Ukraine Rejects IMF 50% Gas Hike Demand

KIEV, Ukraine -- Ukraine will not meet demands from the International Monetary Fund to hike natural gas prices for households by 50% in exchange for resuming its $15.5 billion Standby loan, President Viktor Yanukovych said Tuesday.

“The demand to hike by 50% prices of gas for households is unacceptable,” Yanukovych said at a meeting with prominent Ukrainian women. “We have not agreed and will never agree to this.”

The comments leave Ukraine no other option but to seek lower prices for Russian natural gas, something that Moscow has been refusing to agree to over the past two years of talks.

Without either resuming borrowing from the IMF or winning lower natural gas prices from Russia, the Ukrainian government is under serious pressure to meet its budget obligations.

Ukraine is to pay out 70-75 billion hryvnias ($8.6-$9.2 billion) in foreign debts in 2012, on par with debt payments in 2011, according to Yanukovych.

Yanukovych’s comment suggests that talks between Ukraine and the IMF will probably remain deadlocked during the next several months.

Ukraine has been desperately trying to win resumption of the loan from the IMF earlier this year, but all attempts had ended in fiasco since the government had refused to hike gas prices.

Yanukovych has been refusing to hike the gas prices because the measure may deal a serious blow to his Regions Party at upcoming parliamentary elections in October, analysts said.

The Regions Party has been losing public support over the past 12 months with the opposition Batkivshchyna party following close behind, according to the latest poll by the Kiev International Institute for Sociology.

The Regions Party’s support was reported at 26.3% in February, down from 31.9% in February 2011, while Batkivcshchyna’s rating increased to 22.3% from 19.7%, KIIS reported.

Prime Minister Mykola Azarov, seeking to win resumption of lending, traveled to Zurich in January for a brief meeting with IMF Managing Director Christine Lagarde, but the talks had failed.

Days earlier a senior government team, led by then First Deputy Prime Minister Andriy Kliuyev, traveled to Washington, but had also failed to make progress in the talks.

Serhiy Tyhypko, deputy prime minister and a member of the team for the talks in Washington, said the gas price is the only problematic issue in relations with the IMF.

But he also said that Ukraine “won’t make the price hike this year until after the elections.”

Source: Ukrainian Journal