Ukraine cabinet raises residential gas rates 24% as of November

Ukraine’s Cabinet of Ministers decided at its Oct. 19
special session to increase the regulated prices of natural gas for households
by 23.5% as of November, the Cabinet’s press release reported the same day.
Commenting on the need to revise gas prices, the Cabinet explained that the
government has to tap international debt markets to refinance its debt, which
is impossible without cooperation with the IMF. In turn, the IMF was requiring
a gas price hike for households up to the level paid by industrial consumers,
which would have been a 60% increase.

“The result of year-long negotiations (with the IMF)
was a compromise reached solely due to the persistence of the Ukrainian
government,” the press release insisted. “The actual increase is almost three
times smaller than it could have been,” the release stated comparing the
numbers 60% and 23%. It also stressed that the government will aid low-income
citizens who need the state’s assistance in paying the higher gas bill.

Alexander Paraschiy: As we highlighted before,
the government dared to announce a gas price hike only when it was sure the IMF
would follow with an announcement promising new funds for Ukraine. This was the
scenario that played out on Oct. 19 as the IMF announced a tentative agreement on a new loan program shortly
after the cabinet announced the price hike. The government’s stubbornness on
the question of gas rates (which have been fixed for households since April
2017) is a key reason why Ukraine did not receive any tranche from the IMF in
2H17 (as was expected) and hasn’t so far this year.

A year ago, it would have been enough for the
government to increase gas rates by 16-19% to fully satisfy the IMF’s demands
and qualify for a new tranche. Now, the increase should be over 60%, and the
23.5% hike looks to be only the first stage in order to qualify for next IMF
tranche, with the following hikes likely occurring in the spring or summer
2019. 

As for the nearest tranche
that should arrive this year, all that’s left is for parliament and the
president to approve the final draft of a balanced  2019 state budget, from what we can tell.