Ukraine Hopes Russian Gas Price Won't Change – Report

[FarCenter]

MOSCOW, February 24 (RIA Novosti) – Ukraine hopes that the price it pays for Russian natural gas will remain unchanged despite the ouster of pro-Russia President Viktor Yanukovych, Ukraine’s acting energy minister told Reuters on Monday.

Russia’s state gas giant Gazprom agreed with Ukraine’s Naftogaz in December to slash the price that Ukraine had paid since 2009 by about a third, from about $400 per 1,000 cubic meters to $268.50.

“We hope the price will be stable,” the news agency quoted acting Energy Minister Eduard Stavytsky as saying.

More than half of the 55 billion cubic meters of natural gas consumed by Ukraine each year comes from Russia, according to Reuters.

More than 27.5 million 1000 cubic meters at $268.5 each is more than $7.38 billion / year to Russia.

Ukraine Gas Pricing Policy: Distributional
Consequences of Tariff Increases

Abstract

Ukraine’s gas pricing policy subsidizes gas and heating for all households. As the cost of
imported gas rises, this policy increasingly weighs on government finances, sustains
energy over-consumption, dampens investment in delivery systems, and undermines
incentives for domestic production. However, gas price hikes have been deferred to the
medium-term as they are politically unpopular. Through estimation of household demand
functions by income quintiles to evaluate the distributional consequences of tarrif reform,
this paper finds that tariff reforms combined with targeted social support can address the
economic inefficiencies of the current pricing policy without large welfare costs to the
lower income segments of the population.

https://www.imf.org/external/pubs/ft/wp/2012/wp12247.pdf

Residential gas is priced at 20% of cost and there is only 40% gas meter coverage. Perhaps the IMF can fix this.

[Xithras]

1. Not much chance of that. The Ukrainians are going to get hosed.

The lower rate was personally ordered by Putin after a personal meeting with Yanukovych in an attempt to prop up his support and reward the Ukrainian people for the move away from the EU. Now that Yanukovych and Russo-centrism have been rejected, I wouldn't look for much charity from Pootypoot.

Hell, I wouldn't be particularly shocked if Russia tried to repeat the 2009 dispute and cut them off entirely. The guy is a control freak and holds grudges.

[dipsydoodle]

2. That's maybe the least of their problems

Now that it looks like the IMF might be involved , yet again , the IMF had already demanded that Ukraine increase is gas prices to consumers there and also devalue their currency - makes exports cheaper, imports dearer whilst increasing the cost of servicing both current and future debt which is repayable in foreign currency.

See :

What economic help for Ukraine?

One central problem was Ukraine's reluctance to raise energy prices. It is a sector the IMF described as "opaque and inefficient". The subsidies impose an additional burden on stretched government finances and remove an incentive for households and businesses to use energy more efficiently.

Energy reform is also an important element in the association agreement negotiated with the EU. It was never signed by the former Ukrainian president, Viktor Yanukovych, a decision which sparked off the protests.

So it seems a fair bet that any financial help from the West would require a commitment from Ukraine to cut those subsidies and move towards market prices for energy.

However strong the economic arguments for doing so might be, any Ukrainian government would find it a difficult move politically.

The problem could be especially acute if the Russian gas supplier, Gazprom, were to raise the price it charges Ukraine, and there has already been speculation that it might do so.

http://www.bbc.co.uk/news/business-26324686

Gazprom agreed the reduced gas price with Yanukovych ,who is no longer there , as part of a package.

The Russian State owns a 50.002 per cent controlling stake in Gazprom.

[Adrahil]

3. Well, that money for the Presidential Palace had to come from somehwere!

Opulence! I haz it!

I'm guessing Yanukovych will be Snowden's new roomie very soon!

[dipsydoodle]

4. That was trivial compared with their overall debt levels.

Even mention of it reminds me of an old example of Parkinson's Law when a nuclear power station was rubber stamped in minutes followed by hours of discussion concerning some cycle sheds.

[Adrahil]

5. Well it was mainly a joke, of course....

... but as I understand it, whichever side you "support," corruption has run pretty rampant in Ukraine.

It reminds me of when Chavez bought an Airbus jet because he saw some Middle Eastern magnate with one.

[dipsydoodle]

6. Don't misunderstand me

Nothing I write is in support of the old regime. Its just that I don't want to see their entire population hung out to dry following protests made in good faith but partly misplaced - the oppostion have yet to mention their economy.



btw - for Parkinson's law of triviality see http://en.wikipedia.org/wiki/Parkinson%27s_law_of_triviality

[Adrahil]

7. That's fair enough

But I don't blame them one bit for wanting to be out from under the boot Putin and Russia.

[Comrade Grumpy]

8. I hope they enjoy the tender embrace of the West and the IMF...

...as "long live the revolution" becomes "I can't afford to heat my home."

[Adrahil]

9. Yes, Russia made sure they were warm....

... so long as they did EXACTLY what they were told.

[Pretzel_Warrior]

10. notice how economies that are authoritarian and controlled all do that. Iran and Venezuela

also engage in massive subsidies to their citizens which totally fucks up their economy but also wins a few brownie points so the regimes don't have to engage in sustainable economic management and they can continue to oppress the Joe Citizen.

[malaise]

11. It doesn't work that way n/t