Cabinet extends low residential gas prices

The Cabinet of
Ministers adopted a resolution on Aug. 29 to extend through September low
natural gas rates for households and heating utilities, the Ukrainian News
agency reported that day. As in the previous
month, the
government attributed its decision to ongoing negotiations with the IMF on the
pricing issue.

Recall, Ukraine’s
Cabinet committed to the IMF to adjust residential gas rates to import parity
levels as of October 2017, which would have lifted them by about 19%. But it
refused to implement this policy after receiving the fourth tranche under IMF’s
EFF loan program last year. Now to bring the rates to import parity level, a much
higher increase should be made. Gas pricing is the most critical issue among the few
remaining hurdles for Ukraine in receiving the next IMF tranche.

Alexander
Paraschiy:
Naturally, the government is not going to raise gas prices during an election
campaign, particularly when it will be more convenient to blame IMF demands
once they are agreed upon. We expect this agreement to emerge from talks with
the IMF mission that is going to visit Kyiv on Sept.
6-19.

It will likely require gradually raising gas prices to import parity
level starting in October. A successful deal with the IMF in the near term is
virtually the only chance for Ukraine to solve its mounting foreign currency
liquidity trouble, so we are confident the government will find some way – no
matter how unpopular – to secure the needed funds. We continue to expect an IMF
loan tranche of up to USD 2 bln as our base-case scenario.