decision.

The review of researches and workings out on a theme

The study of problems of heat supply in cities of Ukraine have been identified the need for reform and modernization of existing district heating residential city, the introduction of the structure of innovative energy-saving technologies, the invention of the criteria and develop new methods of pricing this type of service.

One of the most important components of reform is the introduction of adequate heating price and tariff policy in the field of heat supply.

In setting prices for the services of the thermal management are two problems. The first - is the need to balance the economic and financial interests of companies - monopolists with social objectives. Second - balancing the quality of services and possible cost increases. Consequently, there is a need for local authorities to carry out activities on settlement rates for services [3].

Utilities make their district heating consumers so:

Scheme of the movement of thermal energy from the producer of thermal energy k consumers (Housing and Communal Services of Ukraine) under the conditions of centralized heating

Figure 1 - Scheme of the movement of thermal energy from the producer of thermal energy k consumers (Housing and Communal Services of Ukraine) under the conditions of centralized heating

(animation: size - 7 Кb; image size - 95x658; shots quantity - 6; delay between shots - 100 ms.; delay between last and first shot - 500 ms.; number of repetition cycles - 5)

Given the above problems, it is necessary to phase implementation of the reform of prices and tariffs for heat supply companies in terms of fuel and energy resources.

Local authorities are responsible for establishing the (adoption by decision), the rates for services provided by utilities. Executive committees of local councils set the rates for services provided by enterprises owned by the community. Regional state administrations to set tariffs for services that provide utilities with other ownership forms in consultation with the executive committees of local councils [8] .

In this case, even if such a centralization of setting tariffs for the services of a heating problem of determining the statutory rates for these services.

Pricing in the housing and communal services, widespread in Ukraine the system of tariff regulation method of "cost plus" can not be considered optimal because the price / tariff takes into account all costs incurred by an enterprise, including those associated with the unsound management (excessive and inefficient financial and resource costs of funds). Another reason for abuse of dominant position in the housing and utilities common practice of cross-subsidization of one type of economic activity at the expense of another (one category of consumers at the expense of another). Unresolved issues remain, and reporting on the use of funds received for the provision of housing and communal services, and the possibility of obtaining such information [1,2].

As noted above, the tariff for heating is calculated as the sum of costs and profits. Currently, formed the economic mechanism in which each firm behaves as a monopolist: it increases the price to provide the necessary level of profit. At the cost of services provided includes indicators (resources, staffing, salaries, technology, materials, outsourcing), which are formed on the fact of spending in previous years. That is a valid method of calculating the heat energy does not cover all the nuances of heat economy and creates conditions for the unjustified rise in prices for heat. The important point is the monitoring of the prices of natural monopolies, which is essential to achieve substantial cost reduction produced by their services [7].

So the search for cost reduction in the amount of the tariff should be made in the structure of production cost, which is a generalized indicator reflects all aspects of production and business enterprises. What works best company, economic and efficient, it uses its own resources, successfully improving their technique, the lower the cost of manufactured goods.

The process of formation of prices / tariffs for housing services should be subject to the following basic principles [10]:

- Balance of interests, transparency in the procedures of formation of prices / tariffs for public utilities and use of controlled prices;

- To avoid cross-subsidization between activities at the expense of another, one category of consumers at the expense of another;

- Mandatory coverage of economically justified costs of business entities that provide services, rationing costs of enterprises, institutions and organizations engaged in economic activity in the housing and communal services, by optimizing the cost of such entities;

- Priority investment projects for which funding will be funded from the investment component of the price / rate and / or funds allocated from the relevant budget;

- Promotion of energy efficiency, promotion of economic enterprises, institutions and organizations engaged in economic activity in the housing and communal services;

- Setting a maximum level of profitability, commitment accounting in price / rate of investment component for implementation of duly approved the priority investment projects and the application of exemptions from payment of municipal services in conjunction with identifying sources of their coverage;

-The legislative definition of operational mechanisms of price adjustments / utility rates to changes in their constituents.

