KIEV, May 31 â€“ The Ukrainian government on Wednesday approved in principle an almost 73% hike on price of natural gas supplied to households in a move to save the countryâ€™s key energy company from bankruptcy.
The price hike, the steepest over the past decade, is also seen as an attempt to curb rampant gas consumption as Ukraine prepares for a looming gas price dispute with Russia later this year.
â€śThe principle decision has been approved,â€ť Energy and Fuel Minister Ivan Plachkov said late Wednesday. â€śWe will later discuss the issue of diversification of tariffs.â€ť
The government allowed the price to increase to 414 hryvnias, or $82, per 1,000 cubic meters, starting from July 1, up from 240 hryvnias that is currently paid by most households.
This is the second natural gas price over the past two months as the government has already allowed a 25% price hike on May 1 following seven years of holding the prices unchanged.
Prime Minister Yuriy Yekhanurov, who has formally resigned earlier this month after loosing election, plans to go ahead with unpopular reforms that all previous governments had skipped for years amid fears to be punished by voters.
The decision may help the next government, which is expected to be led by Yulia Tymoshenko, a former prime minister, to focus on less painful reforms while modernizing the economy, analysts said.
But higher domestic prices are expected to encourage households to save more gas and help the government in upcoming talks with Russia, the main gas supplier. Russiaâ€™s Gazprom has been pushing to boost price of gas supplied to Ukraine by at least 18% from July 1.
The decision to boost the gas prices comes as Naftogaz Ukrayiny, the national oil and gas company, warned it had been facing a major financial crunch this year unless the prices are increased.
The warning came after Naftogazâ€™s credit rating had been in April downgraded by Fitch Ratings, a major credit rating agency, which had worsened the prospects for Naftogaz to borrow money internationally.
Naftogaz has been pushing for the government to allow the gas prices to increase to 414 hryvnias/1,000 cu m in order for the company to start making profits on selling gas to the households.
The decision is especially important for the company as it has been gradually replaced from the lucrative market of selling gas to industrial consumers by a rival gas trader.
Naftogaz, which domestically extracts 20 billion cubic meters of natural gas annually, has been entirely selling it to households at prices that are controlled by the government.
Meanwhile, as the gas price hike decision has been approved, the government has now been considering ways of helping the poor people meet the increasing energy payments, Plachkov said. The next government meeting was due on Friday.
The government has been apparently planning to use the system of targeted subsidies to the poor based on the size of their housing and the level of gas consumption.
â€śAn absolute majority of the people whose monthly income is lower then the subsistence level would have a serious [state] support,â€ť Ivan Sakhan, the labor and social policy minister, said. â€śThe will pay only 15% to 20% of their monthly income on utilities.â€ť (nr/ez)