Ukraine Hopes Russian Gas Price Won't Change – Report [View all]

[FarCenter]

MOSCOW, February 24 (RIA Novosti) – Ukraine hopes that the price it pays for Russian natural gas will remain unchanged despite the ouster of pro-Russia President Viktor Yanukovych, Ukraine’s acting energy minister told Reuters on Monday.

Russia’s state gas giant Gazprom agreed with Ukraine’s Naftogaz in December to slash the price that Ukraine had paid since 2009 by about a third, from about $400 per 1,000 cubic meters to $268.50.

“We hope the price will be stable,” the news agency quoted acting Energy Minister Eduard Stavytsky as saying.

More than half of the 55 billion cubic meters of natural gas consumed by Ukraine each year comes from Russia, according to Reuters.

More than 27.5 million 1000 cubic meters at $268.5 each is more than $7.38 billion / year to Russia.

Ukraine Gas Pricing Policy: Distributional
Consequences of Tariff Increases

Abstract

Ukraine’s gas pricing policy subsidizes gas and heating for all households. As the cost of
imported gas rises, this policy increasingly weighs on government finances, sustains
energy over-consumption, dampens investment in delivery systems, and undermines
incentives for domestic production. However, gas price hikes have been deferred to the
medium-term as they are politically unpopular. Through estimation of household demand
functions by income quintiles to evaluate the distributional consequences of tarrif reform,
this paper finds that tariff reforms combined with targeted social support can address the
economic inefficiencies of the current pricing policy without large welfare costs to the
lower income segments of the population.

https://www.imf.org/external/pubs/ft/wp/2012/wp12247.pdf

Residential gas is priced at 20% of cost and there is only 40% gas meter coverage. Perhaps the IMF can fix this.