Èñòî÷íèê: Comments to the rought draft of the energy strategy of Ukraine
The energy sector is the basis of the national economy and the key factor in its development. Stable operation and sustainable development of the fuel and energy sector determines the effectiveness of reforms and the future of Ukraine. The development strategy of the energy sector of Ukraine is vital for the formation of its statehood, economic growth and [effective realization of its] resources, technological and intellectual potential (which has not yet been completely squandered) for the sake of its sustainable development. Current economic growth must be accompanied with an adequate growth of energy supply. However, due to a backlog of problems in the energy sector its lagging behind may constrain the overall economic growth as a result of a deprecation of fixed assets, lack of fuel and energy resources and significant rise in their prices. The energy sector of Ukraine needs fundamental reform with the identification of major strategic areas and the establishment of development criteria.
The Draft Energy Strategy of Ukraine for the period up to 2030 is to be submitted for review to the President of Ukraine by December 31, 2002. Its developers have already submitted its rough draft to the appropriate committee of the Verkhovna Rada. What the country will gain as a result of this document will shape the future of several generations.
The draft Strategy of the economic and social development of Ukraine till the year 2011, which should have been completed by November 1, 2002 (according to the President’s instruction) is not yet ready. After this deadline, the President issued another instruction, according to which this Strategy must be based on the message of the President of Ukraine to parliament, “The European Choice”. The new deadline was set at May 1 of the next year. One can, moreover one should argue about the terms of Ukraine receiving an associated membership in the European Union as well as the systemic character of the draft economic and social strategy. However it is only a ten-year plan, whereas the Energy Strategy is designed for a thirty year term. Above all, it was not correct to start developing the Energy Strategy before the State Economic and Social Development Strategy had been completed. That is why, given the low level of strategic planning in Ukraine one can hardly expect adequate and well-founded data on the development of the fuel and energy sector despite the high professional qualifications of the developers of the Energy Strategy. Since there is no Economic Strategy in Ukraine and, consequently, no national priorities, goals and objectives are set, not only the development of a well-grounded strategy of any sector is impossible, the general economic growth is also restricted. In this way, the government put the developers of the Energy Strategy in a very difficult position, having forced the energy sector to develop ahead of the entire country’s economy. Nevertheless, there is still some time to eliminate all the contradictions and to unite the efforts and resources of the authors of these two strategies for the sake of establishing theoretically grounded areas and criteria of social-economic and energy development for Ukraine.
In general, the rough draft of the Strategy has correctly set the goals and objectives. Issues such as overcoming structural and technological backwardness, diversification of the energy sources and the increase in the national output of energy resources, energy saving and environmental protection were raised correctly. The previous energy program proved to be nonviable and inadequate for the present development level of the fuel and energy sector of Ukraine because it made an ungrounded forecast, which was too optimistic and failed to provide for the implementation tools. This draft Strategy is consistent with the previous energy programs, but is different from them since it takes into account the new geopolitical situation and new economic conditions of Ukraine. The formal reading of this document proved that it has almost all the elements of the Energy Strategy - goals, objectives, and implementation tools. All the major issue have been outlined in it to a certain degree. It is clear that the significant lack of balance between the sections of this document and fragmentary descriptions of the problems are due to the team approach to the work, which was done by a large group of various specialists. Nerveless, despite all its drawbacks this draft Strategy can be viewed as the first approximation in the iterated process of strategy development. Due to the existing difficult situation in the country’s energy sector, it is imperative to work out such an Energy Strategy that would make it possible, firstly, to stop the intensification of crisis in the fuel and energy sector; secondly, to ensure energy safety of Ukraine; thirdly, to identify the major criteria of problem setting and solving in management and reform of the fuel and energy sector; and finally, to work out methods of its implementation.
The overall goal of the Strategy was not clearly set. Indisputably, the overall goal and the top priority is to raise the living standards in Ukraine to the level of the world standards. However, the provision of the Ukrainian economy and army with energy resources must also be high on the agenda.There is a confusion between the major areas, objectives and priority problems of the energy policy (increase in energy efficiency, structural reconstruction and some other are rather objectives then problems). On the whole, the first draft of the Strategy is hard to read due to its size (204 pages) - it should not be longer than 100 pages including the appendices - an excessive number of sections (18) - they should be 10 to 12 - and stylistic errors. That is why its text must be shorten and edited. To simplify the text, it is advisable to place the tables with macroeconomic indicators and energy balances as attachments, which again should not be longer than 10 pages. To improve the rough draft of the Strategy it is necessary to restructure it, to ensure that the content of the sections is consistent with their titles and to significantly shorten the text.
