KYIV, March 10 – The government’s controversial policy shifts favoring the coal sector created energy shortages and forced Ukraine to start power imports from Russia in February, Serhiy Verlanov, a former head of the State Tax Service, said Wednesday.

The reliance on Russian power is posing security threat to Ukraine as Moscow has been actively supporting a military conflict against the country in Donbas since 2014.

“Instead of taking pro-active measures and restarting reforms, the government has opened door for power imports from Russia,” Verlanov said in an article published by Seeking Alpha, a major U.S. financial markets information platform.

“This now poses the national security threat as it increases reliance on a country that has annexed and occupied 7% of Ukraine’s territory since February 2014,” he said.

Overall, Ukraine’s power sector experienced 92 emergencies resulting in power unit shutdowns between January 1 and February 9, mostly caused by maintenance failures and personnel errors, according to the state power sector inspection agency.

Ukraine’s power sector regulator has concluded last month that the industry is prone to a “system-wide accident” due to critical level of coal supplies.

“The number of power sector emergencies is unprecedented in the modern history of Ukraine,” Verlanov said.

The changes started to occur after the government reshuffle in March 2020 when the energy ministry had fallen under control of an oligarch group with vast interests in the coal sector, he said. This triggered a number of policy decisions favoring coal.

For example, the energy ministry forced Energoatom in May 2020 to shut down three 1,000-MW each nuclear power units to allow fossil fuel-burning power plants expand their share on the market.

“This decision set in motion a chain of events that has resulted in critical failures that continue to plague the energy sector,” Verlanov said.

This shift proved to be detrimental to the country’s capability to generate sufficient power, especially when its coal reserves had plunged to 450,000 metric tons as of February 9, well below the critical level of 900,000 metric tons.

Reacting to the critical level of coal supplies, the government has ordered urgent retooling of power units for use of natural gas instead of coal. It also introduced state controls in the sector by ordering the state energy company to cut gas prices by 30%.

“These erratic policy changes did not go unnoticed by investors,” Verlanov said.

The International Monetary Fund, which had completed review of the loan program on February 12, was especially concerned about the gas price cut, which undermines the government’s previous commitments to stick to reforms.

“These policy changes in the critical energy sector have shaken investor confidence in the government’s ability to implement market reforms and provide transparent decisions to accelerate economic growth,” Verlanov said.

“Investors are likely to stay away until the government stops catering to oligarch groups that favor fossil fuel-burning power plants,” he said. “Until this happens, Ukraine is likely to remain an energy colossus on feet of clay.” (tl/ez)