Ukraine plans to raise household gas prices by 23.5% on November 1, after yielding to pressure from the IMF.
The country’s cabinet of ministers decided on the tariff hike at a meeting on October 19. The move was a key prerequisite for Ukraine to receive further financing from the IMF. Within hours of the decision, the international lender said it had agreed to provide Kyiv with a new US$3.9 billion tranche of aid, which will be released over the next 14 months.
Addressing the cabinet, Prime Minister Volodymyr Groysman said the gas price increase would not only help Ukraine obtain international financial assistance, but also stave off default. Initially the IMF had called on the government to raises prices by 60%, but Groysman said a compromise deal had been hammered out.
Kyiv reached an agreement with the IMF to switch to a market-based formula for household tariffs in 2016. Under the plan, Ukraine was to increase prices steadily, on a quarterly basis. But having failed to make any adjustments for several quarters in a row, the government was forced to raise the price significantly in November.
Starting next month, households will pay 8,555 hryvnias (US$305) per 1,000 cubic metres of natural gas. In contrast industry prices – which are already liberalised – were raised by 9.4-9.7% on October 1 to 13,439-14,586 hryvnias (US$478-519), including VAT. A further significant hike in household rates is anticipated next year, in order to bring them in line with those paid by industrial consumers.
Artificially low residential gas prices have led state-owned energy group Naftogaz to rack up heavy losses in recent years from sales to the sector. They have also led to illicit sales of gas designated for households to industrial customers, which would otherwise have to pay higher market-based rates.
The latest price increase, which comes ahead of Ukraine’s presidential elections scheduled for spring next year, will prove unpopular among voters. Incumbent President Petro Poroshenko, who backs the Groysman cabinet, is already trailing in the polls behind Yulia Tymoshenko. Tymoshenko labelled the move a “crime”, even warning that “most families simply won’t survive the winter” with the higher prices.