Groysman does not rule out gas price hike to meet IMF demand

3 May 2018

Ukrainian Prime Minister Volodymyr Groysman said he has not ruled out hiking natural gas prices for households to meet IMF demands, according to his interview to Interfax-Ukraine published on May 2. “Last year, I promised that the price won’t change for that heating season, and I kept my word. Now we are still in a dialogue on future actions,” he said, answering a question of residential gas rates. He said that the gas price in Ukraine cannot be UAH 2,000-3,000 (USD 77-115) per tcm of gas because it’s USD 250/tcm at international hubs. At the same time, he stressed that the government has to “protect Ukrainians” as many “cannot pay more.” He said that compensators (offsetting the effect of rate hikes) should be found before any revisions are made.

 

Groysman also stated that he understands that it will be very hard for Ukraine to get through the next years without IMF support. In particular, he said the Ukrainian government is due to repay USD 27 bln in debt in the next four years, which Ukraine cannot do without external support.

 

Recall, parliament's adoption of legislation to create an independent anti-corruption court, as well as natural gas hikes for households, are the two most critical demands made by the IMF to provide a fifth loan tranche, possibly as large as USD 1.9 bln, to Ukraine under its EFF program. Creating an independent court, in line with European standards, has been resisted among the president's entourage and the parliamentary coalition, while Groysman is resisting the gas price hike.

 

Alexander Paraschiy: It had been widely accepted in Ukraine that Groysman's alleged resistance to the gas price hike is so fierce that it undermines any sense in trying to adopt the anti-corruption court legislation in line with IMF demands. Yet in this interview, Groysman clearly stated that he's open to discuss gas price hikes. Moreover, the Cabinet’s move in March to freeze gas prices for only two months (April and May) also demonstrates his readiness to negotiate with the IMF on prices. Therefore, we believe a solution on gas prices is entirely realistic should parliament approve legislation to create the anti-corruption court meeting Council of Europe standards.

 

That said, we remain optimistic about Ukraine getting the next (and the last in 2018-2019) tranche from the IMF this summer, which will open the door for EU and World Bank lending for Ukraine. We estimate the deadline for the IMF approving its next loan tranche is mid-July 2018 (after which the chance for any tranche arriving this or next year will be close to zero).

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