I I I I Ukraine Local Electric Companies Effective Cash Collection Programs I (Taska.4)
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I I (,) I "-;,-' (,,, c:::r I I I I UKRAINE LOCAL ELECTRIC COMPANIES EFFECTIVE CASH COLLECTION PROGRAMS I (TASKA.4) I NIS InstItutIOnal Based ServIces Under the Energy Efficiency and Market Reform Project I Contract No CCN-Q-OO-93-00152-00 Ukrame Power Sector Reform I DelIvery Order No 18 I Fznal Report I Preparedfor US Agency for InternatIOnal Development I Bureau for Europe and NIS Office ofEnVIronment, Energy and Urban Development I Energy and Infrastructure DIVISIOn I Prepared by Hagler BaIlly I 1530 WIlson Boulevard SUIte 400 I Arlmgton, VA 22209-2406 (703) 351-0300 I September 11, 1998 I I I I I I TABLE OF CONTENTS I I Table ofContents ExecutIve Summary I S 1Task DescnptIOn 8-1 8 2 Methodology and Approach 8-1 I 8 3 8ummary ofResults 8-2 I Chapter 1 OvervIew ofEnergomarket payment InflOWS and outflows Exlnbit I Chart ofMimstry to Mmenergo NatIOnal Level Payments I ExhIbIt 2 Chart ofIndependent Energy SupplIer Market OperatIOns Exlnbit 3 Chart Power Producers Operatmg as Independent Energy SupplIers I Exlnbit 4 Chart ofLocal Budget Offsets I Exlnbit 5 Chart ofCashNalue TransactIOn Flows Chapter 2 Detailed reVIew ofEnergomarket payment flows Exlnbit 1 Graph ofCapacIty Sold to Oblenergos vs Total Payments by I Oblenergos January-June, 1998 Exlnbit 2 Graph ofCapacIty Sold to Oblenergos vs Total Payments by I Oblenergos June, 1998 Exlnblt 3 Graph ofBreakout ofTotal Cash Collected by Oblenergos I Exlnbit 4 Graph ofEvaluatIOn ofCash AVailable for CollectIOn by Oblenergos I Exlnbit 5 Graph ofPercentage DIstnbutlOn ofTotal Cash CollectiOns I AppendIX A Fmancml Recovery Plan Morutonng Cash CollectIOns at the NatiOnal Level I AppendIX B Khmelmtskly ActIon Team Report I -------------- Hagler BaJlly -------------- I I I I EXECUTIVE SUMMARY I S.l TASK DESCRIPTION I The work on tlus task was lrutIated under DelIvery Order 18 of the Ukralruan Power Sector Reform Project The Scope ofWork for these activities mcluded the specific Local Electnc I Compames (LECs)-Task III A(2),(4) whIch states Support Improvements In Collections and FInancial Systems I (2) Improve LEC operatIOns through proper metenng, bIllIng and collection procedures WIth a goal to collect m full (through cash, non-cash, or subsidy certificates) and establIsh and Implement termInatIOn procedures, I assist to ensure that non-cash proceeds are properly valued, assist LECs In debt reschedulmg for energy Intensive customers (4) Follow-up after the cash collectIOns conference to support ImplementatIOn of I effectIve LEC collectIOns programs and fOCUSIng on collectIOns reqUIrements ofthe FmancIaI Recovery Plan(FRP) I S 2 METHODOLOGY AND ApPROACH I To accomplIsh the cash collectIons task the project was dIVIded mto three parts 1 Study and analySIS ofthe overall Energomarket Cash Flows 2 Monthly retrIeval, analySIS and reportmg ofFRP data I 3 Ongomg efforts at Khmelrutskoblenergo to Improve cash collectIOns To accomplIsh sub-task 1, an effort was launched to thoroughly reVIew the payment InflOWS I and outflows WIthIn the Energomarket As a subset oftlus analySIS a study was also made of the payment flows that affect the Energomarket but do not flow through the market accounts I The details ofthe above analyses can be found In Chapters 1 and 2, ofthis report To accomplIsh sub-task 2, It was necessary to negotIate WIth Mmenergo to obtaIn data bemg produced by MInenergo and NDC In complIance With the FRP This data, In electromc form, I was transferred from NDC where It was then orgarnzed to allow for proper analySIS WithIn the frame work ofthe FRP reportmg reqUIrements The detaIls ofthe above analyses can be I found In AppendIX 1, oftlus report I I ______________ HaglerBatily _ I I I ExecutIve Summary .. S-2 I To accomphsh sub-task 3, the plan was to concentrate our efforts on one LEC for an extended penod oftime m order to mcrease the percent ofcash they collect Khmelmskoblenergo was chosen for a number ofreasons I .. The ground work that had been laId over the last two years work With this Oblenergo .. The recent amval ofa new General DIrector who's obJectives for the Oblenergo were I m support ofsub-task 3 .. The dIverse customer base ofKhmelmtskoblenergo .. The recent hIstory offallIng cash collectIOns I .. The lack ofnear-term pnvatizatIOn that could scatter the focus on the ObjectIves I The ObjectIves ofthe project where .. Double the cash collectIOns rate at Khmelmtskoblenergo by the end ofSeptember, 1998 I .. Demonstrate that the recommendatIOns outlIned m the CCIP Report and presented at the CCIP Conference Will work, gIven the proper level ofeffort and support I .. ProvIde a leadershIp model for Mmenergo to use nation WIde Focused Strategy I By placmg a hIghly VISIble reSIdent adVIsor m KhmelmtskIy With local support team to help Khme1mtskoblenergo to deal With the agreed on actIOn plan dally ThIs strategy Will produce I the follOWing benefits not realIzed m earlIer cash Improvement efforts ~ The reSIdent adVIsor Will be a dally remmder ofthe agreements