Ukraine will increase household prices for gas by 50 percent in May, and the utility companies will see a 40 percent raise as of July, newly appointed head of Naftogaz Ukraine Andriy Kobolev said on March 26.
The price hikes will be compensated through direct subsidies for the poor, and this mechanism was set up by the Cabinet on March 23, but it is yet to be made public, Kobolev said. He was appointed to the job on the same day.
But even despite the price hikes, which have been approved by the government in conjunction with the International Monetary Fund, the Naftogaz budget deficit this year is expected to run up to Hr 80 billion, or 5.6 percent of the gross domestic product. The figure is based on the assumption that the hryvnia rate will balance around 10 to the dollar.
“This is a record number, and this is something we have to manage with along with the regulator,” Kobolev said.
Naftogaz Ukraine, the national mammoth gas importer, distributor and owner of transit and storage network, has been near bankrupt for years and bailed out by the government on a monthly basis. Many of the losses were caused by heavy across-the-board subsidies extended by the government to all gas consumers, as well as corrupt schemes that have thrived under each government in power.
The previous chief of Naftogaz Ukraine, Yevhen Bakulin, was arrested last week and is now accused of running a criminal gang that has caused at least $4 billion in damages to the state, according to Interior Minister Arsen Avakov.
The new chief, 35-year-old Kobolev, says he plans to make it one of his priorities to clean out the state company. “ My role is to make sure it does not happen in the future,” Kobolev said.
He said that he also has to make sure that there is enough gas for the population, and that Ukraine pursues alternative gas supply strategies, including reverse gas supplies from the European Union countries.
Prime Minister Arseniy Yatseniuk said on March 26 that Ukraine could potentially receive 25 billion cubic meters of gas from Europe, and the price could be up to $100 cheaper than the price of imported Russian gas. Ukraine consumed 55 billion cubic meters of gas last year, of which 28 billion cubic meters came from Russia.
However, certain provisions in existing bilateral gas contracts prevent Ukraine from using virtual reverse schemes, when gas only crosses the border on paper, thus limiting the nation’s ability to re-import Russian the gas that was shipped through its pipeline to Europe at cheaper prices.
Russia’s Gazprom threatened to lift all current discounts for Ukraine this year, which would bring the price close to $500 per 1,000 cubic meters from the current $286. But Kobolev said he will travel to Moscow soon to get all gas-related info first-hand. The date of the visit is yet to be scheduled.
Restructuring Ukraine’s debt to Gazprom is expected to be one of the issues under discussion during that visit. Kobolev says Naftogaz debt currently stands at $1.7 billion.
Kobolev said his long-term goal in Naftogaz was gradual liberalization and gradual privatization of some parts of Naftogaz through IPOs, which would also make the company’s operation more transparent.
Kyiv Post deputy chief editor Katya Gorchinskaya can be reached at [email protected]
