Ukraine regulator rejects Cabinet resolution to raise household gas rates

Ukraine’s State Regulatory Service, the body that
approves all the acts of other state bodies, reported on Oct. 26 that it declined
to approve a recent Cabinet resolution that sets higher natural gas rates
for households and heating enterprises since November 2018. In its Oct. 26
letter, the service stated that it had earlier approved another Cabinet draft
resolution that was changed significantly afterwards, so it now requires
another round of approval. On top of that, the updated draft resolution lacks
the necessary supportive documents, some of resolution’s clauses lack logical
formulations and some violate current legislation, the service concluded.

Recall, Ukraine’s Cabinet announced on Oct. 19 that it
approved a 23.5% increase of natural gas rates for households and heating
utilities since Nov. 1. Reacting to that annoucment, the IMF issued a press release the same day
stating it has agreed a USD 3.9 bln stand-by loan program with Ukraine at the
staff level. Such a positive announcement opened the window for Ukraine’s
MinFin to tap the international Eurobond market last week to raise USD 2 bln from 5Y and 10Y bonds.

The government’s resolution stipulating hiked gas
prices since Nov. 1 was made public only on Oct. 26-27. Based on that document,
the regulated prices of natural gas will increase by 23.5% since Nov. 1, and
then will rise 15.2% for May-December 2019. Afterwards, the price will be set
freely in negotiations between suppliers and consumers, but will be capped at
the level that Natogaz will sell natural gas to commercial consumers on a
one-month prepayment.

Alexander Paraschiy: These gas
price hikes are especially painful during the current election season. The
prospect of another 15% hike next year (after the scheduled 24% November
increase) – as Ukraine’s Cabinet has committed to doing (and most likely was
insisted upon by the IMF) – reduces the Ukrainian government’s popularity and
plays in the favor of populist opposition parties. Therefore, the government
itself might be interested in changing its unpopular resolution. But given that
this resolution was the result of a compromise with the IMF (apparently), we
believe it’s more likely that the Cabinet and State Regulatory Service will
agree on its text so that it won’t hurt the gas adjustment schedule and,
therefore, Ukraine’s future cooperation with the IMF, which is crucial.