Ukraine wants the International Monetary Fund to unlock funds from the present frozen bailout programme so it can repay debt due this year, but it is still not ready to raise gas prices at home as the IMF wants, Prime Minister Mykola Azarov said on Monday.
Azarov, in an interview, continued to hitch the stalled deal with the IMF to hopes of a successful outcome to talks with Russia on a new gas price.
The Ukrainian government says it can afford to take the politically risky step of raising gas prices for Ukrainian households by 50 percent — as pressed for by the IMF — only once it has negotiated cheaper gas from Russia.
But though he said he was still hopeful a compromise could be worked out with Moscow now that the Russian presidential election was over Azarov gave no indication of any imminent breakthrough.
Ukraine, which relies heavily on Russian gas imports for its own needs and also tranships the bulk of Russia’s gas exports to Europe, has rejected an offer by Moscow to cut gas prices by 10 percent, saying the fuel would still be too expensive.
"We are not wanting any discounts for ourselves. We must draw up a contract under which the price for Ukraine will be determined as it is with any other European country, but not any higher as it is now," Azarov said.
The Kiev government’s failure to raise gas prices at home and carry out other unpopular reforms with a parliamentary election coming up next October has cost it $6 billion in forfeited tranches of IMF money under the present $15 billion programme.
The IMF is Ukraine’s main international lender though the ex-Soviet republic has also been helped to plug holes in its budget by a $2 billion loan from Russia’s VTB.
REFINANCING DEBT
Azarov said Ukraine still hoped to draw cash under the present IMF programme to "refinance" about $3.1 billion of debt stemming from the preceding bailout programme, though he appeared himself to hold out little hope of this happening.
"Ukraine will thoroughly meet all of its obligations, including those to the IMF but we have the right to ask for our debt to be offset by the next tranche (under a new, current programme)," he said.
"If they refuse, we will repay (the debt)."
"If the IMF leadership agrees that the gas prices for Ukraine are unjust and not right then there is the obvious question: Why must we pass on an unjust gas price to the population ?"
"This is the main point of principle we are discussing with the IMF, he said.
The current price of $416 per thousand cubic metres which the Kiev government pays for Russian gas under a 10-year contract signed during the previous government of Yulia Tymoshenko in 2009 is one of the biggest single drags on the economy. Ukraine badly needs a price reduction to hold down its budget deficit.
"Azarov’s comments … indicate the tricky financing positing facing the government this year, with a lump of debt service looming in June (about $2.5 billion) and cash resources dwinding – resources in the single Treasury account are reportedly down to around 4.7 billion hryvnias ($588 million), from 7.8 billion hryvnias one year ago," RBS analyst Tim Ash said in a note.
Azarov gave little away about the detail of the close-hold talks with Moscow.
But he said Ukraine still wanted Moscow to accept the idea of a three-way consortium comprised of Russia, Ukraine and European companies to modernise and run its gas pipeline network.
This idea, however, holds little appeal for Russia which would like a bigger stake in the network.
