Ukraine postpones gas price hikes for households by two months

Ukraine’s Cabinet of Ministers prolonged its
resolution setting below-market natural gas prices for households and heating
utilities for April-May 2018, the Energy Ministry reported on March 28. With
that resolution, the Cabinet is essentially postponing its politically
unpopular decision to increase natural gas prices by bringing them to import
parity level, as required by the IMF, the ukranews.com news site reported. The
gas price revision is the second most critical issue for Ukraine’s continuing
cooperation with the IMF, with the first being the adoption of a law creating
an independent anti-corruption court in line with Western requirements.

Alexander Paraschiy: Before
making the unpopular decision to hike gas prices, Prime Minister Volodymyr
Groysman is waiting to see tangible progress with anti-corruption legislation
in line with IMF demands. At this point, neither the president (responsible for
the anti-corruption legislation) nor the Cabinet (responsible for setting
residential gas prices) are willing to adopt unpopular measures until it’s
clear that the IMF will provide Ukraine with the next loan tranche. The
situation resembles a classic prisoner’s dilemma as the actor adopting its
measure in line with IMF requirements risks taking a big loss (ahead of the
2019 elections) in case another party does not fulfill its end. They are looking
to implement both requirements simultaneously.

Recall, the solution in the prisoner’s dilemma is
not to cooperate (or not to deal with the IMF). But Ukraine’s situation is a
bit different because each side can observe the other’s progress in the IMF talks.
Therefore, we still believe both critical issues will be resolved in the coming
two months and Ukraine will be able to get another loan tranche from the IMF
(and related loans from the EU and other IFIs) in 2018.