No miracle happened, and from November 1, the household gas price will increase by almost a quarter. The price rise will hit the pockets of Ukrainians at a time, when they will be worried about more pleasant things – preparation for the holiday. Consumers will receive the bills with higher tariffs before the New Year. However, they are used to it, this is not the first time. Another increase in the price of blue fuel will be soon.
It would be better to take a deep breath, as the gas price increase by 23.5% or up to 8,550 UAH for 1 thousand cubic meters, threatens with huge losses for family budgets. Of course, not for those, who continue to receive subsidies. But, to tell the truth, despite the promises of the Prime Minister Volodymyr Groysman, the amount of those, who receive them will be smaller. Although, the amount of those receiving subsidies should, on the contrary increase, which is also bad, because it will show the total impoverishment of the population.
Following a government decree, that has confirmed the inevitability of rising prices for the “golden” energy carrier, the president and the prime minister turned to consumers with soothing speeches. The head of the government, in particular, recalled the huge debts of the state to be repaid and the fact, that the obligation to equalize the gas price was still in 2008. At the same time, Volodymyr Groysman scared, that cooperation with the IMF could be terminated because of the unresolved issue, which would lead to default in the country.
In fact, the important point is missing: the new price is not the one set by the IMF high limit. After all, as the prime minister assured, at first it was a question of a rise in price by 60%, but they managed to find a compromise. Many experts emphasize: we have not completely made the way until the end, and the household gas price will continue to grow. Why do we annoy people on the eve of the presidential and parliamentary elections? Consequently, the gas price has risen, but the Ukrainians received clear answers to a few sensitive questions. We will try to do this.
Is the market price real?
Senior government officials say: the ultimate goal is the market gas price, and the rise in price is only approaching it. But is it really a market price?
“The established price is not market one, because we have no market as a such”, Oleksii Kucherenko, the former Minister of housing and utilities infrastructure said to Opinion. “Moreover, it is not economically substantiated. It’s just an additional tax, which the gas and heat consumers have been imposed with. It will go to the debt service budget. This is obvious. Neither market nor economic issues are discussed, this is a political direction. The budget is cracking, and thus it is tried to be filled. It does not differ from the excise taxes on vodka, gasoline, fuel.”
“This is a political price, for which the people who appointed it should bear responsibility. This is a political decision of the Government of Groysman and President Poroshenko”, Oleksii Riabchyn, the People’s Deputy, chairman of the energy saving and energy efficiency subcommittee of the Verkhovna Rada Committee on Fuel and Energy, Nuclear Policy and Nuclear Safety confirmed to Opinion. “It is quite possible, that the current government could sign any condition with the IMF regarding the further increase in gas prices. Why do they need it? Because they can not find other sources of budget filling and repayment of IMF loans. They can not start the economy, stop corruption at the customs, in the tax area, and gas production. The only thing they can do is pull money out of people with a vacuum cleaner. Everything they do next is their political responsibility.”
Who is more guilty is still discussed: the president or the prime minister? They say, the president appointed the head of government as the lightning rod, and it takes all the negative stuff, as he will not run for the position of the head of state. At the same time, to place the blame with the head of the Cabinet is unfair, because the issue is complex and has a long history.
“Groysman is practically fulfilling the commitments on behalf of Ukraine, signed in March 2015 memorandum”, said Oleh Ustenko, the executive head of the Bleyzer foundation. “And they were signed by the president Poroshenko, Prime Minister Yatsenyuk, Minister of Finance Yaresko and Gontareva, the head of the NBU. Initially, they signed that gas tariffs would not be increased, but would correspond to import parity, that is, an international price. I admit, that the Prime Minister Yatsenyuk did not think that the price on the world markets would go up.”
A few days after the government’s decree, Minister of Social Policy Andriy Reva acknowledged, that the re-calculation of utility payments for heat and hot water will be made. According to him, from December 1, they can grow by 16%. Is this really the case, or the minister may not risk announcing the bigger numbers?
Oleksandr Kharchenko, director general of the Energy Research Center, called Opinion similar calculations: “The people who live in multi-apartment buildings will be affected by a single factor – the price of heat. And it, firstly, will change somewhere in two months, because the national regulator has a certain procedure for changing tariffs in accordance with gas tariffs. Secondly, the price of gas in the price of heat is not one hundred per cent – about 65-70%. And if the price for gas has increased by 23.5%, then the heat will rise by about 15-18%. People, who receive subsidies will not even know about it, so they do not have to worry about anything at all”.
The only escape from high tariffs will be subsidies. No other compensation is foreseen by the authorities. Therefore, those who are not lucky with state support will have to pay the full amount. According to Oleksandr Serhienko, the head of the Analytical and Research Center “Institute of City”, we will pay more, than Minister Reva assures.
“In the bills for heat, 85% of the tariff is exactly the price of gas, and with the rise in price, I think, this share will increase to 90%”, said Mr Serhienko. “This means, that with a rise in gas prices by 23.5%, it will turn out not less than 20% increase in tariffs for heating and hot water. If you add growth in other services where gas is “present”, that is, electricity, then the tariff for cold water, sewage, etc. will increase. Consequently, the increase in the total payment for housing and communal public services – will be at least 25% “.
Since there are no compensators available, counters in multi-apartment buildings could save up. The decision on the mandatory installation of such accounting devices has already been taken. But it failed to gain traction, and, moreover, the implementation of the program will take a long time.
