How Ukraine Will Carry Out “Monetization” of Subsidies

How Ukraine Will Carry Out “Monetization” of Subsidies

The authorities have begun talking about monetizing subsidies for utilities: recently President Petro Poroshenko said that “these payments will be monetized, as required by the IMF.”

Neither the head of state nor his press service provided details. Segodnya found out what is meant.

HOW IT WORKS NOW. Reminder: when a subsidy is granted, recipients do not pay the full amount for utilities, but the difference subsidized by the state. The subsidy is given within limits, for example: for heating – 21 sq. m of housing per person plus 10 sq. m per family, hot water – 1,6 cubic meters per month per person, cold water – 2,4–4,4. Everything beyond that is paid at full price. Then the state must pay its share to the utility providers for each subsidized person. But, as Social Policy Minister Andriy Reva admitted, a large portion of settlements with heat and power utilities are done in clearing (mutual offset) form, not in cash. For example, a municipal combined heat and power plant (CHP) owes the state-owned Naftogaz for gas, while the state owes the CHP for heat, so the debts cancel each other out. But that scheme doesn’t work everywhere; for example, with condominiums (OSBB) offsetting is impossible because they don’t owe the treasury anything, yet subsidies have been assigned to their members. As a result, OSBBs pay their funds to utilities for subsidized residents but cannot get compensation from the state. After monetization this problem will be resolved.

AUTHORITIES AND EXPERTS. The Ministry of Social Policy says no one will give “cash” directly into people’s hands. “When we talk about monetization in the sense the IMF requires, we mean that there should be no mutual offsets, not that we would give the subsidy in cash for housing and communal services to the person who will pay for those services,” Reva explained. He did not name timing for monetization, but a source in the Cabinet told us that the innovation is planned to be introduced from the new heating season, that is, from 1 October.

Experts see the main obstacle as the treasury’s poverty. Thus, senior consultant on social protection at the Institute for Local Development Anton Levytsky told us that currently of more than 50 million subsidies, cash payments to utilities cover 10%, the rest is clearing. “It’s still unclear where the budget funds will come from,” Levytsky says. “But if the scheme starts working, it could be extended to every subsidy recipient.” Andriy Zablovskyi, head of the Secretariat of the Council of Entrepreneurs under the Cabinet, also notes that monetizing subsidies could be the first step toward a full-scale social reform: “For now, monetization of benefits can be worked out as financial mutual offsets between state structures. The next step is creating personal accounts for those eligible for benefits and subsidies with issuance of personalized plastic cards. The state would transfer funds there that could be spent exclusively for their intended purpose, for example, on utility payments or public transport fares. Such a social reform would bring Ukraine closer to international standards of aid for the poor. The U.S. has long operated the food stamp system, or a subsidized purchase program. The state gives low-income residents monthly assistance on plastic cards. That’s about $ 130 per person, and that money can be spent only on food. The procedure is transparent and not controversial.”

They will count beneficiaries by e-tickets

Experts believe that the Rada’s adoption of a law introducing electronic ticketing in transport could be the first step toward monetizing benefits. Turnstiles and scanners are expected to appear in trolleybuses and buses in Kyiv, Lviv, and several other large cities already this year, funded by municipal budgets. “The free-ride benefit is the most in demand, so that’s where you should start,” Levytsky says. “So that privileged passenger categories can pay for rides, local authorities should issue them special travel cards similar to the citizens’ card that pensioners now use to ride the metro for free. In the first phase, which could last a year or more, it will become clear what percentage are beneficiaries. This will allow Cabinet specialists to estimate how much monetizing travel will cost. But after monetization it will cease to be unlimited; pensioners will be given money, say, for 10–15 rides per month: to the clinic, the social services office, the market for groceries, the rest at their own expense.” The Ministry of Social Policy answered us that in 2017 there will be no monetization of travel benefits because no funds are allocated for them in the budget.