Why the West demands from Kiev to increase gas prices

Почему Запад требует от Киева повысить цены на газ

Ukraine will not receive credit, if not increase gas prices for population

The international monetary Fund and the United States urged Ukraine to raise gas tariffs. Experts say that Kiev does not receive money from the IMF and from the European Union and the world Bank.

The United States joined the request of the International monetary Fund to raise gas prices for Ukraine’s population.

About the acting US Secretary of state John Sullivan said during a meeting with Ukrainian foreign Minister Pavlo Klimkin in Toronto on the sidelines of the meeting of the group of seven.

Корреспондент.net decided to understand why the West insists on the increase of gas tariffs.


The condition of the IMF for Ukraine

In March 2015 between the IMF and Ukraine had been approved four-year program for increased funding in the amount of about 17.5 billion U.S. dollars. Now, the IMF has provided Ukraine on this program about eight billion dollars.

During his recent visit to Davos for the world economic forum, President Petro Poroshenko discussed with the Director of the IMF Christine Lagarde requirements for allocation of loan to Ukraine.

The IMF has put forward four requirements for obtaining the next tranche. So, Kiev should adopt a law on privatization and ensure a transparent sale of state assets, to create anti-corruption court to address the issue of gas prices. Also, the requirement was already adopted pension reform.

Why raise gas prices

April 21, the IMF once again reminded the Ukrainian authorities about the main requirement is to establish market prices for gas. We are talking about the increase of tariffs by 30 percent.

“It is important that gas prices and utility tariffs is no exception – is determined by the market, in accordance with the reforms that were introduced in 2016. This is a major breakthrough in the reform process in Ukraine over the past few years. Low gas prices for households is equivalent to the subsidies that were regressive and most of all helped the largest consumers,” say the IMF.

The market price for gas “eliminates the space for corruption,” believe in the Fund. Moreover, by bringing energy prices to market levels, the Ukrainian company will receive more and will have broader investment opportunities in the gas infrastructure.

According to the IMF, the Ukrainian government thus neutralizes the growth of tariffs for the poor by “better targeted and more effective system of subsidies for utilities”.

“The new tariffs will also reduce the extent of corruption and will contribute to further reduce energy consumption, to encourage investment in domestic production, and thus will help to achieve energy independence,” convinced the IMF.

Ukraine in 2016, has agreed to bring gas prices in line with the level of external markets, however, this requirement has not been met, what has frozen the issuance of credit tranche from the IMF.

Ukraine’s Position

March 27 it became known that the Cabinet of Ministers has postponed the issue of raising gas prices for the population for two months. The effect of spacebattles ended April 1.

However, the Ukrainian authorities can still carry out the proposed IMF reforms before presidential and parliamentary elections no later than 2019. The current programme ends in March 2019.

Poroshenko said that many Ukrainians do not feel the effect of the reform due to the fact that they were faced with the devaluation and the previous rise in prices for gas at the request of the IMF.

Actively against the increase in gas prices acts and the Prime Minister of Ukraine Vladimir Groisman.

“We are now in a dialogue on best gas prices. As promised, this season’s promotions will not be”, – he said in January.


No tranche will not have the money from the European Union and the world Bank

Senior economist, center for social and economic research CASE Ukraine Vladimir Dubrovsky said Radio Liberty, that without the cooperation programme with the IMF, Ukraine can not and in foreign markets to borrow anything.

“And without this it is impossible to make these refinancing peak payments, which are expected in 2019. On the other hand, the IMF is also interested in the fact that the program somehow lasted, because if it’s over by default, then the IMF will also be a problem. He not only will not receive the money that needs to, but his reputation will suffer, ” – said the expert.

Economist Borys Kushniruk suggests that no tranche of Ukraine will be able to through 2018 because disbursement of foreign exchange reserves of the country, and not in the budget. However, the lack of assistance, the IMF will hit the financial image of Ukraine.

“We have, especially in 2019-2020, are the greatest of external debt, both through national Bank and the government. Here there would be a risk that we will not be able to fulfil these obligations is not so this year, as in the following” – suggests the expert.

Additionally, the lack of support of the IMF automatically means that other Western donors would provide financial assistance to Ukraine.

Investment banker Sergey Fursa also says that without IMF tranche nobody will provide Ukraine with financial assistance.

“Neither the European Union nor the world Bank nor the Americans, nobody is going to give Ukraine the money until we get… the Attraction tranche of three billion dollars a little stirred up the heads of our officials, who have decided that it is now possible to run the program. But no – the market will close as soon as you realize that we are losing assistance from the IMF,” suggests the banker.

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