KYIV, Jan 13 – Ukraine will cut 30% natural gas prices for households, introducing state regulation in the sector for the first time in five years, due to coronavirus pandemic, Prime Minister Denys Shmyhal said Wednesday.

The move comes as most businesses, excluding those deemed by the government essential, are on a three-week lockdown through January 24, while cold weather boosts market demand – and prices - for gas.

"Today, the situation with quarantine and pandemic makes it difficult for Ukrainians to earn additional income and compensate for the significantly rising gas prices on the commodity exchanges,” Shmyhal said at a Cabinet meeting on Wednesday.

The introduction of state regulation in the energy sector is a major move that may trigger tensions between Ukraine and the International Monetary Fund, which has been already concerned about the government’s unwillingness to implement economic reforms.

Ukraine’s natural gas industry was one of the most corrupt sectors of the economy and the existence of two sets of prices – market price and price set by the government – creates ample opportunities for corruption.

The government on Wednesday agreed to set the gas price at 6,999 hryvnias per 1,000 cubic meters, Shmyhal said, down from about 10,000 hryvnias/1,000 cu m that regional gas companies have been charging households in January.

“If we do nothing, the price would have increased to 12,000/1,000 cu m or even more next month,” Shmyhal said, adding the government will monitor gas distribution companies to make sure that the prices at the level set by the government.

It was the pressure from the IMF that has forced Ukraine to start energy sector deregulation in 2015 in exchange for $17.5 billion bailout package.

The IMF insisted on hiking the natural gas tariffs, bank restructuring, reforming governance of state-owned enterprises and anti-corruption measures among other things for Ukraine to get the loan. At the time, state-set gas price was 20% lower than the market price.

The government’s removal of regulations in 2015 helped to stop draining state finances that had been ploughed into the national energy company Naftogaz Ukrayiny, which for years was unable to charge market prices for gas.

For example, Naftogaz incurred losses of UAH 110 billion in 2014, only reducing the gap to UAH 31.5 billion in 2015 when Ukraine started to move gas prices closer to market levels.

Shmyhal instructed the justice ministry and the energy ministry to draft resolution that implements the state regulation of household gas prices, but Acting Energy Minister Yury Vitrenko said paperwork and also some legislative changes will probably lead to the price cut be in effect on February 1.

“In other words, starting February 1, all Ukrainian consumers will pay much less for gas,” Vitrenko said. (tl/ez)