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Groysman does not rule out gas price hike to meet IMF demand

Groysman does not rule out gas price hike to meet IMF demand

3 May 2018

Ukrainian Prime Minister Volodymyr Groysman said he
has not ruled out hiking natural gas prices for households to meet IMF demands,
according to his interview to Interfax-Ukraine published on May 2. “Last year,
I promised that the price won’t change for that heating season, and I kept my
word. Now we are still in a dialogue on future actions,” he said, answering a
question of residential gas rates. He said that the gas price in Ukraine cannot
be UAH 2,000-3,000 (USD 77-115) per tcm of gas because it’s USD 250/tcm at
international hubs. At the same time, he stressed that the government has to
“protect Ukrainians” as many “cannot pay more.” He said that compensators
(offsetting the effect of rate hikes) should be found before any revisions are
made.

 

Groysman also stated that he understands that it will
be very hard for Ukraine to get through the next years without IMF support. In
particular, he said the Ukrainian government is due to repay USD 27 bln in debt
in the next four years, which Ukraine cannot do without external support.

 

Recall, parliament’s adoption of legislation to create
an independent anti-corruption court, as well as natural gas hikes for
households, are the two most critical demands made by the IMF to provide a
fifth loan tranche, possibly as large as USD 1.9 bln, to Ukraine under its EFF
program. Creating an independent court, in line with European standards, has
been resisted among the president’s entourage and the parliamentary coalition,
while Groysman is resisting the gas price hike.

 

Alexander Paraschiy: It had been
widely accepted in Ukraine that Groysman’s alleged resistance to the gas price
hike is so fierce that it undermines any sense in trying to adopt the
anti-corruption court legislation in line with IMF demands. Yet in this
interview, Groysman clearly stated that he’s open to discuss gas price hikes.
Moreover, the Cabinet’s move in March to freeze gas prices for only two months
(April and May) also demonstrates his readiness to negotiate with the IMF on
prices. Therefore, we believe a solution on gas prices is entirely realistic
should parliament approve legislation to create the anti-corruption court
meeting Council of Europe standards.

 

That said, we remain optimistic about Ukraine getting
the next (and the last in 2018-2019) tranche from the IMF this summer, which
will open the door for EU and World Bank lending for Ukraine. We estimate the
deadline for the IMF approving its next loan tranche is mid-July 2018 (after
which the chance for any tranche arriving this or next year will be close to
zero).

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