Gas Price Markup Increases to 12% for Industrials and to 6% for Chemical Producers

The Cabinet of Ministers boosted the “investment markup” to the gas price from 8% to 12% for industrial and budget-financed consumers. The government kept a 50% discount for chemical producers, for which the markup grew from 4% to 6%. This is the second increase since the beginning of the year; in February the Cabinet raised the markup from 4% to 8% for industrials, and from 0.01% to 4% for chemical producers. Vladimir Nesterenko: Officially, the “investment markup” is a source of funds for maintenance and modernization of the country’s gas transportation system. However, the government has never publicly reported allocation of these funds. Thus, the increases in the markup don’t necessarily imply equivalent CapEx, and may in fact be one of the sources for compensating Naftogaz of Ukraine’s loss from below-cost sales of gas to municipal heating enterprises (see our news today on Naftogaz). From the viewpoint of domestic gas consumers, the increase implies a USD 7.4/tcm increase in gas unit cost for industrials, with the exception of chemical producers, for which the cost will increase by USD 3.7/tcm. The resulting ex-VAT price for industrials will grow to around USD 210-215/tcm (including transportation tariff, which differs across consumers, and storage cost), and to USD 215-220/tcm for chemical producers.