Eurasian Energy Briefs

UNIAN Press Agency

by Roman Kupchinsky

Ukrainian news agency UNIAN reported on July 25 that gas prices for domestic household consumers and communal energy companies will rise by 20 percent. The rate increase for communal energy will go into effect on October 1 and for household consumers on September 1.

The price increase was published on the website of the National Energy Regulating Committee; however UNIAN noted that the statement did not include the date this decision was reached.

The official announcement further stated that beginning January 1, 2010 there will be quarterly increases of 20 percent until the price of gas for consumers in Ukraine equals the price paid for imported Russian gas.

Currently Ukrainian’s pay between $51-$80 for 1,000 cubic meters of gas while the average annual price for imported Russian gas is $228/1,000 cubic meters. The difference is subsidized by the State budget.

The impact such an increase will have is many fold.

1. It will help clear the way for a loan of $1.2 billion from European banks to Naftohaz Ukrayina, the state- owned energy monopoly, and allow it to buy gas from Russia needed to insure reliable transit of Russian gas to the EU in the upcoming fall/winter heating season.

2. The price increase will help fill the coffers of Naftohaz which has been on the brink of bankruptcy for the past several years.

3. Higher prices often force a decrease in consumption. This is especially vital for Ukraine which is one of the least energy efficient countries in the world.

4. The increase was announced at the beginning of what promises to be a highly contested presidential election due to be held in January 2010. It might provoke a backlash from already impoverished consumers and work to the detriment of Prime Minister Yulia Tymoshenko, one of the major presidential candidates.

The financial woes of Naftohaz were the subject of a study on the Ekonomichna Pravda website

This study claims that if Naftohaz were to go into bankruptcy it would create a major legal problem as to who in Ukraine is legally entitled to buy Russian gas and who is responsible for fulfilling the binding transit contracts delivering Russian gas to the EU.

The largest creditors of Naftohaz are two Ukrainian banks –Oschadbank and Ukreksimbank - and they would stand to lose the most, even with an increase in the statutory fund of Naftohaz by the government.

Any attempt to bankrupt Naftohaz would need to have the approval of the Ukrainian parliament – an impossible task given the current divisions in that body according to the website.