VZCZCXRO5014
OO RUEHIK RUEHLN RUEHPOD RUEHSK RUEHVK RUEHYG
DE RUEHKV #2439/01 3471540
ZNR UUUUU ZZH
O 121540Z DEC 08
FM AMEMBASSY KYIV
TO RUEHC/SECSTATE WASHDC IMMEDIATE 6916
INFO RHMFISS/DEPT OF ENERGY WASHINGTON DC
RUCPDOC/DEPT OF COMMERCE WASHINGTON DC
RUCNCIS/CIS COLLECTIVE
RUEHZG/NATO EU COLLECTIVE
UNCLAS SECTION 01 OF 02 KYIV 002439
SENSITIVE
SIPDIS
DEPT FOR EUR/UMB,EB/ESC/IEC - GALLOGLY/WRIGHT
DEPT ALSO FOR EUR-IO/EX/PMO
DOE PLEASE PASS TO LEKIMOFF, CCALIENDO
E.O. 12958: N/A
TAGS: ENRG EPET ECON UP
SUBJECT: UKRAINE: KYIVITES FACE HOT WATER CUTOFFS AS GAS DEBTS
ACCRUE
Treat as Sensitive but Unclassified. Not for Internet.
1. (SBU) Summary. Thousands of Kyivites woke up to no hot water on
December 12. For now, the cutoff has not affected the center of
Kyiv, but is focused on outlying residential areas characterized by
high-density block apartments. Kyivenergo, Kyiv's largest heat
producing company, reported it was forced to shut down two of its
largest Combined Heat and Power Plants (CHP) after its natural gas
supplies were cut off for lack of payment. Kyivenergo blamed the
city of Kyiv for its inability to pay, claiming that the city did
not give it the subsidies it normally receives to cover costs and
pay for gas. The Mayor's office has neither acknowledged nor denied
that it stopped paying the subsidies, but argued that any cutoff was
illegal and that the city planned to sue Naftohaz, which separately
had announced it would continue to cut natural gas supplies needed
for heat production to utility companies until paid their debts.
Other Ukrainian press reports indicate that the City Council had
delayed the payment of subsidies to prove to the public that it was
finally necessary to increase utility prices at least 35% in Kyiv.
Wherever the truth may lie, the incident shows that the economic
crisis is making it increasingly difficult for all players in
Ukraine's badly mismanaged gas sector, where heating services are
ultimately sold to households below cost, to pay their debts.
Looking forward, it can be expected that heating cutoffs related to
unpaid gas debts will be a common occurrence in Ukraine this winter.
End summary.
Heat and Hot Water in Kyiv
--------------------------
2. (SBU) Local heating companies use natural gas to heat the hot
water that is pumped through a large pipeline network to schools,
businesses, and apartment complexes. There are 7 regional
super-boilers and 43 support boilers in the Kyiv region. The same
hot water piped from the CHPs is used at distribution centers to
heat water that is supplied to faucets in each building. If cold
water is piped from the CHPs, this would most likely cause the pipes
to burst when it reaches freezing temperatures.
Gas Debts and Hot Water Cutoffs
-------------------------------
3. (SBU) Existing rates for municipal utility services are not
sufficient to cover all costs, including the purchase of natural
gas, so the Kyiv City Municipality provides subsidies to Kyivenergo
to compensate for the gap between costs and revenues. Reportedly,
Kyiv City delayed transferring money to Kyivenergo in November, thus
preventing heat suppliers from buying necessary amounts of gas for
December from gas supplier Gas Ukraine, a subsidiary of Naftohaz.
According to Kyivenergo Technical Director Yuri Gladyshev, Kyiv City
owed his company UAH 347 million or $45 million.
Government Reaction
-------------------
4. (SBU) Kyiv City Mayor Leonid Chornovetskiy has not yet made any
official comments about massive hot water cutoffs in Kyiv or the
next steps. The Kyiv City Administration press office told us
unofficially that cutting off hot water supplies during the winter
season was a crime and Kyiv City would most likely pursue criminal
proceedings against Kyivenergo or Gas Ukraine. Ukrainian President
Viktor Yushchenko urged Mayor Chornovetskiy to take due measures to
pay off the debt and urged the Cabinet of Ministers to provide
necessary assistance to Kyiv City to help restore hot water supply
in Kyiv as soon as possible.
5. (SBU) In the meantime, Naftohaz Ukraine repeatedly warned
municipalities throughout Ukraine that their debts had reached UAH
1.25 billion or $164 million. On December 12, Naftohaz's Deputy
Chairman Volodymyr Trykolych said rising debts forced Naftohaz to
cut off gas supplies to 60 local utility companies and supplies
would not be restored until the debts were paid.
Some LES Staff Affected
-----------------------
6. (SBU) Several LES staff that reside on the East Bank of the
Dnipro River in Kyiv have reported they are already without hot
water. No American staff have reported a hot water outage in their
apartments to date.
7. (SBU) Comment. While a lack of hot water is not uncommon in some
outlying areas of Ukraine, cutting off supplies to the residents of
Kyiv in the middle of winter on the basis of payment arrears is
KYIV 00002439 002 OF 002
unheard of, and a sign of how serious the gas debt situation in
Ukraine has become. Naftohaz's current drive to collect hundreds of
millions of dollars in debt from municipal heating companies is
related to the over $2 billion debt that Naftohaz owes Russia for
gas. This example shows why Naftohaz is perennially in debt and in
need of direct financial support from the GOU: a misguided system
which supplies the population with heating and hot water at far
below cost creates a cascading system of debt and non-payment which
ultimately finds its way to Naftohaz, which in turn weakens
Ukraine's gas monopoly in its negotiations with Russia. End
comment.