Will subsidies be enough?
A few weeks ago, Opinion explained the status of housing grants. Despite the substantial increase in gas prices, the State Budget project for the next year allocated only 55.5 billion UAH to subsidies, much less than this year – 71 billion UAH. And state aid to all who need it is unlikely to be enough. The promises of the prime minister will probably not be realized, especially as potential new subsidies will be subject to new restrictions and strengthened requirements.
“I am overwhelmed by appeals from people who get divorced in order to receive subsidies, litigate with the state because they are not being given help – they demand another “paper”, and then do not pay extra subsidies”, said Oleksii Riabchyn. “What is happening now is chaos. For four years, it was possible to make a normal verification procedure so that subsidies are received by those, who really deserve it. But when 70% of the population claims to be granted subsidies, it’s easier to identify those who do not have to receive them”.
The issue of subsidies is acute not only because of the catastrophic lack of funds, but also because often those who do not have a right to receive state aid receive it.
“When I see the adds like “three-room apartment on Khreshchatyk for rent, with the subsidies”, then I understand that these people are deceiving the state”, Oleksandr Kharchenko assured. “They have such an earning from this apartment, that they should not receive any subsidy and can safely pay any price. But they are trying to cheat the taxpayers and those who honestly pay for the service. I am opposed to having someone, at my own expense, dealing with their own problems. I am one hundred per cent for the position of the prime minister and the Finance Ministry that the people, who really need it should receive the subsidies”.
When is the next increase?
Volodymyr Groysman promised, that the price of gas in the current heating season will not increase. This is comforting, but in less than six months the season will come to an end.
“This was an initial increase – by 23.5%, because, according to the documents signed in March 2015, the exit to the import parity means complete alignment with the international price”, Oleh Ustenko explained. “This means, that Groysman will have to fulfil the obligations assumed by the state of Ukraine and continue to increase the gas price. Tariffs should increase by 1.6 times. That is, it was one of the increases, and then there will be more”.
Oleksandr Kharchenko noted, that the government made a commitment not to raise the price for gas, but to change to a market one by 2020. And since it’s just about the market, the expert does not exclude that over time the price will have to be lowered.
“The process is gradual: now is the first step, the second – in 2019, the third – in early 2020”, Kharchenko said. “It is possible, that the price will have to be lowered. If for example, today, the gas price on the world market was the same as in the summer of 2016 (and it grew essentially), then no rise in prices would occur at all. But the market is a market – prices are growing, and then falling”.
If the next gas price increase is scheduled for 2019, how should it be linked with the elections? After all, presidential and parliamentary races will take place in the spring and autumn, respectively, and the authorities, as we know, avoid unpopular decisions during election campaigns.
“After the presidential elections and the end of the heating season, which almost coincide in time,” Oleksandr Serhienko predicted. “Or they may raise tariffs at the end of April, and then people will not feel it very much. They (the authorities) need money. There is nowhere to go, a hole in the budget is almost 100 billion, and borrowing is needed”.
What’s hidden in government halls?
And while analysts predicted the price for gas in the next year or two, the Cabinet showed the plans, but immediately hid it. On October 25, a draft regulation on conditions and the price for gas for population and enterprises of the district heating company from November 1, 2018 to May 1, 2020 appeared on the government website. The document was only available for a few minutes and then was deleted. However, “Ukrainian News” saved a copy of the regulation, approved at a special meeting of the government on October 19.
So, according to the decision, the gas price from November 1, 2018 at the level of 8,550 UAH for 1 thousand cubes, was announced. And from May 1, 2019, it should grow to 10,000 UAH, From January 1, 2020 – up to 12 000 UAH. People’s deputy Oleksii Riabchyn on his Facebook page called the suddenly disappeared document a “gift” to people: “This is a mine for the new government, too, which, after failing to ensure decent economic growth, will also require cooperation with creditors”.
By the way, what will Ukraine’s relations with the IMF be in the coming years?
“According to the new standby (SBA) program, the issue has not yet been resolved – whether it will be open or not”, Oleh Ustenko says. “This will happen not only after the growth of gas tariffs but also after the adoption of the new State Budget. Moreover, it must be signed by the head of state. Why? Because over the years of cooperation we have often deceived the IMF and they do not want to be deceived again. This is a new program for a short period (14 months, $ 3.9 billion), which can help Ukraine survive a difficult period”.
Is a moratorium potential?
The rising gas prices for the population hit the ratings of pro-government candidates, but in the hands of their political opponents and opposition politicians. The barrage of criticism does not calm down that day. In addition to dissatisfaction, some high officials promised to change the situation in the event of their election to the highest public office.
Yes, the All-Ukrainian Union “Batkivshchyna” leader Yulia Tymoshenko is convinced, that VR should set a moratorium on increasing gas prices for the population. And the cost of domestic blue fuel, taking into account the cost of extraction, rent, transportation costs, taxes, should be at most $ 80-90 per 1 thousand cubic meters. That is, about three times less than it is now.
“The only way to reduce the cost of gas is to raise the cost of domestic gas”, said Oleksandr Serhienko. “Then it is possible to equalize prices for industry and population, and this was, in fact, the main requirement of the IMF. I think, under such a condition, the IMF would agree with a reduction in the tariff, but this requires Ukrainian gas. It is not currently produced, and when it will be, it’s hard to say. Therefore, all the talks about reduction in the cost of gas is populism”.
Text by Viktor Tsvilikhovskyi