Ukraine adjusts retail gas price for households, heating utilities

Ukraine’s Cabinet of Ministers approved on April 27 a revision of natural gas prices for households and heating utilities as of May 2016. In particular, the gas price for all households will be equal to UAH 6.879/cm. Before the change, households that use gas for heating purposes were paying UAH 3.6/cm for the amount of 1,200 cm per heating season, while the rest were paying UAH 7.188/cm.

The natural gas price for district heating companies will increase 2.7x to UAH 6.81/cm, which will inflate their heat production costs. This way, the Cabinet has upgraded the price of all gas to practically a single “economically justified” level, as was earlier committed to the IMF.

Alexander Paraschiy: The gas price hike is an effort by PM Volodymyr Groysman’s Cabinet to demonstrate its readiness for reforms. The previous government committed to the IMF to raise gas rates as of April. However, ex-PM Arseniy Yatsenyuk refused to make this unpopular decision just before his resignation. Now Groysman had to draw fire. This step definitely will be welcomed by the IMF. 

However, so far it’s not clear whether this move was done to really start systemic changes just as a bone thrown to the IMF. Corruption is now the main issue for the IFIs and we do not expect the gas price hike to be the key determinant for resumed cooperation.

Another consequence of the Cabinet decision is stronger CPI growth in 2016. In light of Yatsenyuk’s decision to avoid the gas price hike, we lowered our CPI forecast to +7.5% YTD (13.2% yoy) for 2016. Now we have to revise our estimate once again, this time to +8.5% YTD (13.9% yoy) for this year.