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Rise in gas prices: Does IMF really require this?

Author : Mykhailo Pozhyvanov

Perhaps, the IMF resorts to more stringent intonations communicating with the Ukrainian leadership. After all, over the past three and a half years, Ukraine has been paid a lot of loans, but none of the economic requirements was fulfilled. Perhaps the Fund itself is interested in suspending cooperation with our side, and in order to disguise this grandiose failure, the government begins to invent non-existent ultimatums about recalculating the price of gas. Meanwhile, the Ukrainian authorities, justifying the price innovations, are not tired of referring specifically to the position of the IMF, which allegedly predetermines the further growth of tariffs
22:30, 3 April 2018

Read original article at 112.ua

Press service of Ukraine's government

Complimentary headlines regarding the head of government appeared in the media after the meeting of the Cabinet last Wednesday. "Groysman takes a punch" and does not allow cunning figures from the IMF to introduce a new (high) gas price for the population in Ukraine, the reporters wrote. And immediately added: the issue of the price of gas is not completely removed from the agenda, its decision is only postponed from April 1 to June 1. So, perhaps, the increase cannot be avoided. But the point is not even that. We see it in a rather distorted way of presenting information - after all, there is no special merit of Volodymyr Groysman in the paused price for gas, and the IMF does not require anything like it. However, it is necessary to understand the gas story from the very beginning.

Talks about raising gas prices took a new turn after President Poroshenko returned from Davos with "crossed fingers" and hopes for the arrival of the IMF mission and the issuance of the next tranche. According to the myth-making of our top leadership, the IMF, almost with a pistol at the temple, requires the Ukrainian authorities to increase the cost of gas. And the power with all its strength opposed this decision. On January 26, Volodymyr Groysman “tweeted" that in the current heating season, gas will not rise in price. About what will happen in the next heating season, the prime minister kept silent, adding only that social protection (read: subsidizing) will cover all the costs of the population.

All these promises could be very good, if Groysman and Co. could be trusted. Let me remind you that in addition to Groysman, the Ministry of Energy and the coal industry stated earlier that there was no reason to increase gas prices for the population. This was in October 2017. At the same time, information appeared that the cost of gas could increase by 18% if the government were guided by the determination of the cost of fuel by the Cabinet of Ministers’ decree # 187, which tied the price of gas to the formula "German hub +".

It is probably unnecessary to explain that this formula is calculated on the basis of import parity (i.e., the average cost of gas over a certain period of time). And if such parity increases by at least 10%, the price of gas for the next heating season should be revised. But that's not all. In addition to increasing the cost of fuel Ukrainians can expect another surprise - the introduction of a monthly payment for gas. Actually, the National Commission for Energy Regulation and Utilities has already tried to introduce a subscription fee – we saw it recently, in 2017, but then under the pressure of the public the innovation was canceled.

Did the International Monetary Fund insist on such steps? The question is complex, however, I agree with those experts who are unanimous that it is not our creditors who demand an increase in the price of gas. They are interested in the solvency of Ukraine, and not exactly how settlements between the population and providers of public services are made. Plus, as it has been repeatedly noted, the IMF expects from Ukraine first of all the introduction of a number of reforms (land in particular), as well as the adoption of the law on the Anti-Corruption Court.

Perhaps, the IMF resorts to more stringent intonations communicating with the Ukrainian leadership. After all, over the past three and a half years, Ukraine has been paid a lot of loans, but none of the economic requirements was fulfilled. Perhaps the Fund itself is interested in suspending cooperation with our side, and in order to disguise this grandiose failure, the government begins to invent non-existent ultimatums about recalculating the price of gas. Meanwhile, the Ukrainian authorities, justifying the price innovations, are not tired of referring specifically to the position of the IMF, which allegedly predetermines the further growth of tariffs.

It is interesting that at the same time figures like Groysman like to talk about two topics. Firstly, on the topic that in the current situation Ukraine cannot but pay a market price for gas - severe, but fair. I note that at the same time our country - taking into account the formula "German hub +" - pays the market price. The second point is that, according to the prime minister, Ukraine will be able to establish its own rules of the game only when it exports, and does not import natural gas. That is, never.

Yes, Ukraine is not capable of supplying such kind of fuel to international markets, because for this purpose gas is not produced in sufficient quantities. But we could well provide ourselves; at least, Ukrainians have been feeding with mantras on this topic for a long time. 15 billion cubic meters of Ukrainian gas covers the needs of approximately 90% of our population. We should buy abroad not so much - about two billion. Let's say that this imported gas could be calculated using the formula "German hub +", but why we pull the price of parity on our own resources? It turns out that regardless of the origin of fuel, our population should consume it at the price of a German hub plus transit. Then it turns out that this is not enough, because the price should be indexed at the rate of import parity.

We agree that this style of management is rather strange, and the IMF is certainly not guilty of anything. Meanwhile, if the price of gas for the population does increase (even if not in this heating season, but in the next), then such a leap will pull higher the rest of the utility payments, and first of all - heating. After all, 85% of the cost of produced heat energy is gas. Therefore, in case of an increase in the price of gas, the cost of heating will increase by at least 5-6%. That, in turn, will increase the army of subsidies, which Groysman so pathetically promised to take care of.

In fact, the only thing that really worries the Ukrainian leadership lies far enough from the establishment of social justice, and from the rational calculation of gas prices. For the ruling elite, the main thing now is to stay afloat and to evolve to the next presidential-parliamentary cadence. In other words, the moment to experience the patience of the society, emptying its pockets, is now extremely inappropriate. But at the same time it is profitable to portray the defender in an undeclared war with the IMF. Who knows, maybe the electorate will be bought again and our leaders will really be lucky - if not with the tranche, then at least with re-elections?

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