When Maksym Orlovskyi bought an apartment in central Kiev in 2006, he installed a new boiler, replaced the windows and insulated the walls of the 1960s brick building.

Those investments will pay off in a big way starting Wednesday when the Ukraine government is set to triple the price of natural gas for heating, a condition for unlocking $17.5 billion in loans gained from the International Monetary Fund to keep the government from defaulting on its debts.

The IMF condition is expected to bring domestic gas prices on par with more expensive imports within two years, helping alleviate the burden of subsidizing a major industry. While more affluent residents like Orlovskyi can afford to take matters into their own hands to keep costs down, others less fortunate face a much different reality.

 

“We use 50 percent less gas now,” said Orlovskyi, 43, a video editor who lives with his wife and 9-year-old daughter. “We turn on heat later in the season and use less energy.”

Making buildings more energy-efficient would save Ukraine the equivalent of 12 billion cubic meters of gas a year, according to Serhiy Maslychenko, an energy-projects manager at the European Bank for Reconstruction and Development. That’s half of what it was importing from Russia, a major supplier to the Ukraine before the relationship turned hostile last year.

Since most Ukrainians can’t afford to insulate their apartments, much of that heat literally goes out the window.

Aging Buildings

An overhaul of Ukraine’s aging residential concrete buildings would require about 30 billion euros ($32.6 billion), the European bank says. That’s something Ukraine -- perpetually one step away from default -- can’t afford.

Policy makers have imposed capital controls as they struggle to stabilize the free-falling hryvnia, which has lost more than 30 percent of its value this year. Ukraine’s economic crisis, compounded by the war against Russia-backed insurgents in the east, leaves no funds available for energy savings.

Gas prices for heating are jumping to 3,600 hryvnia ($152.54) per 1000 cubic meters, from 1,089 hryvnia. Ukraine paid Russia $330 (7,780 hryvnia) per 1,000 cubic meters of gas in the first quarter. Another rate increase is expected to be put into effect late this year or in early 2016.

Ukraine’s neglected residential buildings lose so much heat that people would freeze in the winter if they consumed any less, said Oleksandr Kovalchuk, a 68-year-old pensioner who lives in central Kiev. The hot water supplied to his 10-story building from the roof is lukewarm by the time it reaches his second-floor apartment, he said. He keeps warm using electric heaters, adding to his energy bills.

Naked Pipes

“I saw the pipes that carry heat from the thermal-power station to our residential area,” he said. “They are naked; the insulation is all torn away. All they are heating is the ground near the station.”

Household gas use fell about 10 percent last year to 15 billion cubic meters after Russian gas-export monopoly OAO Gazprom cut off deliveries for more than six months. Utilities reduced consumption by 16 percent to 7 billion cubic meters.

With the two countries locked in a price dispute, Ukraine will have to rely on storage tanks that are only a quarter full, as well as supplies from Hungary and Slovakia whose capacity is insufficient to cover Ukraine’s consumption. Meanwhile, precious gas will continue to be wasted.

“This kind of problem is impossible to solve quickly,” said Oleksandr Parashchiy, head of research at Concorde Capital, a Kiev-based investment company. “The problem is not just walls and windows that let out heat, it’s also delivering heat through inefficient centralized heating.”

Two-Thirds Subsidized

The state may have to keep subsidizing gas and heating for as much as two-thirds of the population, according to Energy Minister Volodymyr Demchyshyn. Ukraine’s 2015 state budget has earmarked 24 billion hryvnia for subsidies to help people pay their energy bills.

In the meantime, the burden of making buildings more energy-efficient remains on consumers’ shoulders because the government has failed to come up with a comprehensive program to replace old pipelines, insulate buildings and install heating meters, said Yuriy Korolchuk, a member of the advisory board at the Institute of Energy Strategy in Kiev.

“Those who wanted to insulate walls have already done it,” he said. “Those who did not fix their homes did not have the money, and chances are they won’t have it now. The state must take this job upon itself.”