Since there is no forecast for the social and economic development of Ukraine, the correct forecast of its demand in fuel and energy sector with consideration of all internal and external factors is a problem. The Strategy forecasts the volumes of fuel and energy consumption in three different development scenarios, each of which has two models: the gas and coal options. The coal option was selected as the basic model. Given rather realistically forecasted volumes of coal mining of 79.5 -90 million ton of commercial coal (106 - 120 million ton of regular coal) in 2030, the export-import balance will make up 56-116 million ton, or in other words the imported coal will account for 59-67 % of the total volume of coal consumption. This means that if Ukraine develops according to the coal scenario, it will have to import from half to two thirds of the total volume of the coal consumed in Ukraine. Why should it subsidize the coal industry of other countries (Russia and Poland) and deteriorate its own ecology by burning coal? Isn’t it better to make the gas scenario as the basic model then and burn foreign fuel, which is environmentally cleaner? An impression is being made that the developers of this section [of the Strategy] were trying to maximize the use of domestic energy resource and allow for the real coal mining capacities, but became confused and started lobbying the interests of not domestic but foreign coal industry. On the other hand, the development scenarios based on the gas model that suggest importing from 110 to 128 billion cubic meters of gas also give rise to doubts. Chiefly, because it is unlikely that Ukraine will be able to import that much gas and even if it does it will have to build several additional gas pipelines of large diameter. As for the electric power generation, it is suggested that the production level of 1990 should be reached in 2017. At the same time GDP must be increased three times as compared to 2000 (or 1.3 times as compared to 1990) whereas consumption of fuel and energy is expected to increase rather insignificantly. To reach this goal, a science and technology revolution is necessary, as a result of which the consumption of electric power in production will decrease several times in comparison to the present level of consumption. In other words, it is expected that the major part of the fuel and energy resources is created as a result of energy saving or technical progress in production and energy use.
It is striking that the long-term balances do not prioritize the increase in fuel and energy export as the source of investment. The volumes of neither coal export nor electric power export are specified. However these two resources are exported even now, under difficult economic conditions. According to the various scenarios, in 2030 the import of coal (commercial coal) will make up from 56 to 116 million ton (or from 70% to 113 % of domestic coal It is clear that Ukraine needs to import oil and gas, but what about the widely proclaimed concept of the revival of its economy through the revival of its coal industry? Carelessness and incorrectness of the fuel and energy balance tables damage credibility to the methods used to complete them. All the balance indicators start with year 2005, whereas it remains unclear what the dynamics was in the “pre-strategic” period (2000 - 2001) and at the early “strategic” stage. It is also unclear in what way this forecast data were obtained: whether by computer modeling or by means of extrapolation of ‘the achieved’ according to the unknown laws. Most likely the latter method was used, despite the fact that there are certified programs of calculating fuel and energy balance in Ukraine. As the world trends and international competitive environment were not considered, such forecasting turns into a factor that actually destabilizes the economy. All of the above testifies to the importance of basic indicators of national economic and social development and the long-term balance allowing for the influence of global and regional factors under the conditions of strong competition. It is especially important for Ukraine to give up the traditional methods of forecast, especially under the condition of its dependence on import of energy resources, chiefly from Russia. The long-term fuel and energy balance must become the key element of the Strategy, since it is an effective tool of regulating industries of the fuel and energy sector. Enhancement of the country’s fuel and energy balance and improvement of the consumption structure of the fuel and energy resources must become the two most important areas of the improvement of the Strategy.
Traditionally, the section which deals with the coal industry is the weakest one. For some reason the authors of this section decided to develop an independent “coal strategy” within the framework of the general Energy Strategy. In addition to the general human values this section dwells on the need of strong government due to the “mentality of the population and historic heritage.” A question arises: maybe there is a need for strong government in only one specific industry that would give this industry infinite financial support? Moreover, the development of the coal industry is directly connected with the quality improvement of the standards of living and the revival of the economy of Ukraine. Undoubtedly, the prosperity of the coal mining regions in Ukraine is directly dependant on the operation of coal enterprises and it is vital for the state to support the mines, which are not too unprofitable. However, it is unwise to pin all the hopes for Ukraine’s revival on an extremely loss-making industry. It was decided to approve as the priorities of the development of coal industry the following: introduction of “lower internal rates and prices for fuel and energy resources as compared to the world prices” and fixing of “internal prices for coal at the level that will ensure absolute self-financing (with further investment?) of fuel producers”; “development of a modern legal and legislative basis of improvement of the efficiency (?) of coal enterprises …. for the revival of the prestige of a miner’s job” (to adopt a Presidential decree?), and so on . In the view of Ukraine’s intention to join the EU ( EU provides financial assistance to coal mining enterprises only on condition that its help will not affect the coal prices) and its intention to build market economy, such statements do not stand up to any analysis or criticism.
