In an exclusive interview, VS Energy International Ukraine CEO Ihor Sudak talked about the challenges facing Ukraine's energy system
, the unpopular decisions that have to be made, preparations for the heating season and assistance for Ukraine's armed forces.
What changes have occurred in the operations of VS Energy's group of companies since 24 February 2022?
From my perspective, this job and the energy industry overall is not merely a business. It's a serious and responsible part of life, which involves providing people and businesses with a product without which everything comes to a standstill. It's like air! Obviously, on the morning of February 24, nobody understood how events would subsequently play out. I remember coming to the office, agreeing on cooperation with the company's management team and the heads of the regional electricity distribution businesses, defining and dividing the key tasks. Both then and now, all our actions are dictated by our responsibility to consumers and employees. People's work schedules changed, some personnel switched to remote work, and office workers saw a reduction in the number of their working hours. Financial decisions have become more pragmatic. There are some issues that we resolve by working like a fire brigade: we have a task, we see a need, and we solve it immediately within an hour or a day. However, other issues take longer than usual. Maybe this is a positive, because it gives us time to study them more carefully, think and make a balanced decision.
Since the start of the war, our European shareholders Vilis Dambiņš and Valts Vīgants have often visited Ukraine and been involved in coordinating the management decisions of our holding company VS Energy International Ukraine, as well as those of our regional businesses Khersonoblenergo, Zhytomyroblenergo, Kirovogradoblenergo, Rivneoblenergo and Chernihivoblenergo.
What are unpopular management decisions that you have got to make right now?
They all concern our financial situation and security issues. We have had to lay off employees. As a consequence of military measures, and due to amendments to the country's legislative framework, we found ourselves compelled to lay off some staff and transfer others to remote work.
Have investment programmes been suspended for the duration of the war?
Right from the start of the war, the regulator stopped implementing the investment programmes that we had launched at the start of the year. This prohibition lasted for about two months. What followed was a lengthy process of approving changes to investment programmes due to the current situation and price indicators. Accordingly, the investment programmes were partly revised. At present, our priority is to make energy supply safer and more reliable. Market conditions including materials and equipment have all changed significantly. Unfortunately, some suppliers in Ukraine have either gone out of business or sold their warehouses, as a result of which more imported equipment has appeared on the market. Logistics processes and price indicators have also changed. To address this, we have launched new tenders. What hope is that after the end of the war, we'll be able to fully revert to projects that were conceived with a long-term vision geared to improving the quality of services and automating management processes. Right now, our focus is on making grids as reliable as possible and responding as quickly as we can in instances of Force Majeure.
How will the changes in investment programmes affect consumers?
Right now, the end consumer does not sense any restrictions. It is possible that we simply postpone the improved service that we are planning provide, but essentially everything will function efficiently.
Are people currently paying for services? To what extent has non-payment increased?
It is the job of distribution system operators (SSO) to distribute electricity and maintain consumer networks technically. Securing funds is not really our line. Only a fraction of customers pay our businesses directly for the distribution service. Our other services are paid for by suppliers who collect funds from consumers including residents and industrial manufacturers, etc. Thanks to the citizens and companies of Ukraine - currently payments for services, although slightly down, are at a fairly good level overall. This means we can continue to operate efficiently. As a consequence of our current situation, electricity consumption has fallen significantly – in some oblasts by as much as 20%. What's more, in individual oblasts Ukraine consumptions has dropped by as much as 50%. For instance, power consumption in Kirovgrad, Zhytomyr and Rivne oblasts decreased significantly. This is primarily due to industrial companies that have stopped or cut power generation for some reason. The western oblasts of the country have been less affected by this problem. I believe that consumption is likely to increase over time as power generation moves to these areas.
Khersonoblenergo has actually been taken hostage by the Russians. What problems does this cause for local residents?
It is hard to discuss the local population, whose main problem is not even problems with electricity supply, but horrendous living conditions under Russian occupation.
Some of Kherson Oblast currently has no electricity at all. In places where hostilities have actively taken place, electricity grids have been destroyed. Until the situation changes, they cannot be restored. This applies to a section of the right bank of the Kherson Oblast. Obtaining information about the true picture of events in the occupied region is difficult. Khersonoblenergo's headquarters have been seized, and now the information we get from there is only fragmentary and most likely false. The official administration of Kherson Oblast have asked us to restore electricity supply in those oblasts where it is safe to work. We are now in the process of trying to organize material supplies, and to establish several new power grid maintenance centres where teams will be kitted out. At the same time, we are striving to restore power to some areas that have been liberated or which were not occupied, but suffered damage.
The heating season is about to begin. How ready is the energy system for this?
Of course, it is our mandatory responsibility to prepare regional energy companies for the winter season that will last for several months. And we work according to this plan. However, parallel to this, we continually keeping our eyes on the technical condition of power grids, and clarifying the amount of work required for electrical devices to be fully operational in circumstances where there is an increased current load and lower ambient temperature. We are aware that this winter we can expect a rise in household electricity consumption, and therefore our businesses are focusing on ensuring the readiness of medium and low-voltage distribution grids, preventing network power congestion, checking backup power supply schemes and restoring elements with reduced service life. Parallel to this, we are performing other tasks to prepare for winter to the best of our ability. For instance, one aspect of implementing the investment programme in a timely manner is buying new vehicles for our teams in the field. We are also buying materials and equipment to augment emergency supplies. This year, in line with the Ministry's recommendations, we are increasing this level of reserves so that we are prepared for all eventualities. At present, this work is being done much more proactively than would be the case in peacetime.
How are you collaborating with local institutions?
We keep in constant touch with regional institutions and resolve priority tasks together. Currently, one of our primary tasks is to ensure the stable and reliable supply of energy throughout the winter. In addition, we help to provide power in premises allocated as housing for displaced persons, as well as for businesses that want to relocate, refurbish or launch a new business.
Is your group helping the public and armed forces?
A lot of our employees are currently serving in the Ukrainian Armed Forces – we are helping their families by paying them monthly social benefits. At the instigation of its shareholders and management, VS Energy Group is providing centralized support to the Ukrainian Armed Forces and to provide protection against the terrorists. This aid currently totals over UAH 60 million. Our companies are providing local support to military units, based on our knowledge of what soldiers need: material support, protective equipment, etc.
Are you already making post-war plans?
Right now, the only plan that matters is to win. Our main task is to stop the bloodshed and all the prevailing madness. As regards the work plans of energy companies, in 2021 we switched to the so-called RBA regulation, i.e. tariff methodology that can make investments much more efficient and effective, as well as make them more targeted in order to meet certain objectives. As a consequence, we are position to significantly reduce consumer outages, improve the quality of our provision of services, as well as cutting losses in a certain period of time. Unfortunately, in the current circumstances, these indicators are likely to remain at pre-war levels. Nevertheless, it is our hope that when the war ends, we can return to this work and attain the planned level of customer service and service delivery.
It is said that any situation in life is advantageous. What has the war taught your company?
This is an extremely difficult question. Maybe, we have learned how to work in more extreme conditions with fewer people performing the same or even more challenging tasks. Right now, nobody is complaining that it's hard, tiring, or about being poorly paid. The war has taught us to look at things by focusing on what the situation demands right now. We are setting more pragmatic goals and objectives, because everything must function safely even in wartime.
