Ukrainians hit by higher tariffs
June 28, 2006 at 03:26ent starting July 1.
This latest increase for Ukrainian homes and businesses, the largest in recent years, follows moves by the government of Prime Minister Yuriy Yekhanurov to increase the prices Ukrainians pay for electricity, railway transportation and phone calls, in addition to natural gas.
The government, which is trying to weed out ineffective state subsidies and lift the public services sector out of rising debt, has defended the unpopular tariff policy, arguing that rate hikes are long overdue, given that they have not been increased for some six years.
According to a resolution taken by the National Energy Regulation Commission (NERC) and approved by Ukraine’s Economy Ministry on June 8, the prices for natural gas for households and businesses will rise by an average of around 85 percent, from approximately $48 to $88 per 1,000 cubic meters on July 1. The resolution is the last step in the enactment of a government decree issued on April 29.
During a June 23 round table, representatives of Naftogaz Ukrainy, the country’s state-owned oil and gas company, said that the price of gas should be adjusted to an economically reasonable level. According to Naftogaz, prices for the transportation and supply of gas have been gradually increased by the government, but the price of the gas itself has remained unchanged for years, getting to the point where production costs aren’t being covered.
Naftogaz, under pressure from the Finance Ministry, agreed to cut spending by Hr 4.8 billion to Hr 53 billion ($10.5 billion), according to the company’s financial plan approved in late May.The gap is expected to be covered by the gas price hike that starts on July 1.Naftogaz is the country’s biggest taxpayer and the government each year has to approve its financial plan to make sure it collects all taxes and fees.
Despite the unpopularity of the hikes among the cash-strapped Ukrainian people, 25 percent of whom are reported to be living at the poverty line, in the long run, analysts believe that the higher prices will have a positive impact on Ukraine’s economy by forcing industries to shift to energy-saving technologies.
Moreover, abstaining from state subsidies should induce industrial consumers to engage in fairer competition and provide improved services, with resulting higher profits for themselves and increased tax revenues for the state.
The NERC also foresees a further rise in electricity prices, following the 25 percent hike it approved in May. The additional 25 percent hike is planned to be introduced in three stages: once in September and twice next year. According to newly adopted rates that took effect in May, electricity prices for Ukrainian households increased by 25 percent to $.039 per kilowatt-hour.
Apart from the energy sector, the tariff hikes, which had been artificially held up right up to the last parliamentary elections on March 26, will also affect the country’s transportation and communications sectors.
The price of railway tickets surged by almost 50 percent in mid-June and is expected to increase by an additional 30 percent next year. Prices had been kept low owing to higher transportation costs paid by industry.
Regulatory and government bodies are also discussing a 30-35 percent rate increase for local telephone calls, to be partially tempered with 15-70 percent reductions on long-distance calls of various categories.
The first round of tariff hikes introduced by the government in May led to nationwide street protests by trade unions the same month, then more recently on June 21, and again in downtown Kyiv on June 27, when more than 15,000 gathered in the capital’s Independence Square. The Federation of Labor Unions, which organized all three protests, had threatened to rally up to 100,000 protesters in Kyiv.
The tension over increased tariffs could spill into the political arena, as the lawmakers elected to the country’s new parliament on March 26 hammer out the composition of the next government. Yulia Tymoshenko, who was sacked as premier last September, looks set to return to head the government, just as the higher tariff costs kick in for the public.
According to Dmytro Vydryn, head of the European Institute for Integration and Development and a member of Tymoshenko’s Byut faction, Tymoshenko’s growing popularity is not likely to be phased by the rising costs for gas, train fares or telephone service.
“Energy tariffs rise everywhere in the West”, said Vydryn. “But it doesn’t seem to be painfully affecting the citizens, as their salaries make provision for a margin that covers such tariff hikes.”
According to Vydryn, Tymoshenko’s policy will be aimed at raising salaries and living standards rather than decreasing the tariffs.
Although Tymoshenko is remembered for introducing a series of unpopular energy policy measures during her last incumbency as premier, now, according to Vydryn, the faction leader is going to introduce programs to save energy, protect economically vulnerable social groups and attract foreign investments, instead of rolling back the hikes already in place.And more importantly, Tymoshenko has threatened to remove middlemen in Ukraine’s lucrative gas trading business, which is heavily dependent on gas imports from Russia and Central Asia.