Who’s Who: How Ukrainian monopolists and European officials harass domestic industrialists
23 December 11:51
ANALYSIS 
Ukrainian steelmakers, and not only them, will have to work under new higher gas and electricity tariffs in the new year. And this is not the only news that spoils their mood. What decisions have already created and may still create problems for Ukrainian industrialists – "Komersant Ukrainian" found out
In early December, the National Energy and Utilities Regulatory Commission (NEURC) decided to raise electricity transmission and dispatching tariffs for the next year.
On December 19, the regulator adopted resolutions to increase tariffs for natural gas distribution for gas distribution network operators. Tariffs will increase in two stages – from January 1 and April 1.
This increase will be felt primarily by the largest consumers of gas and electricity – industrial enterprises. And this is despite the fact that, for example, the price of electricity in Ukraine has consistently broken European records this year.
Monopolies are coming
In August of this year, the wholesale price of electricity on the day-ahead market in Ukraine was 40% higher than the average in the European Union. Such data was recently provided by GMK Center experts. It is no coincidence that Mauro Longobardo, CEO of ArcelorMittal Kryvyi Rih, called a realistic electricity price a key prerequisite for the sustainable development of the industry. He also drew attention to the peculiarities of setting appropriate prices and tariffs.
“Currently, the regulatory environment in Ukraine is not conducive to the development of the steel and mining industry. We are surrounded by natural monopolies that pass on their losses to businesses by raising tariffs. We cannot pass them on to our customers, as we sell goods whose prices are regulated by the global market. As a result, our production has been unprofitable for the fourth year in a row,” Mauro Longobardo stated.
According to him, “the total net loss of the enterprise in 2022-2024 amounted to almost USD 2.1 billion” and the main reason for the losses in recent years, according to the CEO of ArcelorMittal Kryvyi Rih, is a sharp increase in electricity tariffs set by the state-owned generating company, which holds a monopoly position in the Ukrainian market.
The issue of electricity and gas supplies, as well as their price, is critical for the industry. According to Stanislav Zinchenko, Director of GMK Center, this is especially evident in the mining industry, where the cost of electricity accounts for up to 60% of the cost of iron ore concentrate. Accordingly, the competitiveness of domestic companies suffers.
Stanislav Zinchenko reminds that this year, Kryvyi Rih Iron Ore Plant was idle for several months, currently operating at 10-20% of its pre-war capacity, and in 2024, the Ingulets Mining and Processing Plant was shut down.
By the way, Metinvest Group explained the suspension of Inguletsky GOK’s operation by the inability to ensure competitive production costs in the plant’s target export markets, emphasizing that this was due to the high cost of electricity and its delivery, high railway and port tariffs.
At the same time, the railroad monopoly, represented by Ukrzaliznytsia, seems to be ready to strike again, persistently proposing to increase freight tariffs by 37%.
It is not difficult to foresee how this will affect the mining and metals companies. According to Stanislav Zinchenko, Director of GMK Center, the cost issue will play an increasingly important role every year, in part because iron ore prices are expected to fall.
“In 2025, iron ore exports may fall by 8-10%. In 2026, we expect a further decline of another 5%. The deterioration in the price competitiveness of steel products was evident this year as Ukraine has effectively lost all export markets, remaining only in the EU market. Steel production may decline by 4-5% in 2025. Next year, at best, we can expect production volumes to remain at the level of this year,” the expert believes.
And the result will be influenced not only by energy problems but also by the launch of the EU’s Carbon Border Adjustment Mechanism (CBAM), which provides for the introduction of a carbon tax.
The European Union defends itself
Ukraine, trying to avoid falling under the new European safeguard measures, applied to the European Commission this year for an exemption from the CBAM. The reason for the request was one of the clauses of the CBAM regulations, which stipulates that in case of force majeure, and the war is considered to be force majeure, a country may request a postponement of the border carbon adjustment mechanism for its exports.
But so far, this request has not been granted.
According to Stanislav Zinchenko, Director of GMK Center, the European Commission’s draft report “On the application of the Regulation on the Carbon Border Adjustment Mechanism” published on December 16 states that at this stage, the circumstances in the form of the Russian invasion do not allow to justify the application of the force majeure clause for Ukraine.
“This is just a draft, but it shows how European officials think. The European Commission assumes that the consequences of the CBA for Ukraine’s economy will be insignificant and that exports of CBA goods to the EU will continue. But we do not agree with this. About 6% of the goods exported by the country this year fall under the CBA. This is about $2.5 billion, which is a significant amount for a country at war,” the expert notes.
He emphasizes that Ukraine’s steel industry is critically dependent on the EU market, which accounts for 81% of all exports of finished steel products. GMK Center believes that if Ukraine does not receive an exemption from the CVA in the next two to three years, the country will lose exports of long products, semi-finished products and pig iron.
“The EU protects its steel industry by recognizing it as a strategic one. Let’s imagine what would happen if the European industry lost 40% of its capacity due to a single regulatory decision,” says Stanislav Zinchenko.
And this is not the only risk for the Ukrainian mining and metals industry related to trade with the EU. In addition to the CBA, next year the EU will introduce a new system to protect the steel market with quotas 43 percent lower than the current ones.
According to GMK Center Director Stanislav Zinchenko, the draft of the new system stipulates that Ukraine will also be subject to these measures, which directly contradicts the decision made only six months ago to exempt Ukraine from any restrictions on the steel market.
The final design of this decision is still unclear, but it is already clear that it could lead to a significant reduction in domestic exports.
Author: Sergiy Vasilevich
