Ukraine to hike gas rates by up to 50% to meet IMF loan demand

KIEV(AFP) - Ukraine agreed on Wednesday to drastically hike domestic gas prices by up to 50 per cent in order to meet a key loan condition from the International Monetary Fund for the crisis-hit ex-Soviet state.

The new Western-backed government in Kiev that came to power in the wake of last month's fall of a pro-Kremlin regime is seeking US$15-20 billion (S$19-25 billion) in IMF assistance in order to balance its books and make maturing foreign loan payments.

An IMF team was meeting with Prime Minister Arseniy Yatsenyuk in Kiev on Wednesday for what Ukrainian officials hope will be a final round of talks before the package is approved in Washington next month.

The Fund has made an immediate end to Ukraine's costly gas subsidies one of its prime conditions for the programme's approval.

It also wants the central bank to stop propping up the Ukrainian currency and for the government to cut down on corruption and red tape.

A top official at Ukraine's Naftogaz state energy company said Kiev was willing to raise the price households pay for natural gas by 50 per cent as of May 1.

Naftogaz budget and planning director Yury Kolbushkin added that rates for district heating companies would go up by 40 per cent on July 1.

Kolbushkin said these prices would likely increase further in the coming years.

"We will publish a document that sets a schedule for rate increases through 2018," Ukrainian media quoted Kolbushkin as saying.

"There may be final adjustments and certain things may change." Ukraine's central bank has already limited its currency interventions - a decision that has seen the hryvnia lose 26.4 per cent of its value against the dollar since the start of the year.

The IMF programme's approval would set in motion the release of further assistance from both Washington and the European Union.

Yatsenyuk said he expected EU officials to send 1.6 billion euros to Kiev within two months of the IMF programme's approval.

The United States has also pledged US$1 billion in loan guarantees while Japan has promised up to US$1.5 billion.

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