Bloomberg News

Ukraine May Raise Gas Price to Unlock IMF Funds, Yanukovych Says

October 17, 2011

Oct. 18 (Bloomberg) -- Ukraine will raise the cost of natural gas for households next month to unlock an funds from an international bailout, should the government fail to negotiate lower import prices, President Viktor Yanukovych said.

The country must balance the books of state-run energy company NAK Naftogaz Ukrainy to gain access to its next payment from a $15.6 billion emergency loan from the International Monetary Fund. Ukraine, which depends on Russia for more than 60 percent of its gas, is trying to renegotiate a 2009 contract with its eastern neighbor that ended a disruption of shipments.

“All we want is to have an average European price for imported gas,” Yanukovych told journalists yesterday in his office in the capital, Kiev. “Should we fail to get it, we will be forced to raise the domestic price.”

Yanukovych today will meet Russian counterpart Dmitry Medvedev in the eastern Ukrainian city of Donetsk. While the two will discuss energy, Russia doesn’t “plan to sign any commercial contracts,” the Medvedev’s foreign-policy aide Sergei Prikhodko told reporters in Moscow yesterday.

Former Prime Minister Yulia Tymoshenko in 2009 agreed to the 10-year gas-supply agreement after a price dispute halted supplies to more than 20 countries. The ex-premier last week was sentenced to seven years in jail for abuse of power when signing the deal, which Yanukovych has called “discriminatory, unfair and enslaving.”

Ukraine wants to cut its gas imports to 27 billion cubic meters next year from an estimated 40 billion in 2011, lowering the price to $230 per cubic meter from next year’s expected average level of $415. Russia has rejected the demands, arguing that the terms of the 2009 agreement must be honored.

The IMF last year approved a $15.6 billion loan to Ukraine, the second in two years, after the economy contracted more than 15 percent. The IMF released $3.4 billion in two installments before freezing the next tranche, due in March, over the government’s failure to raise gas rates for households. The lender delayed a visit scheduled for August to Oct. 24, Prime Minister Mykola Azarov said last week.

--With assistance from Lyubov Pronina in Moscow. Editors: Balazs Penz, Andrew Langley

To contact the reporters on this story: Daryna Krasnolutska in Kiev at dkrasnolutsk@bloomberg.net; Kateryna Choursina in Kiev at kchoursina@bloomberg.net

To contact the editor responsible for this story: Balazs Penz at bpenz@bloomberg.net


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