Ukraine plans to amend IMF-sponsored decree to avoid gas price hike
11 October 2017
Ukraine’s Energy Ministry published on Oct. 10 a draft
resolution to amend natural gas pricing methodology in its attempt to avoid a
gas price hike for households as of October. The initial resolution assumed
that the government would calculate a new price for natural
gas for October 2017-April 2018 based on the import parity principle, as was
agreed upon with the IMF in March 2017. It stipulated calculating and
introducing a new benchmark price as of October if it differed by more than 10%
from the existing price for households. The benchmark price should have been
calculated in June 2017 as the 12M trailing average gas price at German hub,
plus delivery costs from Germany to Ukraine.
The new benchmark price calculation implies it is only
5.6% more than the existing one (less than 10%), which excludes the need to
adjust gas prices for households. Meanwhile, the price based on the current
methodology implies the need of almost a 19% gas rate hike. In order to remove
the burden from consumers, the proposed amendment sets a new time period to
calculate the benchmark price, taking average prices for April-September 2016
and April-June 2017, when global gas prices are seasonally lower. This
contrasts with the existing regulation that takes historical prices for June
2016-May 2017.
controversial goals: 1) avoid any gas price hike for households in the upcoming
heating season (to preserve what little political support it has from the
public); 2) pretend the IMF’s requirement — that local gas prices are
based on the import parity principle — has been satisfied (to get the
next IMF loan tranche). Thus far, it is hard to say whether the IMF will buy
such an idea. According to public information, Ukraine’s Finance Minister will
travel to meet IMF top officials this week to discuss the outstanding issues,
including gas pricing. We still see a chance for an IMF compromise on gas
issues, and we still expect it will agree on the next tranche this year, in the
amount of USD 1.0 bln.
