Monetization of subsidies. A step by step plan is needed

29 November 2016

While there is no government decision on the monetization model, recipients of subsidies are not motivated to use energy efficiently and invest in energy saving. Searching for consensus, representatives of the government, regulator in the energy sector and experts discussed the existing models. 

In the course of the debate "Subsidies Monetization Models: Time to Choose", the participants discussed the following issues: which monetization model is optimal and how much additional money is required for the payment monetization; whether the pilot monetization project is required; why the monetization of subsidies for the population cannot precede or occur simultaneously with the state's transition to cash settlements with public heating utilities; how to improve the verification of beneficiaries and how to pay out the saved money to ensure their optimal use.



Dmytro Vovk,  Head of the National Commission for State Energy and Public Utilities Regulation

Vitalii Muzychenko, Director of the Department of Public Social Services of the Ministry of Social Policy of Ukraine

·Yana Buhrimova, Head of the Reform Project Office at the Ministry of Finance

·Taras Tkachuk, DiXi Group analyst

Tetiana Boiko, Housing and Utilities Programs Coordinator of the Civic Network "OPORA"

·Marianna Onufryk, Public Programs Manager of the Institute of Social and Economic Research


Moderator of the discussion: Roman Vybranovskyi, journalist, Project Manager of the Ukraine Crisis Media Centre. 


In the course of the debate, Dmytro Vovk, the Head of the National Commission for State Energy and Public Utilities Regulation, said that the regulator sees the rationale and supports monetization at the enterprise level and offers to monetize subsidies balances at the end of the current heating season already.


"By the end of the current heating season, the monetization of the saved subsidy amount can be introduced. For that purpose, there is a possibility to attract resources and there is time to technically complete it by April ... No later than by the end of December, the population should be informed about possible monetization of balances in the current heating season," said Dmytro Vovk.


He also noted that the monetization of subsidies must be supplemented by approving a plan of decreasing social standards for energy consumption, for the Ukrainians to be able to plan their savings in the long term. 


In the past heating season, over UAH 10 billion of subsidies were saved on the accounts of households due to excessive quotas. The saved funds were returned to the budget, and the households were left with just an equivalent of 100 cubic meters of gas that could be used during the current heating season.


The Head of the NCEPUR offered to elaborate a plan of gradual reduction in social standards for energy consumption for three years in advance, so people can really see what to expect and plan their spending on energy efficiency measures to save resources.

However, rapid monetization at the level of the population has caused skepticism in the representatives of the Ministry of Social Policy and the Ministry of Finance. 


"The Ministry of Social Policy sees no opportunities for monetizing all the subsidies in the near future. It is simply impossible to complete that from the standpoint of technology because, even if we imagine the situation where you need to open 7,000,000 personal accounts for the payment of subsidies, it may take at least six months or a year," said V. Muzychenko.


Yana Buhrimova also stressed that people would save only if they receive subsidies in cash on hand. However, the Ministry of Finance is skeptical regarding whether the monetization for the population in 2017 is realistic.

According to the conclusions, the experts stressed the need for elaborating a step by step plan for the monetization of subsidies, since such reform was declared among the priorities of Prime Minister V. Groysman, and it is on the agenda of the international donors of Ukraine. "Everyone understands that instant and full monetization of subsidies is impossible. A step by step plan is needed," said T. Boiko.


It should be mentioned that, in the course of the round table "How to Stop Burning Money?" the participants announced two ways of monetization: at the level of public heating utilities, when they receive in cash the funds for the recipients of subsidies calculated on the basis of social standards for consumption, and at the level of the population, when each household receives funds transfered to its own account.


The Ministry of Social Policy predicts that the number of households that need subsidies to pay for housing and utility services will increase from 5.5 million to 8.5 million in the 2016-2017 heating season after the establishment of a uniform gas price for all categories of consumers since May 1.


The Ministry of Finance reported that 43% of utility bills were covered by subsidies in 2015. In 2015, UAH 35 billion were included in the budget for these purposes, and in 2016 these costs will exceed UAH 40 billion.


According to the Institute of Social and Economic Research, only 25% of recipients of subsidies are really poor and need help.


Note that the event was held within the Think Tank Development Initiative implemented by the International Renaissance Foundation.


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