Ukraine antitrust body recommends changing IMF-sponsored gas formula
The Anti-Monopoly Committee of Ukraine proposed that the government change its
methodology of calculating natural gas prices for households and heating enterprises,
Ukrainian media reported on Sept. 13. The committee suggested that gas prices not be
calculated solely on the import parity principle (EU gas hub plus delivery costs to
Ukraine), but on some domestic price set by local gas producers instead, according to the
Recall, Ukraine’s Cabinet approved on March 22 aresolution
that should calculatethe average
gas for households as the sum of the average price at the EU NCG hub plus transportation
costs to Ukraine. If that price differs from the current price for households by 10% or
more, the government should approve a corresponding adjustment in that price as of Oct.
1, 2017. This approach may lead to a 16%-19% gas rate hike for households, according to
various sources. Ukraine’s government is seeking ways to avoid the hike. The key problem
here is that the import parity principle for residential gas pricing was insisted upon by
the IMF, so the revision of such a principle (if any) should be agreed upon with the
Ukraine’s government is trying to provide more arguments for the IMF proving that the
import parity principle should not be applied for natural gas. And the committee’s
recommendation will be used as one of such “arguments”. The key problem here is that
there is no domestic market of natural gas in Ukraine as local production is highly
concentrated, with the share of state-controlled Ukrgazvydobuvannia being over 70%. So
there is no internal market price for gas.
Therefore, it’s not clear how the committee's recommendation can be implemented.
It looks like the gas pricing issue will be among the toughest in Ukraine’s negotiations
with the IMF on the next tranche. Nonetheless, we expect Ukraine and the IMF will be able
to find common ground on this issue and the nation will receive at least one more IMF
tranche this year (in the amount of USD 1 bln, most likely).
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