The main activities and priorities in improving the pricing mechanism for housing and communal services are defined [11]:

1) bringing the Law of Ukraine "On Housing and Communal Services," "On Heat Supply", "On the Electric Power Act, the Drinking Water and Drinking Water Supply", "On local state administrations", "On Local Self-Government in Ukraine", "On Prices and Pricing "," On natural monopolies "in line with each other, particularly in the part of government agencies engaged in the regulation of prices / tariffs, and specifying procedures for the approval of prices / tariffs for public utilities;

2) changes in the Laws of Ukraine "On Housing and Communal Services" and "On natural monopolies" with respect to the use of alternative methods of regulation of prices / tariffs and determine expenditures that must be taken into account in the prices / rates;

3) gradual replacement of benefits and subsidies for reimbursement for housing and communal services targeted cash payments to the population;

4) improvement of the order of formation of prices / tariffs for housing and communal services in part: definition of criteria for evaluation should be carried out economic feasibility of prices / tariffs during their installation and use, including taking into account the level of socio-economic development of the region and technical capabilities of entities; provide a separate accounting of revenues, expenditures and financial results for each type of business entities subject to regulation; taking into account the investment component for implementation of duly approved investment projects; introduction of regulation costs and loss of resources that would stimulate the optimization expenses of business entities that provide utility services;

5) development of the order of adjustment of prices / tariffs for public utilities, in particular in case of changes in energy prices and the minimum wage;

6) development of arrangements for recalculation of fees for failure to provided not in full public utilities and services, quality does not meet regulatory requirements;

7) development of the order of compensation approved by the difference between the prices / tariffs for public utilities and economically justified costs for their production;

8) the introduction of mechanisms to implement the new prices / tariffs for energy that are part of the prices / tariffs for housing and utilities, not earlier than 30 days after their publication in the media;

9) the development of normative legal act on the organization of public hearings on changes in prices / tariffs for housing and communal services, making available to consumers information about the list of municipal services, their cost and structure, consumption rates, order of service, the reasonableness of costs and etc. ;

10) strengthening the accountability of consumers for late payments received by the housing and communal services;

11) Develop mechanisms to account for the formation of prices / tariffs that the quality of utility services to the needs of consumers;

12) the introduction of automated control systems to provide consumers of utility services [12].

Conclusions

Of course, the price / tariff policy is one of the most acute and painful issues, but without his decision to hope for effective reform of the sector does not make sense. The process of formation rate will continue until there is a compromise between the major technical challenges and financial needs of the provider and consumer services.

Solution of the critical situation in the target market may be the full implementation of these requirements to the formation of prices for thermal energy, which must meet the heating market.

Important!

When writing this master of the abstract work is not completed yet. Final сompletion: December 2011. Full text of the work and materials on the subject can be obtained from the author or his manager after that date.

References

  1. Закон України №2633-ІV «Про теплопостачання»
  2. Порядок формування тарифів на виробництво, транспортування, постачання теплової енергії та послуги з централізованого опалення і постачання гарячої води / Постанова Кабінету Міністрів України від 10 липня 2006 року № 955.
  3. Чиж, В. Формування економічно обґрунтованих тарифів на житлово- комунальні послуги / Віра Чиж // Економіст.- 2007. - №8. - С.49-51.
  4. Державна цільова програма(проект) модернізації комунальної теплоенергетики на 2010-2014 роки // А.Долінський, Б.Басок, Є.Базєєв
  5. «Житлово-Комунальне Господарство України» - офіційне видання Міністерства з питань житлово-комунального господарства України [Электронный ресурс] - http://jkg.com.ua/
  6. Бугулов В.Н. Ценообразование в условиях рынка: Учебное пособие. К.: МаУП, 2005. – 150с.
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  9. Богачов С. Економічні аспекти і специфіка тарифної політики комунальних підприємств Донецька як суб'єктів природних монополій / С. Богачов, Є. Жданко // Схід. - 2005. - №4 (70). - С. 6-11.
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  11. Филюк Г. Теория и практика ценового регулирования деятельности субъектов естественныхмонополий / Г. Филюк // Экономика Украины. - 2005. - №12. - С. 25-34.
  12. Артус М. М. Проблеми ціноутворення на продукцію підприємств природних монополій / М. М. Артус ; наук. ред. І. К. Боднар // Формування ринкових відносин в Україні : [збірник наукових праць]. - 2008. - № 12 (91). - С. 7-12.
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