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08KYIV2439, UKRAINE: KYIVITES FACE HOT WATER CUTOFFS AS GAS DEBTS

December 12, 2008

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Reference ID Created Released Classification Origin
08KYIV2439 2008-12-12 15:40 2011-08-30 01:44 UNCLASSIFIED//FOR OFFICIAL USE ONLY Embassy Kyiv

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 
w
hich 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.

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