Ukraine may postpone IMF-required gas price hike, minister says

Ukraine’s government may decide to refrain from hiking
prices for natural gas for households and heating utilities in October,
Ukraine’s Social Policy Minister Andriy Reva said on Sept. 26, as reported by
Interfax-Ukraine. It’s possible that a cabinet resolution setting below-market
gas prices will be prolonged for October “if a new gas price is not agreed upon
with international partners,” Reva told journalists. Last week, Naftogaz CEO
Andriy Kobolev said that a principal agreement on gradual gas price hikes has been agreed upon with the IMF.

Adjusting the prices for households and heating
utilities to the market (import parity) level is among the key preconditions of
the IMF to provide the next loan tranche for Ukraine under its EFF program
launched in 2015. Another key IMF requirement is approval of the 2019 state
budget with a affordable deficit, local news reports said.

As of September, gas prices for households are about
UAH 7.0 per cubic meter including VAT, according to supply companies, which is
half the price charged by Naftogaz for industrial consumers. Ukraine’s cabinet
committed to the IMF in March 2017 to set household prices close to import
parity level, but has since postponed any hikes and kept prices flat.

Alexander Paraschiy: Reva’s
statement indicates that the government is not fully certain it will get the
next loan tranche after the IMF reportedly added the requirement of a balanced
2019 budget to be approved by parliament. The cabinet is getting cold feet on
its alleged agreement to raise gas rates for households (during an intense
election campaign), and will seemingly do so only with the confidence that it
will receive the next loan tranche soon. If the government manages to approve
the budget in late October or early November, the loan tranche would arrive in
mid- to late November, at the earliest.

With such schedule, it seems that ministers have realized
they can get away with avoiding an October price hike, though prices will
inevitably have to rise during the election campaign nonetheless. We expect the
cabinet will issue a decree in the next few days that extends the current
prices to October.