Ukraine Says Open To Raising Gas Prices

BRUSSELS, Belgium -- Ukraine's government is open to raising gas prices for some consumers, the country's foreign minister said Wednesday, in comments signaling that one of the major stumbling blocks to a new International Monetary Fund loan deal could be removed.

In an interview with Dow Jones Newswires and The Wall Street Journal, Leonid Kozhara also said Ukraine wouldn't pay a $7 billion gas bill that Russian energy giant OAO Gazprom OGZPY sent its state-run energy company this week.

He warned Russia that if it maintained the prices it charges Ukraine for gas, it will eventually lose a key export market.

Mr. Kozhara's two-day visit to Brussels comes the day after an IMF mission arrived in Ukraine to prepare loan talks.

Ukraine's economy minister Wednesday played down the chances of an imminent deal on what Kiev hopes will be a $15.4 billion loan program, saying the IMF mission would first "study the situation in Ukraine," Interfax news agency reported. 

But Mr. Kozhara's comments are the clearest indication yet that the government may give ground on gas price rises, which it previously ruled out.

"The Ukrainian government is ready to negotiate everything, including gas prices on the consumer market," he said.

Asked if the government was prepared to take steps on domestic gas prices, Mr. Kozhara said "absolutely."

The issue has haunted Ukraine-IMF ties and led to the suspension of the previous loan agreement in 2011.

Ukraine spends billions of dollars each year reselling Russian gas to consumers at cut prices.

The IMF has argued that cutting those subsidies would relieve pressure on the budget and promote more efficient energy use.

The IMF could still press other difficult demands on Ukraine, including further budget tightening and greater exchange-rate flexibility.

The government faces $9 billion in foreign debt repayments this year, half of it to the IMF.

Potentially complicating the IMF deal is this week's demand by Gazprom that NAK Naftogaz pay $7 billion for failing to buy an agreed minimum of Russian gas imports last year.

Analysts say the bill could be an attempt by the Kremlin to raise pressure on Ukraine, which for months has pushed for a discount on gas prices.

Russia has demanded closer economic and political ties in return.

The Gazprom bill came days after Ukraine signed a $10 billion gas deal with Royal Dutch Shell RDSB.LN PLC to help develop the country's shale gas—the latest step by the government to diversify energy supplies away from Russian dependence.

The energy issue is a crucial one as Kiev faces difficult choices about whether to try to deepen ties with the West that have been harmed by the trial and imprisonment of former Prime Minister Yulia Tymoshenko or whether to shift closer to Russia.

Kiev so far has resisted Russia's push for it to join the Moscow-dominated Eurasian customs union, saying that would prevent the completion of a trade and political deal with the European Union that was put on hold in 2011.

The EU and Ukraine, whose presidents will meet at a Brussels summit next month, hope to complete the trade deal in November.

Mr. Kozhara insisted Ukraine's ties with Russia remained "strong."

He said the government hoped to negotiate a solution to the gas imports issue with Moscow behind closed doors.

But he said Ukraine wouldn't pay the bill.

"We haven't acknowledged the bill as such," he said, adding that "we are not going to pay."

The foreign minister said frequent disagreements over gas imports stood in the way of closer ties with Russia.

"This government has proved that we can resist any kind of pressure," he said.

And he warned Russia that if it doesn't show flexibility on the gas price issue, not only would Kiev consider taking the issue to international arbitration, but Moscow could gradually lose one of its biggest gas export markets.

"We have today many more [energy] sources, and speaking frankly…Russian gas won't be needed any more in a few years. If Russia wants this, Russia will get this," he said.

"It's simple. Ukraine cannot afford gas for $500 per 1,000 cubic meters. We want at least the price Russia sells the gas at in Germany."

Source: The Wall Street Journal