Price increase

The population of Ukraine and heat and utilities will pay an additional $450 million for gas

In Ukraine, a political conflict is flaring up around the decision of the National Energy Regulatory Commission (NERC) to increase gas prices for the population and heating and utilities by 50% from August 1. The long-overdue decision, which the International Monetary Fund (IMF) has been demanding for several years, will cost consumers about $450 million by the end of the year. But this is just the beginning. This money will not save Naftogaz of Ukraine from losses when selling imported gas on the domestic market and is unlikely to allow the country’s budget to refuse credit support for the national oil and gas company to make timely payments for gas with Russia.

Trade unions have already stated that the decision has not been agreed upon with them and will be challenged. Former Prime Minister Yulia Tymoshenko also promised to get the price increase reversed in court. In response, NERC Chairman Sergei Titenko said that the government had no obligation to ask the opinion of trade unions. According to him, the general agreement between the Cabinet of Ministers and trade union organizations (Cabinet Order No. 1250-r dated September 17, 2008), which obligated central authorities to make decisions on increasing tariffs for the population only with the knowledge of trade unions, was in force in 2008-2009 . Let us recall that it was thanks to this order last fall that Ms. Tymoshenko’s government managed to avoid fulfilling agreements with the IMF and other international financial institutions on a consistent increase in gas prices for the population. The court, at the request of trade unions, overturned the NERC resolution, and the Cabinet of Ministers did not particularly challenge it, freezing gas prices. As you know, Mrs. Tymoshenko was going to run for president and, obviously, decided to sacrifice the next tranche of the fund so as not to deprive herself of all chances in the election race.

Now such a scenario cannot be ruled out either (for example, if the public response turns out to be too strong, the ruling party of the regions may well win back), although the government really needs an increase in gas prices. He has few resources to subsidize Naftogaz, and the concern itself, given the current climate, cannot cope with payments for Russian gas on its own. But the main thing is that the government is trying to negotiate with the IMF on a new stabilization loan of $20 billion. The Fund, among other things, is firmly insisting on bringing gas prices to an economically justified level.

According to the decision of NERC, the average gas price for the population will increase from next month from 78 to 118 dollars per thousand cubic meters, and heating and utilities will have to pay 165 instead of 110 dollars. Gas consumption in this segment, even during the crisis year of 2009, remained stable. While the overall Ukrainian gas market (mainly due to industry) fell by 16 billion cubic meters, or 23%, last year, the population and utility sector enterprises reduced consumption by only 700 million cubic meters, that is, only 2.3%. Naftogaz sells about 25 billion cubic meters per year to these two categories of buyers. From August to December, the population uses approximately 7-8 billion cubic meters, and heat and utilities use about 3 billion cubic meters. It turns out that in five months the state concern can count on approximately $450 million in additional revenue.

However, the situation will not change radically - Naftogaz will continue to trade gas on the domestic market at a loss. As Minister of Housing and Communal Services Yuri Khivrich said yesterday, in the third quarter, one thousand cubic meters of imported gas costs the company $255. Imported gas is supplied to industrial enterprises, budgetary organizations and heating and utilities (the population receives gas produced in Ukraine). Maximum gas prices for industry and public sector employees have not been revised. According to the country's Minister of Fuel and Energy, Yuri Boyko, there are no plans to index them, although they are lower than the cost of Russian gas. Naftogaz can sell gas to chemists for only $198 per thousand cubic meters, to metallurgists for $237, and to other enterprises and budgetary institutions for $252. At the same time, losses from supplies to heating and utilities companies, which even after an increase of 50% will bring the state concern a net loss of $90 per thousand cubic meters, the state must compensate from the budget. For other categories of consumers, Naftogaz is not entitled to such a subsidy.

In the first half of the year, the Ukrainian concern paid Gazprom $3.8 billion for imported gas. At the same time, its revenue from the sale of imported gas, according to Vremya Novostei calculations, was at least $1 billion less.

Alexey GRIVACHS