State regulation of gas prices concerns IMF, finance minister says

The IMF is concerned about the intention of the
Ukrainian government to reintroduce state regulation of natural gas prices for
households,  Finance Minister Serhiy Marchenko told a radio network on
Jan. 14. Marchenko also stated that Ukraine’s 2021 budget will have to be
revised in case there won’t be cooperation with the IMF this year.

Meanwhile, PM Denys Shmyhal wrote on social media the
same day that cabinet members had “a constructive meeting with the IMF on gas
pricing” on Jan. 14, also confirming his earlier statement that a liberalized
gas market should work in Ukraine. At the same time, he complained about abuses
on the market by some private players and expressed the need to find a
compromise “to protect people.” 

Recall, Ukraine’s cabinet decided on Jan. 13
to introduce interim regulated price for natural
gas for households at the level of USD 250/tcm.

Alexander Paraschiy: While
Ukraine is indeed violating some of its previous commitments to the IMF by
introducing state regulation of gas prices, we believe that the gas pricing
issue won’t be the thing that will break Ukraine’s deal with the fund. In the
worst-case scenario, the gas pricing issue will merely delay cooperation with
the fund, and postpone the next IMF tranche to 2Q21 from 1Q21 (as is being
expected by the government).

Even without the gas issue, we see that the IMF has
lots of questions on Ukraine’s unmet commitments, and there is a constant risk
that new unexpected impediments for the next tranche may arise. That said, we continue to assess the
probability of the IMF tranche in 1Q21 at no more than 50%.