The first part of this section lays much emphasis on the creation of a state development fund of the fuel and energy sector as the main source of its funding. However, such a placement of emphasis is methodologically incorrect and will not enable the development of the energy sector in Ukraine, since its development is impossible without the external investment. This, in its turn, requires a favorable investment climate. There is practically no description of the tools that would ensure the implementation of this Strategy. This Strategy must be implemented through specific activities (or a system of activities, which is better) based on qualitative and quantitative indicators - macroeconomic, external economic, energy, environmental, technological and some other. At the same time market tools and tools of control of natural monopolies are a must. Energy saving, privatization of energy and fuel enterprises along with reforming of the pricing and taxation systems in fuel and energy sector are the foundations of the energy policy. Its successful implementation will make it possible to change the energy consuming nature of the economy and make this sector an important source of state budget revenues. The developers of the previous Energy program for the period till 2010 believed that 10 quadrillion hryvnias in prices of 1995 was enough to implement it. The new draft strategy does not provide at least tentative calculations.
To develop implementation tools is vital for the Strategy and the renewal of the legislation is the key tool. The developers of this section proposed a three-level system of special legislative provisions: the first one is this Strategy as the Law of Ukraine, the second is legislative acts for fuel and energy sector in general and the third is the laws for specific industries of that sector. This looks like an attempt to create an Energy Code of Ukraine However the authors failed to properly formulate this and state a need in the Code. This section must be clearly divided into two parts; the first one describes the newly proposed laws and the second one dwells on the laws, which must be amended. It is also necessary to clearly state the planned goal and the terms of adoption of the bills into the laws. Many issues, which were not raised in this section, still require legislative regulation. Generally, legislative tools of implementation of this Strategy is the most important section, which requires careful attention.
The lack of actual reforms restrains the GDP growth and privatization sales of enterprises and maintain the “shadow” sector of the economy. Without structural reforms of the fuel and energy sector Ukraine will never develop into a market economy, it will follow either pessimistic or irrational scenarios. It is necessary to provide for a system of energy exchanges (auctions) - coal, gas, oil, and other exchanges - and at least tentatively outline the process of their establishment. This measure will enable ensuring adequate fuel prices. To reach its goal of becoming a full EU member, Ukraine must fundamentally change its national legislation as well as implement a sweeping reform of the whole fuel and energy sector. At present, the EU is undergoing significant change: liberalization of its energy market, enhancing of the role of the regulatory institutions in the energy sector, revision of the levels of strategic reserves, making up of a list of new oil and gas pipelines of special interest for member countries, etc. Unfortunately, this draft says nothing on these issues despite the fact that Ukraine has signed an agreement on partnership and cooperation with EU. “Action Plan for the implementation of the basic provisions of the Strategy” must become an important amendment to it. This plan must include a list of major activities (monitoring of progress of the Strategy implementation, development of basic laws, preparation of presidential and governmental orders and instructions), terms of their implementation, size and sources of funding, responsible persons, etc.
It is clear that it is impossible to demand that the Strategy developers produce a high quality product with extremely poor funding (this work was financed with only 5% of the totally required funds). Nevertheless, since the National Academy of Sciences has partially lost its status as the one meeting international research standards due to its pitiable funding (it does not have enough money to publish periodicals to say nothing about research and equipment), the Internet development of the Strategy will become a double check. Firstly, for the scientists, to check their ability to provide theoretical grounds for the government’s activities. Secondly, for the state, to check the adequacy of its treatment of Ukrainian science. It is clear that not all of the problem areas of the draft Strategy have been revised in this article, and it is probably inexpedient to do this at the present stage. At the same time, highly qualified specialists working on it could not have missed these and its other drawbacks. Let us hope for proper funding and an extended deadline, which will enable them to correct that. In this way, we can sum up that serious work on the strategic energy document has already started. The quality of revision of the Strategy, the accuracy of accounting for the world trends in the energy sector, the accuracy of goals, opportunities and tools of implementation of the its objectives will determine the prospects of economic development in Ukraine in general. The produced draft of the Strategy as well as its future corrected version must become a subject of general discussion in order to find better solutions at all levels including the executive bodies: joint-stock and energy companies; academic, research, and educational institutions; individual specialists; trade unions and the general public.