Ukraine's new energy and coal minister got off to a difficult start. As Volodymyr Demchyshyn took office on Dec. 3, one of Ukraine's nuclear reactors malfunctioned, and power cuts started across the country over lack of coal for electricity generation.
Moreover, his other challenges are not to be underestimated. Mammoth state-owned enterprise Naftogaz Ukraine has been losing money at a tremendous rate because of continued subsidies to households for gas across the board. Its deficit is expected to hit over 6 percent of gross domestic product this year.
Moreover, gas imports from Russia have been limited because of a continued gas price dispute and war.
Worse still, many in Ukraine’s energy sector wonder if Demchyshyn is equipped to tackle all those and other problems because of lack of experience in the sector. Some observers have called his appointment “a big surprise” and said he will have trouble tracking the corrupt schemes that should be eliminated in the sector.
Demchyshyn, however, attempted to show early on that he will at least try to be a good minister. He was the first one from the new Cabinet to hold a briefing on Dec. 3 to address concerns about the accident at the nuclear power plant in Zaporizhya, one of Europe’s biggest.
The nuclear power plant was unhooked from the electricity grid on Nov. 28 because one of its turbines malfunctioned.
“The block is in a state of repair”, Demchyshyn said adding that there is no threat to the reactor and that Energoatom, the nuclear energy company, will to fully restore its operation on Dec.5.
About half of Ukraine’s electricity is produced by nuclear power plants. Decommissioning of the Zaporizhya NPP affected power deliveries across the country. The situation is unlikely to improve radically as of Dec. 5 because Ukraine has severe shortages of coal that is used by thermal plants to produce electricity and heat.
On Dec. 2, UkrEnergo, the state energy delivery company, warned that five power plants in different regions only had four days’ worth of coal supplies. Demchyshyn said that Ukraine has lost some 60 coal mines within the last half a year due to war in the east of Ukraine, the home of coal industry.
“We have to import coal from every available place – Australia or wherever it is possible,” he said. Earlier attempts to import coal from South Africa this year were halted because of a corruption scandal.
Demchyshyn also added that Ukraine will restart negotiations about coal supplies with Russia, whose aggression were the primary cause of the loss of the coal industry in Donbas. “There is a problem with coal imports which have been somewhat limited. I am convinced that this issue needs to be settled through a negotiating process,” Demchyshyn said
The minister also said that Centrenergo power generating company controlled by the state “contracted a very large shipment that is in the process of delivery.”
“But this coal has not been allowed across the border now,” he said.
Ukraine will also restart imports of Russian gas in the weeks to come, and plans to pay for 1 billion cubic meters soon.
“Ukraine is fulfilling its obligations on debt repayment (to Russia). The advance payment for one billion cubic meters which we expected to use this month is planned in the coming three weeks,” he said.
To continue importing the Russian gas, Ukraine will have to soon address the issue of Naftogaz budget deficit. This is also one of the key indicators watched by the International Monetary Fund. Naftogaz deficit is expected to be Hr 103 billion ($6.4 billion) this year. To balance the company, the government will have to hike gas prices radically.
Demchyshyn said he hopes that “in the coming two weeks” the government will come up with possible solutions for Naftogaz, indicating that no solutions are ready so far.
Many in the energy industry wonder if he will be the man who can devise all these solutions. U.S.-educated Demchyshyn worked as head of investment and banking services at Investment Capital Ukraine until several months ago, when he moved to become head of the National Commission for Energy, a regulator.
Industry players fear that his lack of experience might prevent him from cleaning it up any time soon. “The new energy minister has a lot to prove and he has no time to learn,” says Robert Bensh, Managing Director and partner with Pelicourt LLC, a private equity firm with assets in Ukraine.
