Ukrainian officials have now raised the death toll to 16 (including five children) in the large gas explosion that decimated a 10-story apartment block in Dnipropetrovsk. The explosion was apparently caused by a pressure surge, and blame has been laid on local gas supplier Dneprogaz for failure to prevent the tragedy by both President Yushchenko and expected future PM Yulia Tymoshenko.
Suspicions of terrorism were roused earlier when reports surfaced of two men in black jackets fiddling with the gas valves. However, these were apparently two Dneprogaz officials who had become aware of “hissing and vibrating” coming from the pipes, and rushed over to tighten the valves. Presumably, this could have led to a subsequent build up of pressure and the resulting explosion, though obviously there were multiple problems with the gas system. These two officials are now being detained in connection with the criminal investigation currently underway that is focusing on negligence on the part of Dneprogaz. Allegedly, residents had called in complaining about the smell of gas before the explosion and were told only to open a window.
Recovery is expected to cost nearly $2 million, to be covered with a mixture of local and national-level fund. However, $19 million has been allocated in national emergency funds for victim compensation, continued gas supply, and the construction of new homes for those displaced. Rinat Akhmetov, Ukraine’s richest man, has pledged through his charitable foundation “The Development of Ukraine” an additional $2 million in aid money to go to local families affected by the tragedy. President Yushchenko, who has pledged a day’s earnings of him and his secretariat to the relief effort, has declared today as a day of mourning in response to the incident and has called for repercussions:
I demand that the prosecutor general’s office and the prosecutor general investigate the criminal cases initiated after the blast thoroughly and immediately find out the causes of the accident and find those guilty.
The bank account of Dniprogaz has been arrested. Its leaders, among them chief engineer and his first deputy, [the two officials who had been fiddling with the valves] have been arrested on the grounds of professional negligence. I firmly demand that all the circumstances of this tragedy be studied.
Meanwhile, two more people died in a gas explosion in the Zhytomyr region yesterday, one engineer died in a gas explosion in the Poltava region, while in the Ivano-Frankivsk region another gas explosion injured three people. This run of gas incidents corresponds to the beginning of the heating season, as gas systems across Ukraine are turned on en masse to collectively provide heat for local residents. (October 15th was the day here in Kyiv, though I’m still waiting for the heat to kick in at my apartment for some reason.) As the infrastructure continues to age and a bankrupt system prevents refurbishment, these types of problems are only likely to continue.
President Yushchenko is now mulling over the fate of Ukraine’s aging gas distribution network, which is made up of over 300,000 km of pipelines and corresponding pumping stations and is valued at nearly $2 billion. While 39 out of the 45 city and regional gas distribution networks are profitable, they are reporting only slim earnings and are clouded by an opaque structure that has failed to reinvest those profits into infrastructure improvements. Technically state owned, the overall network has been administered since 2001 through Ukrgazmerezhi, which is a subsidiary of Gaz of Ukraine, itself a subsidiary of the state oil and gas firm Naftogaz Ukrainy. Yushchenko now is calling for the reinforcement of leasing terms used by private companies to secure access to the network. Contraty to the “chaotic” situation now, the terms of the contracts need be clearly stated, along with liabilities for failure to comply to them.
Dneprogaz, the city gas distribution company at the center of the the gas blast in Dnipropetrovsk, is one of the private entities with access to the pipeline system. It was privatized in the 1990s to Complex Energy Systems Company, a Russian-based firm owned by billionaire Viktor Vekselberg who also controls the TNK side of the oil joint venture TNK-BP. Tymoshenko, while accusing Dneprogaz of recently cutting back on equipment and personnel, suggested that all such regional distribution firms should be returned to state management or at least regulated from shirking on providing necessary infrastructure improvements. It is unclear if the strict terms of the contracts mentioned in Yushchenko’s plan would qualify as these types of guarantees.
This is just a further indication of the depths of the problems facing Ukraine’s natural gas industry, and the hard decisions facing industry and political leadership regarding its future. These regional distribution networks are the same entities that are at the bottom of the debt chain that led to last week’s gas payment settlement. They are tasked with supplying cheap gas to domestic customers while racking up debts to their providers (UkrGazEnergo, Naftogaz Ukrainy), who are then left with debts to their provider (RosUkrEnergo), who is then indebted to its provider (Gazprom). (Opaque connections along this chain are a further money sink, as any profits that are made are often skimmed away by connected officials.) With higher gas rates from Gazprom expected following upcoming contractual negotiations, those lower down the chain will only be faced with tougher financial decisions that will likely result in further operational cuts. The safety of the gas distribution network will only continue to suffer.
Tymoshenko can’t have it both ways — she can’t pledge to keep gas prices low while at the same time refusing to allow local gas companies to make cuts to offset the price discrepancies. Something will have to give, and hopefully it won’t be another tragic apartment explosion.