Additional Instruments are Needed to Save Costs in Heating

15 march 2018

"The experts' job is to offer recommendations for how to effectively modernize the infrastructure using off-budget or non-tariff sources," said Vitaly Kovalchuk, the Assistant of the Department of Industry and Infrastructure of the Executive Office of the Government of the Russian Federation, opening the roundtable 'Using the mechanism for maintaining reduced costs in the heating supply system in the process of modernization', which took place at the Analytical Center'.

"Today we're going to talk about the effectiveness of the mechanism for preserving the savings from reducing the costs incurred by regulated organizations when using rate regulation," added Victoria Gimadi, the Head of the Department for the Fuel and Energy Sector of the Analytical Center.

During the roundtable the experts had a detailed discussion about the constraints in the use of the mechanism stemming, among other things, from the reduction by the regional rates services of the required gross revenue of regulated organizations and suggested options for what amendments could be made to relevant regulations to boost the effectiveness of the mechanism.

Alexander Vilesov, the Head of Economics and Heating Stations at T Plus PJSC, enumerated a number of reasons for why he does not expect to see heating utilities transitioning to this mechanism en masse any time soon. Thus, according to him, the mechanism is made less attractive by the fact that it can only be used for the payback period plus two years.

Speaking about rate regulations, Marina Fairushina, Advisor to the Chairman of the Board at Inter RAO PJSC, stressed that subsidies must be provided but only for specific purposes and only to entities that really need money while today money is often given to companies that have enough funds of their own.

"We need to create an institute of industry regulation so that all market players can have a clear understanding that there is one regulatory body that makes all the decisions and is responsible for them," said Svetlana Nikonova, Deputy CEO for Economics at Quadra PJSC. She is of the opinion that it's also important to synchronize the housing and industry-specific legislation, including the laws and regulations governing energy services contracts.

Timur Khalikov, the Deputy Chairman, Executive Secretary of the Inter-Sectoral Consumer Council on the Issues of Activities of Natural Monopolies under the President of the Republic of Tatarstan shared the regional experience of introducing the mechanism for preserving the cost cutting savings.

A most useful discussion followed, whose participants included representatives of federal and regional authorities, heating utilities and the expert community. The roundtable participants made special mention of the fact that in recent years a number of steps have been taken in the heating industry that can potentially allow it to break even and achieve efficiency but these have so far been localized and very narrowly targeted and need further development and expansion.