and tasks at hand I ~ As pohtical or other roadblocks anse the reSIdent adVIsor Will be present to deal WIth them and have mstant access as support the KIev based ActIOn Support Teams ~ Ifplans are not workmg as expected the reSIdent adVIsor IS present to work With the LEC I staffto change ImplementatIon plans on the fly ~ The reSIdent adVIsor Will be present to partICIpate and represent the donors m Oblast or other meetmgs that mIght have the potentIal ofdelaymg or stoppmg the focused actIon I plan I S 3 SUMMARY OF RESULTS I Sub-task 1 A thorough and complete analySIS ofthe Energomarket payment mflows and outflows was done usmg the latest SIX months data covenng January-June, 1998 It IS clear from tms I analySIS that the cash collectIOn rate bemg reported IS not the effectIve cash collectIOn rate I ______________ HaglerBadly _ I I I ExecutIve Summary .. S-3 bemg generated by the Oblenergos A reported rate of 15%-19% IS well below the IdentIfied I effectIve rate range of44%-64% for the first SIX months of 1998 Charts, graphs, tables and a wntten analysIs ofthe mformatIon IS mcluded m Chapters 1 and 2, ofthIS report And a complete chart ofthe Energomarket mflows and outflows for I January-June, 1998 Will be found m Chapter 2, oftrus report I Sub-task 2 In AppendIx 1, the results ofeach actIOn IS descnbed as It IS defined m the FmancIaI Recovery Plan In addItIon, notes on the progress to date are mcluded under each actIOn Item I The data covers the time penod January 1, 1998 to August 1, 1998 I Sub-task 3 The Khmelmtskly SpeCial CollectIOns Project has been under way smce July 21 5t 1998 Smce July 21 5t the ActlOn Team has logged over 450 man hours workmg With I the Oblenergo m Khmelmtskly The Team has met With the General DIrector on more than five occaSIOns and has acqrnred hIS full support and cooperatIOn at each step ofthe project thus far In addItIOn, The Team has met With all the Deputy DIrectors to seek mformatIOn and I support from theIr respectIve areas ofresponslbIhty In each case full support was gIven WithOut questIon or heSItatIOn I As planned the Khmelmtskly ActIOn Team has accumulated the followmg customer and payment data Has estabhshed, recommended Improvements or assessed eleven ActIOn Steps targeted to mcreasmg cash collectIOns The Team has also done a detailed evaluatIOn ofthe I collectIOn process m the Oblenergo See appropnate sectIOns for detaIl Dunng thIs same penod the total debt owed to the Oblenergo rose to 21,350,000 HR up I 1,178,000 HR from the July close total debt of20,172,000 HR Dunng thIs same penod the total number ofcustomers dIsconnected mcreased to 923 up from the July close of817 ThIs represents a 13% mcrease m dIsconnects for debt or nonpayment I for the first 18 reportmg days ofAugust As ofAugust 31 st the month to date total cash collectIOn percentage IS 15 9% ThIS IS a 36% I mcrease from the July endmg figure of 11 7% cash collected However, barter/offsets still I account for 82 3% oftotal collectIons month to date I I I ______________ HaglerBallly _ I I I I CHAPTERl I OVERVIEW I Over the last five years, the electncity sector ofUkrame has been attemptmg to move away from management and decIsIOn-makIng systems whIch were establIshed dunng the days of the "command and control" economy, and towards a free-market economy management I style where consumers pay for the true cost ofproductIOn and dehvery ofelectncity and management IS held responsIble for the finanCIal well-beIng ofthe urnt under theIr control, as I well as It's techmcal operatIOns However, the ImplementatIOn ofthIs change has been only partIally successful For mstance, natIOnal-level management systems are deSIgned by Western adVIsors, but Implemented by I Ukrauuan leaders who are unfannlIar With the baSIC paradIgms behInd the systems they are asked to Implement WhIle these systems are mtended to promote the economIC use of I resources and promote the growth and finanCIal well-beIng ofthe sector, the lack of understandmg and trust by those who are responsIble for theIr ImplementatIOn has led to subtle and dIrect or mdIrect undermImng ofthe very systems whIch mIght help the mdustry I become hIghly successful and self-sustaImng ThIs lack ofsupport and understandmg has resulted m a SItuatIOn where the economIC VIabIlIty ofthe electncity sector IS facmg collapse There IS lIttle doubt that events m the Summer of 1998 are pomtmg to a lack oftrust and an I mtentIOnally dIrected reversal ofthe process by the very agenCIes whIch must prOVIde support IfsIgmficant changes are to be Implemented I Included In the mtegrated approach to the economIC stabIlIzatIOn ofthe energy sector are the follOWing elements, all ofwhIch are mter-dependent and must be fully Implemented for the I tranSItIOn process to have the deSIred effect ~ EstablIshment ofa NatIOnal Energy Regulatory CommISSIOn ~ PnvatIzatlOn ofthermal generatIOn companIes I ~ PnvatIzatIOn ofregIOnal electncity dIstnbutIOn companIes ~ EstablIshment ofa Wholesale Electncity Market I ~ Estabhshment ofa Market Settlement Procedure, where wholesale rates and generatIon dIspatch are based on supplIer bId pnces .