Kabardino-Balkaria Gas Dispute Set to Worsen

Friday, 16 September, 2005

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Oksana Butova

Residents of the North Caucasian republic of Kabardino-Balkaria may have to make do without heating this winter if local government officials fail to reach an agreement over debts owed to Russia’s state gas company Gazprom.

Over the last decade, the regional authorities have accumulated a debt of three billion roubles, around 106 million US dollars, to the energy giant, which has a monopoly over gas distribution in Russia.

The deficit has shot up by 400 million roubles, over 14 million dollars, this year alone. And local officials and representatives of Gazprom have spent the past three months bickering over who is responsible for settling the account.

Meanwhile, locals have already begun to feel the effects. On August 2, Mezhregiongaz, a Gazprom subsidiary, cancelled gas deliveries to the Soviet-era plants that pipe hot water to buildings. With private boiler systems still rare in the cities, most apartment blocks and businesses in the region rely on these centrally-operated facilities.

The only heating plants that continued to receive gas following the move were five facilities supplying key local institutions such as hospitals.

The issue is gaining increasing urgency in the run-up to October 15, when boiler plants are due to switch over to providing central heating as well as hot tap water for the winter, when temperatures can fall to minus 20 degrees Celsius.

Cutting off the gas supply to the central heating stations could affect some 300,000 people, mainly in urban areas like the capital Nalchik. Those hardest hit are likely to be the poorest sections of society, including pensioners, who cannot afford to invest in alternatives like electric heaters. Instead, such people would be forced to produce what little heat they can by keeping their ovens on around the clock, or by warming bricks.

Some observers warn that the loss of central heating services could result in a health crisis.

It is the energy plants themselves that lie at the heart of the debt controversy. In 2003, with the amount owed to Gazprom already growing, Kabardino-Balkaria’s president Valery Kokov agreed to sign the central heating plants over to the gas company as a means of settling accounts.

The plants were placed under Gazprom management, but when the time came for it to acquire full ownership the negotiations broke down. Local officials re-valued the plants at 2.9 billion roubles, almost the full amount owed to Gazprom. The company, on the other hand, estimated their value at 1.3 billion roubles.

Akhmedkhan Ponezhev, the head of Kabbalkregiongaz, the local branch of Mezhregiongaz, was even more derisory. At a news conference in July in the regional capital Nalchik, he declared that “the republic’s thermal energy industry is in a disastrous financial state and its market value is zero”.

Mezhregiongaz officials feel that their position has been bolstered by a series of inspections which revealed that more than 300 enterprises and 19 multi-storey apartment blocks in Kabardino-Balkaria were using heating services without being registered as consumers, so they were either not paying for heating, or if they were, the money was not reaching the gas company.

Ponezhev told the July press conference that Gazprom was ready to invest 800 million roubles to modernise Nalchik’s heating system, but only once the question of ownership had been resolved. Given the current situation, he argued, it would be “foolish” not to accept a Gazprom takeover.

Because of inefficiencies caused by antiquated equipment, Ponezhev said, the republic’s heating system wastes around 40 per cent of the energy it produces. “We are heating valleys and even the Baksan river, since the main heating pipe runs along its course,” he said.

Ponezhev dismissed speculation that Gazprom’s approach was nothing more than pretext for the Kremlin to acquire control over the republic's gas and thermal networks.

“Gazprom has many more attractive and large-scale projects in which to invest money,” he said. “In investing in this republic, it simply wants to modernise the gas supply system, to restore order and to make it more transparent.”

Local officials, however, claim that a large part of the debt owed to Gazprom in fact stems from inefficiencies within the company itself.

“Most of [the debts] are on Ponezhev's conscience,” said Anuar Chechenov, Kabardino-Balkaria’s deputy prime minister, explaining that, “all his attempts to collect payments from the population have been lamentable”.

Nalchik’s mayor Khazretali Berdov says that a decision by Kabbalkregiongaz to remove all gas meters after it took over the heating plants opened the way for potential abuses such as overcharging. He claimed that once there were no meters in place to verify the amount of gas consumed, Gazprom announced that consumption had risen by 19 per cent. Berdov says there was no actual increase in use.

Berdov argues that the agreements with Gazprom should be torn up and the heating facilities handed back to the municipality, to ensure that no one freezes in Nalchik this winter.

This is not the first time Gazprom has sought to cut the gas supply to Kabardino-Balkaria consumers. An attempt to do the same in June 2004 was halted after President Valery Kokov intervened. But a repetition of this seems unlikely this time round – the president, who is thought to have been ill for a while, announced his resignation on September 16.

Just before the latest crisis began in August, deputy prime minister Chechenov threatened to take action against anyone who cut the gas supply. But his warnings went unheeded and disconnections began the very next day.

In another attempt to block the moves by Gazprom, Kabardino-Balkaria’s chief prosecutor Yury Ketov has filed a lawsuit in Nalchik’s municipal court charging that the company is acting illegally. But the court is yet to consider the case.

With Ketov’s office threatening to look into Kabbalkregiongaz's activities, gas company officials have complained that they are being subjected to unwarranted pressure from the local government.

In the meantime, while many local residents say they can put up with the lack of hot water for now, there is increasing concern about what will happen if the dispute is not resolved before the temperature begins to drop.

“The officials will be in their castles with their private boiler systems, while the public will freeze,” said Alexander Kontsevich, a pensioner who fought in the Second World War. “We don’t care who owns the thermal energy system. All we want is to be warm.”

Oksana Butova is the pseudonym of an independent journalist in Nalchik.