Cabinet initiatesfixing household gas prices for one year

Ukraine’s Cabinet of
Ministers ordered the Economy Ministry on March 3 to secure Naftogaz (NAFTO)
natural gas supplies to households at a price that will be fixed for one year,
Interfax-Ukraine reported the same day. The Economy Ministry is ordered to
prepare respective resolutions by March 5.

According to a draft
cabinet resolution presented by the Energy Ministry, Naftogaz’ subsidiary and Ukraine’s largest
natural gas producer UGV will be ordered to offer a fixed wholesale
price for one year for
gas that will be supplied to households and heating utilities. Also, UGV will
be ordered to sell its natural gas to all local traders at no worse conditions
compared to Naftogaz trading subsidiaries starting April 2021. This will help
all local traders offer natural gas for households at the price fixed for one
year, as the power sector regulator is demanding, acting energy minister Yuriy
Vitrenko stated.

Alexander Paraschiy: It looks good that Naftogaz as a gas supplier would not have
non-competitive benefits due to control over the leading natural gas producer.
However, the key risk in the Cabinet’s decision is that by ordering UGV to set
natural gas price for the next 12 months, the government will also control such
price. In other words, there
is a risk that the natural gas price for households will remain
de facto regulated, which might contradict Ukraine’s commitments to the IMF.
Hopefully, on March 5 (or more likely, next week) we will see the Economy Ministry’s
resolution on this issue, so we will be able to more adequately assess risks
for Naftogaz fundamentals and for Ukraine’s cooperation with the IMF.