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IMF tells Ukraine to hike gas bills for households

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May 28, 2012, 1:42 p.m. | Ukraine — by Associated Press

Head of the International Monetary Fund mission to Ukraine Chris Jarvis speaks to reporters in Kiev May 28, 2012 in Kiev, Ukraine. The IMF urged Ukrainian authorities to press ahead with austerity measures to unfreeze a $15.6 billion bailout loan.
© AP

The International Monetary fund has told Ukraine it must raise gas and heating prices for households if it is to regain access to a $15.6 bailout loan from the fund. The government of President Viktor Yanukovych has been reluctant to make the unpopular move ahead of parliamentary elections in October. That led the IMF to freeze the bailout program last spring.

The head of the IMF mission to Ukraine, Chris Jarvis, notes Ukrainian families currently pay one-fifth of the import price for natural gas.

He told reporters on Monday that the Fund will resume talks only after "some actions from the government."

Ukraine is hoping to get a price discount for Russian natural gas, but talks with Moscow have been unsuccessful so far.
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Ivan Ivanov May 28, 2012, 3:02 p.m.    

First. Be sure that the gas prices will rise, it's a matter of time and that time will definitely come only after elections. We have to understand that the current government has nothing to offer peaple, there are not results of reforms, the international image is ... bad. All they can do is to pretend that they really protect the interests of each citizen ... we are being told to rise prices but we ... none has th right to tell us what to do and so on ...

Second. Ukraine may forget about cheap Russian gas. We have been listening the same story for more than two years (without mention that was exactly what Yanukovich had promised before he was elected). So? Within those years we could have applied for International Arbitration a great many times...like some other states did. Why? Is Yanukovich really afraid of Putin, not only in political meaning but olso in human. Is the president really thinks that someone is going to speak with a weak person, a weak leader (if e may be called so)?

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Phill M May 29, 2012, 6:17 a.m.    

Quick Facts that never get pointed out but need to be known so everyone knows what the hell is going on (but nobody gives a crap about because they already think they know the answer). It would be nice to have time to put together (or find) more complete data to allow proper comparisons between end-user prices, GDP and per capita income comparisons towards gas prices, etc.

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Germany pays at the border $450 per 1000 cubic meters of natural gas imported from Russia (pipelined in, as of April 2012 listings). I couldn't find a current end-user price....

Germany also subsidies the crap out of its solar energy program, though their economy can afford it.

Japan pays $350 per 1000 cubic meters of natural gas imported from Indonesia (shipped in--more costly than piping)

North American natural gas prices are at around $225 per 1000 cubic meters at the higher end for domestic users (after distribution fees), with some regions pricing as low as $100 per 1000 cubic meters.

Yanukovych based his 2012 budget on a gas price of $416 per 1000 cubic meters (http://en.rian.ru/world/20111228/170531908.html and http://www.kyivpost.com/news/business/bus_general/detail/120458/ )

Accordingly, given these prices, Ukraine (allegedly) is importing gas at $416 (slightly less than what Western Europe is paying for Russian natural gas, but more than what most other high energy use nations are paying), but selling it at around $85 per 1000 cubic meters to the user ($125 for industry).

It is estimated that 6% of Ukraine's GDP is going towards maintaining Ukraine's gas subsidies, the same as it spends on Education, or Health Care.

The prospect of reducing gas subsidies and raising prices for the end-user will certainly hurt the average Ukrainian. Maintaining them as they are may be a good short-term solution for the user, but it may hold long term consequences for the country that will be detrimental to everyone, as the GDP cannot consistently bear the cost of maintaining subsidies without international aid. At the same time, raising them will cause a fair amount of difficult for many who are barely able to scrap by as it, and on an industrial level, it may hurt production, sales and revenue, which will reduce the economy further.

Ukraine also has one of the highest per-capita energy uses in the world, using four times as much as used per-capita in Germany. This is, sadly, partly due to the failing infrastructure of Ukraine's central water heating system and general climate.

Ukrainians need to learn to be more responsible with their energy usage (both domestically and industrially). This will held reduce the demand burden, which will free up some cash flow both for the user (using less gas = paying less for gas ) and the government ( paying less to cover subsidies ) and again, the user ( less risk of tax raises).

It seems either course of action--raising end-user gas prices or maintaining the subsidies--will hurt Ukraine. Sadly, 20 years of generally mismanaged economic and political policies and a prevailing corruption in those in upper government and business has reduced Ukraine to a nation stuck between a rock and a hard place, both unstoppably speeding toward each other.

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