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Oleksandr Danylyuk, an advisor to acting Prime Minister Yuriy Yekhanurov Serhiy Zavalnyuk Despite protests by labor unions and the rising dissatisfaction of cash-strapped ordinary citizens, the government is pushing ahead with tariff hikes on natural gas, electricity, railway transportation and intra-city phone calls.

ra-city phone calls.

The government, which is trying to weed out ineffective state subsidies and lift the public services sector out of rising debt, has defended the tariff policy, arguing that rate hikes are long overdue, given that they have not been raised for some six years.

The government has also pledged to increase subsidies for the needy, who are seen as incapable of affording this transition to market prices, which analysts have labeled as painful but badly needed reforms.

More tariff hikes

Earlier this month, the National Energy Regulating Commission (NERC), Ukraine’s energy market regulator, approved sharp 79 to 85 percent gas price hikes for the public. The proposed increase, which has yet to be adopted by the government, follows the 25 percent increase in gas prices that took effect May 1.

Should the new rates be approved, gas prices for nearly 48 million residential customers would increase by up to $87 per 1,000 cubic meters of gas, close to the price Ukraine pays for gas imports from Russia and Central Asia.

In January, Ukraine, largely dependent on gas imports from the east, inked a gas accord with Russia, agreeing to pay $95 per 1,000 cubic meters of gas, almost double the amount the country had paid in previous years. If the latest hike is approved, it will bring year-to-date household gas price growth to 130-135 percent.

The NERC also sees electricity prices, up 25 percent since May 1, rising an additional 25 percent in several increments: this September and twice next year.

According to newly adopted rates that took effect in May, electricity prices for residential consumers increased by 25 percent to $.039 per kilowatt-hour.

Also in May, gas prices for households and state-funded enterprises increased by a quarter to $47.5 per 1,000 cubic meters and $71 per 1,000 cubic meters of gas, respectively. Since the May hikes, monthly electricity and gas bills paid by those who receive no subsidies from the government have been roughly $20-30, and sometimes even higher, depending on household consumption. Meanwhile, the gas tariff for heat-producing companies was increased to $78 per 1,000 cubic meters.

The sharp tariff hikes have affected transportation and communications, in addition to leading to higher energy costs.

The price of railway tickets surged by almost 50 percent on June 13. Vasyl Hladkikh, general director of state railway holding Ukrzaliznytsya, said the hikes are necessary to cover losses the railways incur from offering passengers transportation at below market value, adding that prices have been kept steady for six years, largely thanks to higher transportation costs paid for by industry. Ukrzaliznytsya incurred Hr 2.4 billion (nearly $500 million) in losses on passenger transportation last year.

Train tickets are expected to increase by an additional 30 percent next year.

Meanwhile, government officials and regulatory bodies are still mulling over 30-35 percent rate increases on local telephone calls, along with 15-70 percent reductions on long-distance calls of various categories.

Painful, but badly needed reforms

Ukraine’s government and parliament managed to forestall hefty tariff hikes on electricity, natural gas, railway transportation and telephone calls for the public until after the March 26 parliamentary elections, but officials have steamrolled ahead to implement them now that the elections have passed.

Oleksandr Danylyuk, an advisor to acting Prime Minister Yuriy Yekhanurov, said the tariff hikes implemented by his boss’s government are unavoidable and not likely to be reversed, regardless of which political force gains more influence in the soon to be formed coalition government.

“Few political forces are criticizing the government for these decisions,” Danylyuk said, adding that all serious politicians and economists realize that they are necessary.

As necessary as they may be, the tariff hikes will still end up fueling inflationary pressures, making it difficult for the government to keep inflation under check and below 13 percent as hoped, according to Danylyuk.

Analysts have insisted that such tariff hikes are necessary because prices have been kept artificially low for years as a result of populist government policies, and have left many state-owned providers of transportation, energy and communications cash-strapped and inefficient.

But this hasn’t stopped Ukraine’s population – a quarter of which is estimated to be near the poverty line – from worrying about how they will afford the new prices.

Ukraine’s Labor and Social Policy Ministry has rushed to calm public fears by pledging to increase subsidies on public utilities for the needy. No finite details have been released, however.

Meanwhile, Ukraine’s Confederation of Labor Unions, which gathered about 10,000 supporters during a May 24 protest in Kyiv against the tariff hikes, pledged to hold a larger repeat protest in Kyiv on June 27. Protests are also being organized in other Ukrainian cities.

Analysts insist that the sharp tariff hikes could prove painful for many citizens, but they are necessary to help revamp the public services sector into profitable enterprises capable of providing quality service.

Nonetheless, experts have also predicted that the across-the-board tariff hikes will hit the purchasing power of many Ukrainians and fuel inflationary factors at the same time.

Official figures show that the average monthly salary in Ukraine is just under $200, but these statistics are believed to be misrepresentative, as many Ukrainians do not declare their full incomes to avoid paying taxes. Studies in recent years have shown that a quarter of the population lives at the poverty line. Given that many of these people earn $200 or less a month, average monthly bills for communal services, costing about $30, are already a major expense.By raising the price for these public services to market levels, Ukraine’s industry, which has over the years paid higher prices for energy and transportation services, will be allowed to gradually stop subsidizing the population, making their products more competitive on the market. The result, analysts say, will equate to a healthier economy, where industry generates more profits and pays more taxes.